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Developing Understanding
Unit 3B focuses on how businesses use accounting and financial management to track performance, fund operations, evaluate profitability, and communicate financial information honestly.
Course Guide Snapshot
Part 2 of Unit 3
Key Concepts to Know
These are the main topics students should be able to explain and apply.
Accounting and Financial Management
Businesses use accounting information to make decisions and communicate performance.
Business Expenses
Businesses classify and manage costs such as fixed, variable, startup, and operating expenses.
Financial Capital
Businesses raise money through debt or equity financing.
Income Statement
Income statements show revenue, expenses, and profit over a period of time.
Balance Sheet and Net Worth
Balance sheets show assets, liabilities, and equity at a point in time.
Cash Flow Statement
Cash flow statements explain where cash came from and how it was used.
Ethics and Financial Reporting
Businesses must communicate financial information accurately and ethically.
Business Case Connections
Use these cases to connect vocabulary and concepts to business scenarios.
DK Coffee Lab, Part 1
Business expenses.
DK Coffee Lab, Part 2
Financial capital.
Hershey
Income statement analysis.
DCH / DK Coffee Lab, Part 3
Balance sheet and net worth.
AANE
Cash flow statement.
Yardley
Ethics and financial reporting.
Project Connections
These project tasks connect the unit to the Business Canvas Project or Financial Advisor Project.
Business Canvas Finance
Estimate startup and operating costs.
Funding Plan
Identify debt and equity financing options.
Financial Statements
Prepare or interpret basic financial statements.
Ethical Reporting
Explain why accurate financial information matters.
Unit 3B Vocabulary
Review all major terms and be ready to apply them in scenarios.
Accounting
The process of recording, summarizing, and communicating financial information.
Financial Management
Planning and controlling how a business uses money.
Revenue
Money earned from selling goods or services.
Expense
A cost incurred to operate a business.
Profit
Revenue minus expenses.
Loss
When expenses exceed revenue.
Fixed Cost
A cost that stays mostly the same regardless of output.
Variable Cost
A cost that changes with production or sales volume.
Startup Cost
An initial cost needed to begin operating a business.
Operating Expense
A regular cost of running a business.
Asset
Something valuable owned or controlled by a business.
Liability
An amount owed by a business.
Equity
Owners’ claim after liabilities are subtracted from assets.
Net Worth
Assets minus liabilities.
Capital
Resources used to start, operate, or grow a business.
Financial Capital
Money used to fund business activities.
Debt Financing
Raising money by borrowing.
Equity Financing
Raising money by selling ownership.
Creditor
A person or institution that lends money.
Investor
A person or institution that provides money in hopes of earning a return.
Income Statement
A financial statement showing revenue, expenses, and profit or loss.
Cost of Goods Sold
The direct cost of products sold.
Gross Profit
Sales revenue minus cost of goods sold.
Net Income
Profit after all expenses are subtracted.
Balance Sheet
A statement showing assets, liabilities, and equity at a point in time.
Cash Flow Statement
A statement showing cash inflows and outflows.
Operating Activities
Cash flows from normal business operations.
Investing Activities
Cash flows related to buying or selling long-term assets.
Financing Activities
Cash flows related to borrowing, repaying debt, or owner investment.
Liquidity
Ability to meet short-term obligations.
Solvency
Ability to meet long-term financial obligations.
Financial Reporting Ethics
Honest and accurate communication of financial information.
Fraud
Intentional deception for financial gain.
Internal Controls
Procedures designed to protect assets and improve accuracy.
AP-Style Practice Questions
Try these multiple-choice questions. Click each answer box to check your work.
Question 1
Which statement shows revenue, expenses, and profit?
- Income statement
- Balance sheet
- Cash flow statement
- Mission statement
Show Answer
Answer: A. The income statement reports revenue, expenses, and profit or loss.
Question 2
Assets minus liabilities equals:
- Revenue
- Equity
- COGS
- Expense
Show Answer
Answer: B. Equity is the owner’s residual claim.
Question 3
Borrowing from a bank is an example of:
- Equity financing
- Debt financing
- Promotion
- Market research
Show Answer
Answer: B. Debt financing raises funds through borrowing.
Question 4
Selling ownership shares is:
- Debt financing
- Equity financing
- Expense management
- Supply chain planning
Show Answer
Answer: B. Equity financing involves selling ownership.
Question 5
Rent that stays the same each month is a:
- Variable cost
- Fixed cost
- Revenue
- Asset
Show Answer
Answer: B. Fixed costs do not change directly with production volume.
Question 6
Which report shows cash inflows and outflows?
- Cash flow statement
- Balance sheet
- Mission statement
- Marketing campaign
Show Answer
Answer: A. The cash flow statement summarizes cash movement.
Question 7
Which is an asset?
- Loan payable
- Cash
- Rent expense
- Sales revenue
Show Answer
Answer: B. Cash is a resource owned by the business.
Question 8
A company intentionally hides expenses from investors. This is a problem with:
- Financial reporting ethics
- Brand identity
- Place strategy
- Customer profile
Show Answer
Answer: A. Honest reporting is an ethical requirement.
Question 9
Cost of goods sold is subtracted from sales to calculate:
- Gross profit
- Total liabilities
- Market share
- APR
Show Answer
Answer: A. Gross profit equals sales minus COGS.
Question 10
A business’s ability to pay short-term bills is called:
- Liquidity
- Differentiation
- Monopoly
- Promotion
Show Answer
Answer: A. Liquidity measures short-term ability to pay obligations.
Study Tips
Focus on applying ideas to business and personal finance scenarios.
Scenario First
Read the situation before looking at the answers. Decide what problem, strategy, or decision is being described.
Know the Vocabulary
Most wrong answers use real business words incorrectly. Be sure you know how each term applies.
Connect to Projects
The Business Canvas and Financial Advisor tasks are good practice for applied AP-style thinking.
Explain Why
For every practice question, explain why the correct answer is right and why the distractors are wrong.