AAPC-CPPM Certified Physician Practice Manager - Set 2 - Part 2

Correct Answer: Petty cash slip

A petty cash fund allows small payments without checks. Each time a payment is made, a petty cash slip is made out and attached to the receipt as proof of payment. Option a is incorrect because a sales slip documents a sale made in the business, so it supports income entries rather than small payments made out of a cash fund. Option b is incorrect because a journal is a book in which each transaction is recorded from supporting documents; it is not the slip attached to a receipt. Option c is incorrect because a deposit slip records money placed into a bank account and is listed as a supporting document for deposits, not for payments from a fund.

Correct Answer: Invoices and credit card sales slips

Proof of payment by itself does not establish entitlement to a tax deduction. IRS guidance says other documents, such as credit card sales slips and invoices, should also be kept to show the cost was incurred. Option a is incorrect because these are books that summarize business transactions from supporting documents; they are not themselves the documents that show the cost was incurred. Option b is incorrect because these document the purchase or sale of real property, so they do not serve as the supporting documents for an equipment supplier's charge. Option d is incorrect because a slip belongs to the petty cash fund, which covers small payments made without checks, not a payment charged to a credit card.

Correct Answer: They face the same requirements as hard copy records

All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records, including the same controls and retention guidelines as the original hard copy records. Option b is incorrect because the system must provide a complete and accurate record of data that is accessible to the IRS, not just to the business. Option c is incorrect because electronic storage systems are subject to the same controls and retention guidelines as the original hard copy books and records, so no exemption exists. Option d is incorrect because an IRS test of the storage system, including equipment, indexing, software and retrieval, is not considered an examination, and results are shared with the business.

Correct Answer: Reconciling the checking account

Reconciling the checking account means making sure the bank statement, the checkbook and the books agree. It verifies how much money is in the account and corrects errors in all three records, ideally each month. Option a is incorrect because the guidance tells the business to avoid this practice, and it would not check any balance or find errors. Option c is incorrect because this separates business funds from personal funds when the account is opened, but it does not bring the statement, checkbook and books into agreement. Option d is incorrect because this is a routine of placing each day's receipts in the business account, and it does not compare the statement, checkbook and books.

Correct Answer: Clearly reflects income and is used consistently

The hybrid method allows any combination of cash, accrual, and special methods if the combination clearly reflects income and is used consistently. If it does not, the IRS refigures income under a method that does. Option b is incorrect because the guidance sets no approval step from a payer or auditor; the combination is judged by whether it reflects income clearly and is applied consistently. Option c is incorrect because this pairing is actually restricted: a practice that reports income on the cash method must also report expenses on the cash method. Option d is incorrect because complete separate books are required when two or more distinct businesses each use a different method, not for a combination within one business.

Correct Answer: period of limitations

Records must be kept as long as they may be needed for administering the Internal Revenue Code. Generally, that means until the period of limitations for the return runs out, when amendment or additional assessment is no longer possible. Option a is incorrect because the due date only serves as the treated filing date for returns filed early; it marks a starting point for counting years, not the end of retention. Option b is incorrect because insurers or creditors may require records to be kept longer, but that is a nontax purpose and does not set the tax retention period. Option c is incorrect because disposal matters for asset records, which are kept until the period of limitations expires for the year of a taxable disposition, so it is not the general endpoint.

Correct Answer: It is measured from the date the taxpayer first prepares the return

The period of limitations is counted in years after the return was filed, with early returns treated as filed on the due date. It does not run from the date the return was prepared. Option a is incorrect because IRS guidance defines the period of limitations in exactly these terms, so this statement is accurate and cannot be the exception the question asks for. Option b is incorrect because this is a stated rule for counting the period, since early filing does not start the clock sooner, so it is a true statement. Option d is incorrect because the same definition gives the IRS this window for assessment, which makes the statement true and therefore not the odd one out.

Correct Answer: Balance sheet, income statement, statement of cash flows

The annual report's chief element is its financial statements, and three primary ones appear in it: the balance sheet, the income statement and the statement of cash flows. Option a is incorrect because GAAP is a set of accounting rules the statements follow, so a summary of it cannot stand in for the income statement. Option c is incorrect because a memorandum of understanding was a joint FASB and IASB document on global standards, not a financial statement in the annual report. Option d is incorrect because prospects for the future are discussed in the narrative portion of the annual report; no primary financial statement carries that title.

Correct Answer: Net increase or decrease in cash

The statement of cash flows shows changes over time and reorders balance sheet and income statement information. Its bottom line is the net increase or decrease in cash for the period. Option a is incorrect because it is the bottom line of the income statement, which shows what the company earned or lost during the accounting period. Option b is incorrect because it is an element of the accounting equation, measured as investment minus liabilities, and it is reported on the balance sheet rather than as this statement's bottom line. Option d is incorrect because liabilities are debts a firm owes, reported as a balance sheet element, and a statement of changes in cash does not end with them.

Correct Answer: Liquidity ratios

Liquidity ratios measure the firm's ability to pay its short-term debts as they come due and are of special interest to creditors. The current ratio, acid-test ratio, and net working capital are the main measures. Option a is incorrect because profitability is a separate group in the four-way classification, and the guidance assigns the short-term debt-paying question to liquidity ratios instead. Option b is incorrect because these measure how well a firm uses its assets, which is an efficiency question rather than the ability to meet short-term obligations. Option c is incorrect because these show the degree and effect of borrowed funds used to finance operations, not whether near-term obligations can be paid when due.

Correct Answer: Ratio analysis

Ratio analysis involves calculating and interpreting financial ratios using data from the firm's financial statements to assess its condition and performance. A financial ratio states the relationship between financial data on a percentage basis. Option a is incorrect because this is one of the financial statements supplying the raw data, not the method of comparing figures across statements. Option b is incorrect because reconciliation adjusts net income for non-cash items to arrive at operating cash flow, which is only one section of a single statement. Option d is incorrect because a snapshot describes what statements show at a given time; it names a picture of health, not the calculation of relationships between data.

Correct Answer: Accounts payable

Accounts payable is a current liability showing amounts the firm owes for credit purchases due within a year. It is the liability counterpart of accounts receivable, and the buyer enters trade credit on its books this way. Option a is incorrect because it holds expenses such as wages and taxes that have accumulated for a future payment date although the firm has received no bill. Option c is incorrect because it covers short-term loans from banks, suppliers, or others that must be repaid within a year, not amounts owed for credit purchases. Option d is incorrect because it records taxes owed for the current operating period but not yet paid, which is a different obligation from purchases made on credit.

Correct Answer: Tracking cash flows

Financial managers focus on cash flows, the inflows and outflows of cash. They track day-to-day data such as cash collections and disbursements to make sure cash is available to meet obligations when needed. Option a is incorrect because this is described as the accountant's main function, whereas financial managers use the resulting statements to make financial decisions rather than prepare them. Option b is incorrect because that is a longer-term activity, such as studying whether to build a new facility, not the day-to-day monitoring of collections and disbursements described. Option c is incorrect because issuing equity is a way of raising long-term funds from owners, and it does nothing to monitor daily inflows and outflows of cash.

Correct Answer: Choice of a form of business organization

The key features are the company description, owner qualifications, products or services, market analysis, sales and distribution channels, and a financial plan. Choosing a form of business organization is a separate decision made when starting a business, not a listed feature. Option b is incorrect because the key features include a market analysis covering demand, customers, and competition, so it belongs in the plan. Option c is incorrect because it is named among the key features of a business plan, which cover the owner's background alongside the company and its offerings. Option d is incorrect because the list of key features names sales and distribution channels as a section that shows how the business will reach customers.

Correct Answer: Holding large idle balances in checking accounts

The financial manager tries to keep cash balances low because checking accounts earn little, if any, interest, and invests surplus cash. Holding large idle balances therefore contradicts cash management as described. Option a is incorrect because the guidance lists this as a core step, since businesses estimate their cash requirements for a specific period to meet bills and expenses. Option b is incorrect because surplus cash is placed temporarily in short-term investments easily converted into cash, because checking accounts earn little interest, which is part of the duty. Option d is incorrect because many companies hold a minimum balance as a buffer against unexpected expenses or changes in projected cash flows, so it belongs to cash management.

Correct Answer: Financial risk from scheduled payments

The major drawback of debt financing is financial risk, the chance that the borrower cannot make scheduled interest and principal payments. A lender can force a borrower that defaults on payments into bankruptcy. Option b is incorrect because interest on debt is a tax-deductible expense, which lowers its cost. Nondeductible payments describe dividends paid to equity owners, not borrowing. Option c is incorrect because debt financing involves no loss of ownership; giving up ownership and a voice in management is associated with equity financing. Option d is incorrect because creditors typically have no say in management unless the borrower defaults. Voting rights belong to common stockholders, so they are not a debt drawback.

Correct Answer: It is normally quite liquid

Accounts receivable are normally quite liquid, meaning they are easily converted to cash, so they make an attractive form of collateral. The secured lender can legally take the pledged collateral if the borrower does not repay. Option a is incorrect because that test is applied to inventory, whose appeal as collateral rests on how easily it can be sold at a fair price. Option b is incorrect because selling receivables outright to a financial institution describes factoring, a separate form of financing, whereas collateral is pledged and remains the borrower's asset. Option c is incorrect because interest rate is not what makes receivables attractive as collateral; the guidance ties their appeal to how easily they convert to cash.

Correct Answer: Operating plan

The operating plan explains the operating system and should describe operating methods, facilities, quality-control methods, procedures to control inventory and operations, sources of supply, and purchasing procedures. Option a is incorrect because it identifies key players such as investors, the management team, board members and advisors, along with their qualifications, rather than supply or purchasing details. Option c is incorrect because it specifies financial needs, sources of financing and projections of revenues, costs and profits, so supplier and purchasing procedures belong elsewhere. Option d is incorrect because it covers customer targeting, value proposition, pricing strategy, promotions and sales channels, which concern selling to customers instead of buying inputs.

Correct Answer: Purchasing

Purchasing, also called procurement, is the process of buying production inputs from various sources. It follows resource planning, which specifies the needed items and timing, and the forecast of finished goods. Option b is incorrect because this is the choice between producing materials internally or acquiring them externally, which comes before the act of buying itself. Option c is incorrect because the forecast of expected finished goods is a step used to determine item quantities; it estimates demand and does not buy anything. Option d is incorrect because this is a document listing the items and the number of each required to make a product, not the buying process.

Correct Answer: Data analytics

Data analytics is defined as the process of examining numerous data sets, sometimes called big data, to draw conclusions about their contents with the help of specialized systems and software. Accountants use it for forecasts and fuller reporting. Option a is incorrect because it names a technology trend in which data is entered, accessed and discussed quickly, not the examination of large data sets. Option b is incorrect because it is the kind of program suited to small businesses, so it describes a product category and not an analytical process. Option c is incorrect because it is described as a full-scale customized accounting software system for major corporations, a tool rather than the process of examining data sets for conclusions.