Business finance chapter 3

Creditors

A ___________ is an individual or an organization that provides funds to a business with a repayment of the funds and agreed- upon interest due at a future date

Operating

A ____________ budget projects all income and expenses for the operations of a business for a specific future time period

Specific

A ____________ financial goal is directed at a particular business action.

True

A budget discrepancy is the difference between a budgeted amount and actual financial performance

True

A business that wants to finance growth needs to be financially healthy

True

A company should address all three main financial goals at the same time rather than selecting one as a priority

Profit or loss

After all expenses and taxes are subtracted from a company's gross profit,the result is the company's

Assets

All of the things a business owns and uses as a part of a business operations

Principal

Amount of money borrowed

Interest

Amount paid for the privilege of borrowing money

True

An investment grows faster with compound interest that simple interest at the same interest rate.

Collateral

Assets promised by a business to a creditors if repayment of a loan isn't completed

Depreciation

Decline in the value of an asset as it ages

Budget discrepancies

Differences between budgeted amounts and actual financial performance

They must be open-ended

Effective business financial goals must have each of the following elements except

Business financial goals

Establish directions for the financial plans of a business

Trend analysis

Examines financial performance over several periods of time to determine patterns

Income statement taxes is calculated by subtracting the amount of taxes paid

How is profit or loss calculated on an income statement?

Balance sheet

Identifies the assets,liabilities,and equity of a business as of a specific date

Specific Realistic Measurable Established for an identified period of time

Identify the four characteristics of effective business financial goals

Capital budget

Plan to acquire and finance long-term assets of a business

Financial budget

Projected financial statement for a future time period

flow statement

Specific types of revenues such as cash sales,payments received from customers, interest received, and owner's investment are all cash_____ _________

Future value

The amount of money will grow in a defined period of time at a specified investment rate is the

False

The balance sheet reflects the original value of an asset but not its depreciated value.

Is projected

The difference between a financial budget and a financial statement is that the budget

Time value of money

The difference in purchasing power of an amount at a future date

True

The income statement presents a company's financial position on a specific date

False

The most accurate method to calculate the amounts in a budget is to apply a specific percentage of increase and decrease.

False

The time value of money can be computed using a specialized handheld financial calculator

Owner's equity

Total value that all owners and investors have in the firm

- A business must meet its financial obligations and pay its debts - A business must provide a competitive rate of return for its investors - A business must finance future growth and improvement to remain competitive

What are the three main financial needs of a business?

Operating budget, cash budget,and capital budget

What are the three main types of financial budgets?

Cash flow

What important financial information is not reflected in either the balance sheet or the income statement?

Assets= liabilities + owners equity

What is the basic accounting equation around which a balance sheet is organized?

Simple interest- the amount of interest is calculated at the end of each year Compound interest- pays interest not only the total amount borrowed but also on the interest that has been earned

What is the difference between simple interest and compound interest?

Inflations Interest rate

What two factors affect the time value of money?

Cash

Which financial budget is typically prepared for the shortest period of time?

Value

Which of the following is NOT one of the factors used to calculate interest?

A business must make a profit on all of its activities

Which of the following is NOT one of the main financial needs of a business?

A business must meet its financial obligations and pay its debts

Which of the following is one of the main financial needs of a business?

Income

Which of these terms is NOT a part of the basic accounting equation?

To see if their are any major changes in the business

Why is analysis of internal and external info important part of budget development?