Chapter 7- Financing and Accounting

Besides banks, finances companies, and the founders, another source of nonequity loans comes from _________

friends and family

Grants funding typically comes from:

government or a nonprofit agency

In context of inventory accounts, the difference between what is sold by a business and what was brought into it is known as ________.

shrinkage

Accepting _______ ______ can limit a firm's ability to shop around for a cheaper source.

supplier credit

Which of the following activities is directly related to the establishment of the financial structure and record keeping of a new company?

(All of these) -management of the paper/data flow of the new company -the funds and the level of the funding requried for the new business. -Maintenance of accounting records

Identify the issues a new business uses to determine the quality of accounts receivable

1) who owes the new business money 2) the debt age 3) the size of the transaction 4) the debtor's credit rating

New businesses need to be aware of what issue(s) related to start-up?

Accounting systems Flow of information Funding (All of these)

Which form of funding is used by a business to conserve cash and maintain the latest version of whatever equipment is available?

Asset lease

What report creates a listing of all checks that have been written and all that have cleared through the bank?

Check register

Which of the following large firms have been a leading source of venture capital in the United States (US)?

Cisco Microsoft Intel

True or false: To calculate the maximum amount to obtain in outside financing, it is advisable for an entrepreneur to calculate the entire cash flow projection by adding in all equity investments.

False

Which of the following typically issue grants?

Governments Private foundations

Which of the following are the benefits of factoring for a new business?

The business does not have to spend time and effort trying to college the accounts receivables. The business gets the money from the accounts receivable immediately.

Which of the following is a disadvantage of factoring a new business?

The business will not receive the full amount of the debt that is due to it.

Why are banks often quite restrictive in their ledning to start-up firms?

The risk is perceived to be too high.

Any form of capital infusion that must be paid back with interest is called _______

debt

Banks will lend money for the establishment and maintenance of inventory by arranging a(n)

revolving line of credit

Which of the following is NOT a common form of debt for a new business?

venture capital

What method of inventory control seeks to minimize excess investment in inventory by having it present only shortly before it is used?

Just-in-time inventory (JIT)

Identify the characteristics of loans as a source of funding for new businesses.

They are often repaid monthly from cash flow They are secured by assets or a personal guarantee.

Debt is a generic term that describes any type of non-equity funding tied to a business.

True

Which of the following are key reports a business should generate?

1) chart of accounts 2) petty cash 3) check register 4) expense accounts 5) inventory accounts 6) accounts payable 7) payroll

________ credit is a form of nonequity funding for physical assets as well as the actual supplies purchased.

Supplier

Which funding option traditionally involves selling a percentage of the business to an outside party?

equity investment

Which form of debt is almost always tied personally to the founders, thus exposing them to personal bankruptcy?

Credit cards

A company seeks to have inventory present only shortly before it is used. This method of inventory control is called

Just-in-time inventory

Banks will lend money for the establishment and maintenance of inventory by arranging a revolving line of ______

credit

A chart of accounts is simply a listing of each type of activity and each type of asset within the company. Rank the categories of accounts from first to last associated with a chart of accounts.

1) income 2) expense 3) assets

Why do companies invest in a new venture with the idea of ultimately purchasing the venture?

It helps the companies maintain access to the latest thinking in the field. It is one of the least expensive means for the companies to try out new ideas.

A cash based accounting system An accrual-based accounting system

Only the smallest businesses use this system. Subchapter C corporations, partnerships, or trusts use this system.

Which of the following are potential business agents?

Professionals such as doctors or lawyers high-income executives of large companies entrepreneurs who have cashed out individuals with significant inheritances

The _______ system of a firm is a powerful asset that should be used as a fine-grained tool to provide data about when and how inventory is needed.

accounting

The new business should employ all ______ funding mechanisms available before seeking ______ funding.

nonequity; equity

A separate accounts ______ record should be maintained for each creditor.

payable

In an event of a business failure, which of the following sources of funding must be paid back first?

Debt

Both a check register and a petty cash register are required by an entrepreneur to form an annual record of all expenses.

True

A(n) _______ _______ fund is a fund that is usually organized as a limited partnership and is organized to make significant equity investments in high-growth new ventures.

venture capital

True or false: Credit cards are a form of equity investment.

False

Which of the following are typically the targets of grants?

Particular industries Economic areas Disadvantage groups

Identify a disadvantage of asset leasing for a new busienss

The new business may spend more money for the equipment over time than if it had bought the unit outright.

A(n) _______ investment is funds received by a business in exchange for a percentage ownership of the business.

equity

A(n) ________ involves a contractual agreement whereby the business receives some amount of money that must be repaid over a specific period of time at a specific interest rate.

loan

Which account should be used when there is an expense too small to write a check for or when a check is simply inappropriate?

petty cash register

Besides banks, finance companies, and friends and family, another source of nonequity loans comes from:

the founders

A loan provided for the purchase of a necessary asset for the business is called _______ lending.

asset-based

Which of the following are the benefits of factoring a for a new business?

The business gets the money from the accounts receivables immediately. The business does not have to spend time and effort trying to collect the accounts receivables.

Which of the following are considered sources of debt for starting a new business?

banks, credit cards, asset leasing, companies, individuals, and/or suppliers

Which of the following items should be included on the payroll record?

Base pay and overtime pay rate Taxes Benefit deductions Number of hours worked

Which of the following are potential outcomes of a poorly managed credit card?

An increase in the interest rate Possible bankruptcy of a firm

Which of the following statements are true about a venture capital fund?

It includes limited partners seeking high returns. It has a general partner who investigates and invests in each new business.

Which of the following are characteristics of credit cards as a form of nonequity investment?

They typically have a set upper limit. They are generally tied to a much higher interest rate than that of a bank loan.

When are credit cards a good method of managing cash flow?

When used as a tracking system for individual expenses within the company When used on a short-term basis When paid off each month

When accounts receivables are sold at a discount to another company to receive immediate cash, it is referred to as _______.

factoring

What are three common forms of debt for a small business?

1) Loans a) banks or financial companies b)individuals c) founders 2) Credit cards 3) Supplier credit

Which form of equity investors refers to high-net worth individuals that invest widely in businesses?

Business angels

Which of the following are true with regard to managing the flow of data?

Data are obtained in a timely manner. Data are tied to the strategic needs of the business.

Which of the following is NOT true with regard to managing the flow of data?

Data measurements methods must be complex.

What are special funds that are neither equity or debt funds that are designed to aid businesses in specific areas?

Grants

Which of the following statements are true regarding supplier credit?

It limits the firm's ability to shop around The rates are more competitive than bank sources The terms can be quite generous It ties firms to a specific supplier.

Inventory should be taken at scheduled times during the year and an exact match should be completed between:

Starting inventory Ending inventory Units sold

Identify the typical advantage of having suppliers invest in a new business.

Suppliers do not aim to take the business over if it does particularly well. Suppliers refrain from trying to run the business.

A credit card has a set repayment schedule.

True

Accepting the equity stake from an investor makes the owner accountable to that investor when founding and managing a business.

True

Funding for a small business starts with the founders and their personal resources.

True

True or false: In the case of business failures, debt must be paid back prior to any equity investors receiving a distribution.

True

True or false: Prior to allowing any nonfounder to invest in a new business, the entrepreneur should have a fair and valid estimation of the value of his or her company

True

What is the difference between venture capital funds and business angels?

Venture capital companies usually invest in large businesses, whereas business angels usually invest in small businesses.

Which form of debt financing allows for a unique positive cash flow situation by allowing up to a 25-day delay in payment?

credit cards

_______ involves entrepreneurs making a pitch on an Internet site and letting potential investors know what they will receive for their funding, which might be equity but is more often a product service or gift.

crowdfunding

Important to record and balance the company account on at least a ______ basis.

monthly

The three key issues involved with starting a business include the funding of the firm, the creation of an accounting system, and __________.

the flow of information in the new business