Chapter 9

The term used to refer to money making money and the essence of investment is ______________.

Compound interest

When handling cash inflow and outflow, what part of a company do customers payments affect?

Debt repayment

What country requires cash slow statements ONLY for large companies?

United Kingdom

Suppose your company has a burn rate of $10,000 per month. If you have $20,000 in cash and are making $2,000 per month in sales, how long can your company hold out?

2.2 months

Double taxation is a disadvantage of which type of legal structure?

C corporation

which of the following statements about the income statement is NOT true?

Cash and profit are the same

Which of the following statements about financing accounts receivable is NOT true?

Factoring is a generally recommended strategy for small companies

Which of the following businesses is likely to have sharp variations in the cash flow cycle?

Flower store

__________ refers to the amount an asset will be worth a number of periods from the present.

Future value

Beach Bake, a maker of a new sunscreen, wants to know how long it can hold out before it will run into a negative cash situation. How should the company calculate the number of moths it has left?

It should use the following formula: (Cash available + revenue/negative cash outflow per month = number of months before cash runs out.

Which of the following legal structures separates the owners from personal liability and provides a flexible allocation of profits and losses?

Limited liability company

According to the text, which of the following rules regarding cash flow should companies NOT follow?

Pay bills on time or early whenever possible

The term used to describe the theft of inventory in a business is _________.

Pilferage

What is the first step in forecasting cash flow receipts?

Project cash receipts from all possible sources

Which of the following statements regarding the role of cash in a business is NOT true?

Running out of cash is not a significant problem as long as you can show positive net worth

Which of the following types of legal structures does NOT pay taxes on profits?

S corporation

Bob stated his company, Big Drain Excavations, last year. So far, he is the only employee, but he may need to add another worker next year. Bob is trying to understand his company's tax obligations. In particular, he needs to know when taxes must be paid. What will you tell him?

They must be paid quarterly

_________ refers to what the future amount of an asset or other investment is worth at face value discounted back to the present.

Present value

Which of the following statements is NOT true of cash flow statements?

Small entrepreneurial companies typically use the direct version of the cash flow statement

What is the future value of $1,200 invested at 5 percent a year for 10 years?

$1,956

According to the text, which of the following is NOT a reason it is important for entrepreneurs to keep good records?

Having good records eliminates the need for the IRS to conduct an audit

Which of the following statements regarding inventory is NOT true?

Manual inventory systems are outdated and should be replaced with automated versions.

Taxes are paid as part of the owner's tax obligations in which type of legal structure?

S proprietorship

__________ refers to an assessment levied by governments on purchases and collected by merchants.

Sales Tax

Which of the following statements is NOT correct regarding cash flow and taxes?

Self-employment taxes are paid monthly