ENT - CH. 7 Financing and Accounting

True

(T/F) Both a check register and a petty cash register are required by an entrepreneur to form an annual record of all expenses

False

(T/F) Credit cards are a form of equity investment

True

(T/F) In the case of business failure, debt must be paid back prior to any equity investors receiving a distribution

False

(T/F) The founder should avoid personally lending money to the new business because it is an unsecured investment

False

(T/F) There is no need to treat a loan from a family member as a contractual agreement

False

(T/F) To calculate the maximum amount to obtain in outside financing, it is advisable for the entrepreneur to calculate the entire cash-flow projection by adding in equity investments

True

(T/F) When considering funding, a firm needs to evaluate not only the amount provided but also the source of that funding

Data Flow Management Accounting System

A key aspect to how the funding will be used is found in the information provided by the business, and that comes from

Asset-Based

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

Equity

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

Loan

A(n) _______ involves a contractual agreement whereby some business receives some amount of money which is to be repaid over a specified time period at a specific interest rate

Venture Capital

A(n) ________ _________ fund is a fund that is highly organized as a limited partnership and is organized to make significant equity investments in high growth new ventures

Supplier Credit

Accepting _____ _____ can limit a firms ability to shop around for a cheaper source

Item number Quantity Description Unit/Total Cost

An inventory record will include:

Established Firms

Banks have traditionally been a major source of funds for ______

Credit

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

1. Income 2. Expense 3. Asset

Chart of Accounts listing order

Crowdfunding

Funding received by a business by soliciting a large number of very small investors via the internet is _______

Nonprofit agency The government

Grant funding typically comes from:

Most often repaid through monthly cash-flow Secured by assets or a personal guarantee

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

Debtors credit rating Size of transaction

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

Suppliers refrain from trying to run the business Suppliers do not aim to take over the business

Identify the typical advantages of having a supplier invest in a new business

Factoring

If a firm needs to generate cash in the short term, accounts receivable can be sold at a discount via the technique known as _______

Less than

In the long run, the cost for non equity funding is generally ______ that of the equity investment

Subchapter C Corp: Accrual Smallest businesses: Cash Based

Match accounting types used by businesses

Cash-Based: Recognizes expenses as they are paid/revenue when generated Accrual: More typical form, when expenses revenue recorded when they occur

Match types of accounting

Accounting

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

The flow of information into the business

Three key issues involved with starting a new business include the funding of the firm, creation of an accounting system, and _____

Debt

What is the generic term used to describe any type of non equity funding for a business

Just in time inventory

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

Check Register

What report lists all checks that have been written and cleared through the bank?

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 are credit cards a good method of managing cash flow?

The founders personal resources

Where does funding typically start for most new businesses?

Petty cash register

Which account operates much like a banks savings account using a register to track the money

Credit Cards

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

Business Angels

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

Equity Investment

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

Asset Lease

Which funding tool involves the leasing of equipment from manufacturers or third party sellers

Venture Capital

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

Company is not stuck with an aging asset and can trade up Business is able to acquire assets it needs to begin production for minimal cash outlay

Which of the following are advantages of asset-leasing for a new business?

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

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

Banks Suppliers Credit Cards

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

Accounts payable Petty cash Expense account Payroll

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

Possible bankruptcy Increase in interest rate

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

Individuals with significant inheritances Professionals such as doctors and lawyers High-income executives of large organizations Entrepreneurs who have cashed out

Which of the following are potential business angels

Grants Debt

Which of the following are sources of nonequity capital to start a business?

Founder must clearly outline what rights and expectations each investor has as the business grows Equity investment involves selling a percentage of the business to an outside party In case of dissolution, each investor is entitled to the percentage of the break-up value equal to their investment percentage

Which of the following are true regarding equity investments

A record of payment toward each invoice should be included The record should include date paid, amount paid, and check number or tracking number All invoices received should be recorded

Which of the following are true regarding the Accounts Payable?

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

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

Determine percentage of ownership for each founder Determine percentage of ownership reserved for investors Determine fair and valid estimation of value

Which of the following are typically recommended before seeking outside funding?

Women Owned Businesses Veterans

Which of the following examples are typically targets of grants?

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

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

Crowdfunding

Which of the following is a relatively new means of raising capital that may result in either an equity approach or an in-kind exchange for the firm?

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

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

Cisco Intel Microsoft

Which of the following large firms has been a leading source of VC in the US?

Government Private foundations

Which of the following typically issues grants?

The risk is perceived to be too high

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

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

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

Supplier

______ credit is a form of nonequity funding for physical assets as well as actual supplies purchased

Debt

______ is a major source of non equity funding and can come from banks, credit cards, or suppliers