intro exam 2

Define entrepreneurship.

The pursuit of opportunity without regard to resources currently controlled.

Which of the following statements is true of limited liability companies (LLCs)?

There is no separate tax on the earnings of the companies if they choose to be treated as a partnership

In the context of a limited partnership, which of the following statements is true of general partners?

They have the right to participate fully in managing their partnership.

How does a traditional bank make money?

It borrows money from me and you, the depositors, and lends that money out at higher rates to entrepreneurs.

What is the NASDAQ?

National Association of Securities Dealers Automated Questions; the second-largest stock exchange; has evolved into a complete market with formal listing requirements and fees

An individual who decides to establish a sole proprietorship must realize that he or she would be:

facing unlimited personal liability for the company's debts.

Key numbers that financial managers use to calculate ratios usually come

from the balance sheet and income statement.

While traditional and large banks make money through loans receivables, large banks also make money through ______.

gets some from depositors but also issues bonds and borrows money from stockholders

In the context of corporate restructuring, a _____ is defined as a combination of firms in the same industry.

horizontal merger

Finance does NOT include,

how to apply GAAP standards to appropriately document and account for resources.

_____ are organizations that pool contributions from investors, clients, or depositors and use these funds to buy stocks and other securities.

institutional investors

What are the two primary sources of equity financing?

retained earnings and money directly invested by stockholders who purchase newly issued stock

The vast majority of limited liability companies (LLCs) elect to be taxed as:

partnerships

Accounting is

quantitative, financial, and useful

What is bookkeeping?

routine gathering of information; preservation of a systematic, quantitative record of an activity

finance questions are primarily entertained by

entrepreneurs, investors, and intermediaries.

What does owner's equity represent?

the claims a firm's owners have against their company's assets

financial budgets

budgets that focus on the firm's financial goals and identify the resources needed to achieve these goals

An advantage of a general partnership is that the:

business is taxed as the personal income of its owners.

team

- Deep domain knowledge - Fast-growth scar tissue - Experience in competitive markets - Competence across business functions

What are the negative effects of poor management?

- High Employee Turnover - Poor Employee Health - Decreased Productivity - Damaged Company Reputation - Reduced Morale

What are the advantages of a general partnership?

- ability to pool financial resources - ability to share responsibilities and capitalize on complementary skills - ease of formation - possible tax advantages

resources

- assets - knowledge - money - connections

What are the disadvantages of franchising?

- costs - lack of control - negative halo effect - growth challenges - restrictions on sale - poor execution

What do the FASB and IASB do?

- financial accounting standards board: the private board that establishes the generally accepted accounting principles used in the practice of financial accounting - international accounting standards board: an independent, private-sector body that develops and approves International Financial Reporting Standards

What do entrepreneurs provide?

- innovative products and services - new industries - venture and growth capital - community leadership and philanthropy

advantages of franchises

- less risk - training and support - brand recognition - easier access to funding

What are the disadvantages of a sole proprietorship?

- limited financial resources - unlimited liability - limited ability to attract and maintain talented employees - heavy workload and responsibilities

SCAMPER

- substitute - combine - adapt - modify - put to other uses - eliminate - rearrange

What are the advantages of participating in a company-sponsored retirement plan?

- tax advantages - company matching

In accordance with corporate bylaws, stockholders elect a _____ and rely on it to oversee the operation of their company and protect their interests.

board of directors

In what ways do people generally make wealth?

1. Specialized skill set, or 2. Awesome business ideas, or 3. Lucky, or 4. accumulating wealth

identify the tips that Jim and Kay Stice recommend in the video.

1. Spend less than you make 2. keep fixed costs low 3. Create and use a budget 4. Be wary of clever or complex investment schemes 5. Save early and save often

What are the two basic elements of a budget?

1. Tracking expenses 2. Develop a plan

A _____occurs when a firm transfers total or partial ownership of some of its operations to investors or to another company.

divestiture

How many sets of books does a large US corporation keep?

3

opportunity

= idea + demand + profit

merger

A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.

What is credit history?

A record of transactions involving the use of credit

Know the differences between entrepreneurship, small business, and franchises?

A small business is an organization, partnership or sole proprietorship that has fewer resources and annual revenue than a medium or large company. An entrepreneurial venture is the concept of starting a small business to offer a product or service with the intention of disrupting an industry or maximizing profit; in franchises, the brand is owned by someone else

Explain the relationship between risk and expected return.

Return are the money you expect to earn on your investment. Risk is the chance that your actual return will differ from your expected return, and by how much

Which index tracks stock prices of 30 large, well-known US companies?

dow jones industrial average

What does a management accountant do?

Works within company and provides analysis, prepare reports and financial statements, and assist managers in their own organization.

vertical merger

a combination of firms at different stages in the production of a good or service

horizontal merger

a combination of two firms that are in the same industry

conglomerate merger

a combination of two firms that are in unrelated industries

What is a credit union?

a depository institution that is organized as a cooperative, meaning that it is owned by its depositors

Define budget.

a detailed forecast of financial inflows (income) and outflows (expenses) to determine your net inflow or outflow for a given period of time

What are dividends?

a distribution of earnings to the corporation's stockholders

What is a line of credit?

a financial arrangement between a firm and a bank in which the bank pre-approves credit up to a specified limit, provided that the firm maintains an acceptable credit rating

What is an investment bank?

a financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets

Securities brokers are agents who?

a financial intermediary who acts as an agent for investors who want to buy and sell financial securities; brokers earn commissions and fees for the services they provide

Define what a limited liability corporation (LLC) is.

a form of business ownership that offers both limited liability to its owners and flexible tax treatment

Define limited partnership

a partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability

master budget

a presentation of an organization's operational and financial budgets that represents the firm's overall plan of action for a specified time period

What is the S&P 500?

a stock index based on prices of 500 major US corporations in a variety of industries and market sectors

In the context of corporations, _____ is a corporate restructuring in which one firm buys another.

an acquisition

What is underwriting?

an arrangement under which an investment banker agrees to purchase all shares of a public offering at an agreed-upon price

What is a mutual fund?

an institutional investor that raises funds by selling shares to investors and uses the accumulated funds to buy a portfolio of many different securities

In the context of business ownership, the document filed with a state government to establish the existence of a new corporation is referred to as the _____.

articles of incorporation

A company's resources are called ________.

assets

What is an intangible asset?

assets that have no physical existence, but they still have value

What categories of items does a balance sheet report?

assets, liabilities, and equities

What does the balance sheet contain?

assets, liabilities, owner's equity

identify the major responsibilities of a financial accountant.

budgeting, managing tax payments and performing internal audits

operating budgets

budgets that communicate an organization's sales and production goals and the resources needed to achieve these goals

What Jim and Kay Stice's advice for investing?

be wary of investing

What is an external auditor? What do they do?

carefully examine a company's financial records before rendering their opinion

What is a liability?

claims that outsiders have against a firms assets

What are financial institutions? What do they do?

companies that are experts in managing money, risk, and complicated transactions on behalf of individuals like you and me, and other companies

A _____ is a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.

corporation

Define fixed costs?

costs that remain the same when the level of production changes within some relevant range

What classifies something as a current liability?

debts that come due within a year of the date on the balance sheet

What is the difference between accrual versus cash basis accounting?

lies in the timing of when sales and purchases are recorded in your accounts; cash accounting recognizes revenue and expenses only when money changes hands, but accrual accounting recognizes revenue when it's earned, and expenses when they're billed (but not paid)

What do you call a pre approved loan for a certain amount?

line of credit

What does the balance sheet show?

list of an organization's resources, accountants call those assets, and an organization's obligations, accountants call those liabilities

Which type of accounting helps a company decide how to handle promotions?

managerial

One of the drawbacks of sole proprietorships is that the owners:

may find it difficult to attract and maintain talented employees.

A _____ refers to a corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.

merger

Do firms that issue stocks and bonds receive funds when their securities are traded in secondary markets?

no

Is success in entrepreneurship ever guaranteed?

no

Is the financial accounting income that a company reports to its banks and shareholders always the same as the amount of tax income it reports to the government?

no

Know the R-O-T model of entrepreneurship.

opportunity-resources-team

Without bookkeeping

society will shut down.

What is the most common type of business organization in the United States?

sole proprietorships

What is the best advice to give someone who is carrying a large balance on a car with an APR of 12%?

start paying the credit now (pay on time every month)

Define financial accounting.

summary reports to people outside your company

What is financial accounting?

the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders

What is an initial public offering (IPO)?

the first time a company issues stock that may be bought by the general public

Accounting uses the past to help predict what?

the future

Equity financing is provided by _______. Debt financing is provided by _______.

the owners of a company; lenders (creditors)

Define retained earnings.

the part of a firm's net income it reinvests

divestiture

the transfer of total or partial ownership of some of a firm's operations to investors or to another company

Growth orientation is generally higher for entrepreneurs than small business owners.

true

To help establish a sizable savings balance, automatically deposit a percentage of each paycheck into a savings account.

true

What is ratio analysis used for?

used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability

In the context of corporate restructuring, a _____ refers to a combination of firms that are at different stages in the production of a good or service.

vertical merger

What are "bad debts" in banking?

when companies that had borrowed money cannot repay the money

Where do you register a new business?

www.sba.gov

It is a good idea to have a diversified portfolio if you want to moderate risk

yes