Ch. 7 - Financing and Accounting

Identify a disadvantage of asset leasing for a new business.

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

Which of the following are true regarding the accounts payable? (Check all that apply.)

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

A chart of accounts is simply a listing of each type of activity and each type of asset within the company.

- Asset category (3) - Income category (1) - Expense category (2)

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

Data measurement methods must be complex.

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

Equity investment

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

False

True or False: The founder should avoid personally lending to the new business because it is an unsecured investment.

False

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

Grants

Where does funding typically start for most new businesses?

The founder's personal resources

Which of the following is NOT a source of nonequity to start a business? (Check all that apply.)

Venture capital

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

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

credit

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

equity

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

factoring

Which of the following large firms have been a leading source of venture capital in the United States? (Check all that apply.)

- Microsoft - Intel - Cisco

Which funding tool involves the leasing of equipment from manufactures or a third-party reseller?

Asset lease

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

Supplier

Which of the following are key reports a business should generate? (Check all that apply.)

- Petty cash - Expense account - Payroll - Accounts payable

Which of the following are potential business angels? (Check all that apply.)

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

What type of lending involves the bank estimating the residual value of the equipment if the bank had to repossess the equipment and then lend the business a percentage of the difference between that number and the sale price?

Asset-based lending

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?

Crowdfunding

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

Debt

______ is a major source of nonequity financing and can come from banks, credit cards, or suppliers.

Debt

A(n) ______ is like a master system for tracking the activity of the business.

chart of accounts

Which of the following are the benefits of factoring for a new business? (Check all that apply.)

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

Which of the following are characteristics of credit cards as a form of nonequity investment? (Check all that apply.)

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

When are credit cards a good method of managing cash flow? (Check all that apply.)

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

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

Business angels

Identify the typical advantages of having suppliers invest in a new business. (Check all that apply.)

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

Which of the following items should be included on the payroll record? (Check all that apply.)

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

A key aspect of how the funding will be used is found in the information provided by the business, and that comes from: (Check all that apply.)

- The accounting system - The data flow management

Which of the following are common forms of debt for a new business? (Check all that apply.)

- Credit cards - Loans - Supplier credit

It is important to record and balance the company account on at least a ______ basis.

monthly

Which of the following are typically the targets of grants? (Check all that apply.)

- Particular industries - Economic areas - Disadvantages groups

Identify the issues a new business uses to determine the quality of accounts receivable. (Check all that apply.)

- The size of the transaction - The debtor's credit rating

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

The risk is perceived to be too high.

Which of the following is a typical disadvantage of having suppliers invest in a new business?

The suppliers' deal involves an exclusivity agreement.

In the long run, the cost of capital for nonequity funding is generally ______ that of equity investment.

less than

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

Which of the following statements are true regarding equity investment? (Check all that apply.)

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

Match the types of accounting systems used by businesses.

A cash-based accounting system - Only the smallest businesses use this system. An accrual-based accounting system - Subchapter C corporations, partnerships, or trusts use this system.

An inventory record will include: (Check all that apply.)

- A description of the item - An item number - The quantity of the item - A unit and total cost

Which of the following are typically recommended before seeking outside funding? (Check all that apply.)

- Determine the percentage of ownership reserved for investors. - Determine the percentage of ownership for each founder. - Determine a fair and valid estimation of the value of the firm.

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

Just-in-time (JIT) inventory

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

Funding received by a business by soliciting a large number of very small investors usually via the Internet is called ______.

crowdfunding

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

debt

Besides banks, finance companies, and the founders, another source of nonequity loans comes from:

friends and family.

A(n) ______ is simply money designed to help the new business begin operations with no expectation of repayment.

grant

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

loan

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

supplier credit

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

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

the founders.