Entrepreneurship ch 11

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True

A budget is one of the most powerful tools that an entrepreneur can use in planning business operations.

False

Accounts receivable turnover measures the rate at which accounts receivable are being collected on a monthly basis.

False

An entrepreneur must graph at least two numbers: total sales and total expenses, when using the graphic approach for break-even analysis.

True

The cash-flow budget provides an overview of cash inflows and outflows for the budget period.

True

The first step in creating an operating budget is to prepare the sales forecast.

True

The first type of expense to be estimated when preparing an operating budget is cost of goods sold.

False

The traditional accounting equation is: assets + liabilities = owner's equity.

True

​After the operating budget has been prepared, an entrepreneur can proceed to the next phase of the budget process, the cash-flow budget.

False

​The first step in the preparation of the cash-flow budget is the identification and timing of cash outflows.

True

The handling questionable costs approach of break-even analysis was specifically designed for firms that have expenses that are difficult to assign.

True

The principal objective of capital budgeting is to maximize the value of the firm.

True

The pro forma income statement is prepared before the pro forma balance sheet.

False

The set of assumptions on which financial projections are based have little meaning.

True

Break-even analysis is used to tell how many units must be sold in order to break even at a particular selling price.

False

Capital budgeting is used to help the entrepreneur plan for capital depreciation.

True

Capital investments or capital expenditures are expected to last beyond one year

False

Contribution margin is the difference between the selling price and the fixed cost per unit.

True

Financial information pulls together all the information presented in the other segments of the business.

True

Gross margin measures profitability at the gross profit level: the number of dollars of gross margin produced for every $1 of sales.

True

Horizontal analysis looks at financial statements and ratios over time.

False

It is typical for a firm to prepare an operating budget but not a cash budget.

False

Pro forma statements show the firm's present financial position.

False

Vertical analysis is the application of ratio analysis to the many sets of financial statements.

True

When using regression analysis, the entrepreneur may draw conclusions about the relationship between product sales and advertising expenditures.

True

The typical business will have cash inflows from three sources: cash sales, cash payments received on account, and loan proceeds.


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