Chapter 12
Financial planning is needed by a small business only until it begins to make a profit.
False
FICA refers to _____.
Social Security and Medicare taxes
All of the following are private businesses that collect and publish financial information on similar businesses and industries EXCEPT
a. Dun and Bradstreet.(not this one) b. the National Federation of Independent Business. c. Value Line. d. Standard and Poor's.
Which of the following is not one of the three important elements of a company's financial strength?
a. assets b. owner's equity C. PAYROLL d. liabilities
Which of the following usually is NOT a long-term asset?
a. buildings b. land C. INVENTORY d. equipment
Employers must make matching contributions to
a. income taxes. b. unemployment taxes. c. FICA (Social Security and Medicare) taxes. d. all of the above(not the right answer)
Sources of information to help build a budget for a new business include all except _____.
a. published financial information on similar businesses B. PAST FINANCIAL RECORDS c. professional associations d. the Small Business Administration (SBA)
An operating budget is usually planned for
a. three months. b. six months. c. one year. D. ALL OF THE ABOVE
Which of the following generally is NOT a goal of a business budget?
a. to determine the sources and amounts of income(not this one) b. to convince employees to take a big pay cut so the business can avoid bankruptcy c. to determine how income will be distributed to cover expenses d. to predict the types and amounts of expenses for the business
Which of the following would NOT be considered a benefit?
a. unpaid vacation b. health insurance c. paid vacation D. SALARY
All of the following would be considered expenses EXCEPT
a. wages paid to employees. b. purchases of supplies. c. taxes. D. INTEREST EARNED ON INVESTMENT
companies from which credit purchases were made
accounts payable
credit purchases made by customers
accounts receivable
The value of the buildings and equipment owned by a business can be determined in the
asset records
what a company owns
assets
The current value of investments made by the owners of a business can be found in the
balance sheet
the assets, liabilities, and owner's equity for a specific date are listed
balance sheet
detailed plan for the financial needs of individuals, families, and businesses
budget
an estimate of the actual money received and paid out for a specific time
cash budget
The _____ tells you if the business will be able to pay its debts when they are due.
current ratio
_____ records identify the amount assets have decreased in value due to their age and use.
depreciation
the employer transfers net pay electronically into an employees bank account
direct deposit
differences between actual and budgeted performance
discrepancies
The cost of operating a business
expenses
A company reports its assets, liabilities, and owner's equity on the income statement.
false
A majority of employees in most businesses receive a weekly or monthly salary.
false
An accounts receivable record identifies the companies from which credit purchases were made and the status of each account.
false
An income statement usually covers a five-year period.
false
An operating budget will determine if a business has adequate financial resources on hand to pay bills as they become due or if it will need to borrow money.
false
Employees—rather than managers—are responsible for the financial health of a company.
false
Financial performance ratios compare a company's financial elements to its competitors.
false
Most start-up businesses can be opened with a minimum of expenditures.
false
Payroll records need to be maintained for all full-time employees, but not for part-time employees.
false
Sales and profits for a specific period are reported in a company's income statement.
false
The company's liabilities divided by the owners' equity is the current ratio.
false
The income that a business receives over a period of time is called profits.
false
comparisons of a company's financial elements that indicate how well the business is performing
financial performance ratios
used to analyze and record the financial performance of a business
financial records
Actual revenue and expenses for a specific period are reported on the _____.
income statement
Report of the revenue, expenses, and net income or loss from operations for a specific period
income statement
the type and number of production on hand for sale
inventory records
what a company owes
liabilities
The right side of the balance sheet lists _____.
liabilities and owners equity
The final step in the financial decision-making process is to
make needed adjustments to the budget.
Revenue > Expenses =
net income
The _____ shows how much profit is being made by each dollar of sales for the period being analyzed.
net income ratio
When a business expands,
new factories and equipment may be needed.
Current liablities are amounts owed that will be paid in less than
one year
the financial plan for ongoing operations of the business for a specific period
operating budget
the value of the owner's investment in the business
owner's equity
the financial record of the employee compensation, deductions, and net pay
payroll
the documentation used to process earnings, payments, and record each employees pay history
payroll records
The first step of the budgeting process is to
prepare a list of each type of income and expense that will be part of the budget.
all income that a business receives over a period of time
revenue
The basic financial equation is
revenue - expenses = profit or loss
Plans income and expenses from the beginning of a new or major business expansion until it becomes profitable
start up budget
all taxes collected, paid, and owed
tax records
For businesses that have operated for several years, the main source of budget information is
the business's financial records.
An income statement usually covers
three to six months or less.
A business with a debt-to-equity ratio of 3:1 may have trouble borrowing additional funds from a bank.
true
A cash budget is an estimate of the actual money received and paid out for a specific period.
true
A current ratio of 1:2 represents an unhealthy business situation.
true
A current ratio of 2:1 means that the value of current assets is twice as much as the value of as current liabilities.
true
At the end of the period covered by a budget, the business will prepare new financial statements.
true
Businesses are responsible for making required federal and state payments for each employee.
true
Payroll taxes consist of income taxes, Social Security, Medicare, and unemployment taxes.
true
To prepare a budget, a business must be able to identify and predict the amount of each source of income and each type of expense.
true
When expenses are greater than income, a net loss occurs.
true
If you are an employee of a company, your net pay is _____.
your gross pay minus deductions minus tax withholding