Small Bus & Entrep- Smartbook 7 & 8
An inventory record will include:
-A unit and total cost -The quantity of the item -an item number -A description of the item
Which of the following statements are true about calculating activity ratios, such as inventory turnover?
-Calculating activity ratios requires information from both the balance sheet and the income statement. -The inventory turnover ratio derives its numerator (cost of goods sold) from the income statement.
Which of the following are true with regard to managing the flow of data in the context of businesses?
-Data are tied to the strategic needs of the business. -Data are obtained in a timely manner.
Identify the true statements about equity investment.
-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.
Which of the following statements are true about a venture capital fund?
-It includes limited partners seeking high returns. -It has a general partner who investigates and invests in each new business.
Which of the following statements about ratio analysis are correct?
-One firm's ratios should be compared to other similar firms, an industry average, or the previous month's/year's performance -Ratios by themselves are of little value. -Ratios help the entrepreneur examine the firm's overall health.
What are the typical advantages of having suppliers invest in a new business?
-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?
-Taxes -Benefit deductions -Number of hours worked -Base pay and overtime pay rate
Identify the true statements about hypothesis-driven analysis for new businesses.
-The analysis uses the hypothesis that an entrepreneur has about what a customer really desires. -The analysis is conducted in small batches.
Identify the benefits of factoring 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 the accounts receivable.
Identify the issues a new business uses to determine the quality of accounts receivable.
-The debtor's credit rating -The size of the transaction
What are the key financial issues involved with starting a business?
-The flow of information in the new business -The establishment of an accounting system The funding and the funding level of the firm
Which of the following are true regarding the accounts payable?
-The record should include date paid, amount paid, and check number or tracking number. -A record of payment toward each invoice should be included. -All invoices received should be recorded.
Identify the characteristics of credit cards as a form of nonequity investment.
-They are generally tied to a much higher interest rate than that of a bank loan. -They typically have a set upper limit.
Which of the following are true about loans as a source of funding for new businesses?
-They are often repaid monthly from cash flow. -They are secured by assets or a personal guarantee.
Which of the following statements are true about liquidity ratios?
-They are used by banks to measure the credit worthiness of the business. -They measure a business's short-term ability to meet its obligations.
Use the correct formula to solve the following inventory turnover ratio problem where the cost of goods sold was $75,000 and inventory was $45,000.
1.67
Match the types of accounting systems a new businessperson uses (in the left column) with their features (in the right column).
A cash-based accounting system matches-> It recognizes expenses as they are paid and recognizes revenue as it is generated. An accrual-based accounting system matches-> It is the more typical form of accounting used, with expenses and revenues recorded when they actually occur, regardless of when the cash is received.
Match the types of accounting systems used by businesses (in the left column) with their descriptions (in the right column).
A cash-based accounting system matches-> Only the smallest businesses use this system. An accrual-based accounting system matches-> Subchapter C corporations, partnerships, or trusts use this system.
______ turnover is credit sales divided by accounts receivable.
Account receivable
______ ratios measure the efficiency with which the entrepreneur is handling the business's resources.
Activity
Which form of funding is used by a business to conserve cash and maintain the latest versions of whatever equipment is available?
Asset lease
Which funding tool involves the leasing of equipment from manufacturers or a third-party reseller?
Asset lease
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
What report creates a listing of all checks that have been written and all that have cleared through the bank?
Check register
Which of the following is NOT one of the four classic analysis techniques?
Competitive analysis
Which is the correct formula for calculating the inventory turnover ratio?
Cost of goods sold / Inventory
Which of the following is a form of debt that is almost always tied personally to the founders, thus exposing them to personal bankruptcy?
Credit cards
Which of the following are considered sources of debt for starting a new business?
Credit cards Banks Suppliers
Which of the following are common forms of debt for a new business?
Credit cards Loans Supplier credit
In the event of a business failure, which of the following sources of funding must be paid back first?
Debt
What is the generic term used to describe any type of nonequity funding tied to the business?
Debt
______ is a major source of nonequity financing and can come from banks, credit cards, or suppliers.
Debt
Which of the following are sources of nonequity capital to start a business?
Debt Grants
Which of the following are the leverage ratios commonly used to evaluate the relative level of indebtedness of a business?
Debt-to-assets Debt-to-equity
Which of the following funding options traditionally involves selling a percentage of the business to an outside party?
Equity investment
The current ratio examines a company's pure cash position relative to its current liabilities by removing inventory from the firm's assets.
False
The founder should avoid personally lending money to the new business because it is an unsecured investment.
False
There is no need to treat a loan from family as a contractual agreement.
False
What are special funds that are neither equity or debt funds that are designed to aid businesses in specific areas?
Grants
Which of the following large firms have been active equity investors in new start-up firms in the technology sector?
Intel Microsoft Cisco
______ turnover is cost of goods sold divided by inventory.
Inventory
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 inventory
______ ratios are used to examine the relative level of indebtedness of the business.
Leverage
Which of the following measures the short-term ability of a firm to meet its obligations?
Liquidity ratios
Which type of funding 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
Which of the following large firms have been a leading source of venture capital in the United States?
Microsoft Cisco Intel
Which accounting record tracks time for hourly workers and attendance for salaried employees?
Payroll
Which account operates much like a bank savings account using a register to track the amount in the box?
Petty cash register
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
Which of the following typically issue grants?
Private foundations Government
_____ credit is a form of nonequity funding for physical assets as well as the actual supplies purchased. (Enter one word in the blank.)
Supplier
Identify a disadvantage of factoring for a new business.
The business will not receive the full amount of the debt that is due to it.
Grant funding typically comes from:
The government, A nonprofit agency
Why are banks often quite restrictive in their lending to start-up firms?
The risk is perceived to be too high.
Identify a typical disadvantage of having suppliers invest in a new business.
The suppliers' deal involves an exclusivity agreement.
______ turnover is net sales divided by fixed assets or net sales divided by total assets.
Total/fixed asset
Calculating activity ratios requires information from both the balance sheet and the income statement.
True
Hypothesis-driven analysis lets a firm move very quickly and make changes in rapid fashion to react to customers.
True
In the case of business failure, debt must be paid back prior to any equity investors receiving a distribution.
True
Which of the following is NOT a common form of debt for a new business?
Venture capital
Which of the following is NOT a source of nonequity capital to start a business? (Check all that apply.)
Venture capital
A loan provided for the purchase of a necessary asset for the business is called ______ lending.
asset-based
A(n) ______ is like a master system for tracking the activity of the business.
chart of accounts
A firm's key measures should focus on the important aspects with which the firm hopes to build its _____.
competitive advantage
Inventory turnover is calculated by _____.
cost of goods sold divided by inventory
Banks will lend money for the establishment and maintenance of inventory by arranging a revolving line of _____. (Enter one word in the blank.)
credit
Suppliers will generally provide_____ on both physical assets and the actual supplies purchased. (Enter one word in the blank.)
credit
Account receivable turnover is calculated by:
credit sales divided by accounts receivable.
The _____ ratio is calculated by dividing current assets by current liabilities.
current
The ______ ratio measures those assets that can be quickly turned into cash to pay immediate liabilities.
current
Any form of capital infusion that must be paid back with interest is called ______.
debt
The _____ ratio is calculated by dividing total liabilities by total assets.
debt-to-assets
The ______ ratio provides information on the portion of the business owned by the lenders and that portion owned by the founder(s).
debt-to-equity
Activity ratios measure the ______ with which the entrepreneur handles the business's resources.
efficiency
A(n) _____ investment is funds received by a business in exchange for a percentage ownership of the business.
equity
When someone provides funding in return for some ownership in the new business, it is referred to as a(n) _____.
equity investment
Banks have traditionally been a major source of funds for:
established firms.
Leverage ratios are used to _____.
examine the relative level of a firm's indebtedness
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
When accounts receivable are sold at a discount to another company to receive immediate cash, it is referred to as ________.
factoring
Besides banks, finance companies, and the founders, another source of nonequity loans comes from:
friends and family.
The analysis of any size company should proceed _____.
from the general and move toward the specific
A(n) ______ is simply money designed to help the new business begin operations with no expectation of repayment.
grant
A chart of accounts is simply a listing of each type of activity and each type of asset within the company. Rank the categories of accounts from first to last associated with a chart of accounts.
income category expense category asset category
The purpose of ratio analysis _____.
is to examine the company's performance along four areas: liquidity, activity, leverage, and profitability
In the long run, the cost of capital for nonequity funding is generally ______ that of equity investment.
less than
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
Evaluating a firm starts with its ______ and how the entrepreneur expects to build its ______.
mission; competitive advantage
It is important to record and balance the company account on at least a _____ basis.
monthly
Total/fixed asset turnover is calculated by dividing _____.
net sales by fixed assets or net sales divided by total assets
The new business should employ all ______ funding mechanisms available before seeking _____ funding.
nonequity; equity
A separate accounts ______ record should be maintained for each creditor.
payable
The ______ ratio is calculated by subtracting current assets minus inventory and dividing the result by current liabilities.
quick
Banks will lend money for the establishment and maintenance of inventory by arranging a(n) ______.
revolving line of 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.
The ______ ratio is calculated by dividing operating income by interest.
times interest earned
Inventory should be taken at scheduled times during the year and an exact match should be completed between:
units sold starting inventory ending inventory
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. (Enter one word in each blank.)
venture capital
