Business finance chapter 3
Creditors
A ___________ is an individual or an organization that provides funds to a business with a repayment of the funds and agreed- upon interest due at a future date
Operating
A ____________ budget projects all income and expenses for the operations of a business for a specific future time period
Specific
A ____________ financial goal is directed at a particular business action.
True
A budget discrepancy is the difference between a budgeted amount and actual financial performance
True
A business that wants to finance growth needs to be financially healthy
True
A company should address all three main financial goals at the same time rather than selecting one as a priority
Profit or loss
After all expenses and taxes are subtracted from a company's gross profit,the result is the company's
Assets
All of the things a business owns and uses as a part of a business operations
Principal
Amount of money borrowed
Interest
Amount paid for the privilege of borrowing money
True
An investment grows faster with compound interest that simple interest at the same interest rate.
Collateral
Assets promised by a business to a creditors if repayment of a loan isn't completed
Depreciation
Decline in the value of an asset as it ages
Budget discrepancies
Differences between budgeted amounts and actual financial performance
They must be open-ended
Effective business financial goals must have each of the following elements except
Business financial goals
Establish directions for the financial plans of a business
Trend analysis
Examines financial performance over several periods of time to determine patterns
Income statement taxes is calculated by subtracting the amount of taxes paid
How is profit or loss calculated on an income statement?
Balance sheet
Identifies the assets,liabilities,and equity of a business as of a specific date
Specific Realistic Measurable Established for an identified period of time
Identify the four characteristics of effective business financial goals
Capital budget
Plan to acquire and finance long-term assets of a business
Financial budget
Projected financial statement for a future time period
flow statement
Specific types of revenues such as cash sales,payments received from customers, interest received, and owner's investment are all cash_____ _________
Future value
The amount of money will grow in a defined period of time at a specified investment rate is the
False
The balance sheet reflects the original value of an asset but not its depreciated value.
Is projected
The difference between a financial budget and a financial statement is that the budget
Time value of money
The difference in purchasing power of an amount at a future date
True
The income statement presents a company's financial position on a specific date
False
The most accurate method to calculate the amounts in a budget is to apply a specific percentage of increase and decrease.
False
The time value of money can be computed using a specialized handheld financial calculator
Owner's equity
Total value that all owners and investors have in the firm
- A business must meet its financial obligations and pay its debts - A business must provide a competitive rate of return for its investors - A business must finance future growth and improvement to remain competitive
What are the three main financial needs of a business?
Operating budget, cash budget,and capital budget
What are the three main types of financial budgets?
Cash flow
What important financial information is not reflected in either the balance sheet or the income statement?
Assets= liabilities + owners equity
What is the basic accounting equation around which a balance sheet is organized?
Simple interest- the amount of interest is calculated at the end of each year Compound interest- pays interest not only the total amount borrowed but also on the interest that has been earned
What is the difference between simple interest and compound interest?
Inflations Interest rate
What two factors affect the time value of money?
Cash
Which financial budget is typically prepared for the shortest period of time?
Value
Which of the following is NOT one of the factors used to calculate interest?
A business must make a profit on all of its activities
Which of the following is NOT one of the main financial needs of a business?
A business must meet its financial obligations and pay its debts
Which of the following is one of the main financial needs of a business?
Income
Which of these terms is NOT a part of the basic accounting equation?
To see if their are any major changes in the business
Why is analysis of internal and external info important part of budget development?