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