ENT - CH. 7 Financing and Accounting
True
(T/F) Both a check register and a petty cash register are required by an entrepreneur to form an annual record of all expenses
False
(T/F) Credit cards are a form of equity investment
True
(T/F) In the case of business failure, debt must be paid back prior to any equity investors receiving a distribution
False
(T/F) The founder should avoid personally lending money to the new business because it is an unsecured investment
False
(T/F) There is no need to treat a loan from a family member as a contractual agreement
False
(T/F) To calculate the maximum amount to obtain in outside financing, it is advisable for the entrepreneur to calculate the entire cash-flow projection by adding in equity investments
True
(T/F) When considering funding, a firm needs to evaluate not only the amount provided but also the source of that funding
Data Flow Management Accounting System
A key aspect to how the funding will be used is found in the information provided by the business, and that comes from
Asset-Based
A loan provided for the purchase of a necessary asset for the business is called _____ lending
Equity
A(n) _______ investment is funds received by a business in exchange for a percentage ownership
Loan
A(n) _______ involves a contractual agreement whereby some business receives some amount of money which is to be repaid over a specified time period at a specific interest rate
Venture Capital
A(n) ________ _________ fund is a fund that is highly organized as a limited partnership and is organized to make significant equity investments in high growth new ventures
Supplier Credit
Accepting _____ _____ can limit a firms ability to shop around for a cheaper source
Item number Quantity Description Unit/Total Cost
An inventory record will include:
Established Firms
Banks have traditionally been a major source of funds for ______
Credit
Banks will lend money for the establishment and maintenance of inventory by arranging a revolving line of _____
1. Income 2. Expense 3. Asset
Chart of Accounts listing order
Crowdfunding
Funding received by a business by soliciting a large number of very small investors via the internet is _______
Nonprofit agency The government
Grant funding typically comes from:
Most often repaid through monthly cash-flow Secured by assets or a personal guarantee
Identify characteristics of loans as a source of funding for new businesses
Debtors credit rating Size of transaction
Identify the issues a new business uses to determine the quality of accounts receivable
Suppliers refrain from trying to run the business Suppliers do not aim to take over the business
Identify the typical advantages of having a supplier invest in a new business
Factoring
If a firm needs to generate cash in the short term, accounts receivable can be sold at a discount via the technique known as _______
Less than
In the long run, the cost for non equity funding is generally ______ that of the equity investment
Subchapter C Corp: Accrual Smallest businesses: Cash Based
Match accounting types used by businesses
Cash-Based: Recognizes expenses as they are paid/revenue when generated Accrual: More typical form, when expenses revenue recorded when they occur
Match types of accounting
Accounting
The _______ system is a powerful asset that should be used as a fine-grained tool to provide data about when and how inventory is needed
The flow of information into the business
Three key issues involved with starting a new business include the funding of the firm, creation of an accounting system, and _____
Debt
What is the generic term used to describe any type of non equity funding for a business
Just in time inventory
What method of inventory control seeks to minimize capital excess in inventory by having it present only shortly before it is used?
Check Register
What report lists all checks that have been written and cleared through the bank?
When used as a tracking system for individual expenses within the company When used on a short-term basis When paid off each month
When are credit cards a good method of managing cash flow?
The founders personal resources
Where does funding typically start for most new businesses?
Petty cash register
Which account operates much like a banks savings account using a register to track the money
Credit Cards
Which form of debt is always personally tied to the founders, thus exposing them to personal bankruptcy
Business Angels
Which form of equity investors refers to high-net-worth individuals that invest widely in businesses
Equity Investment
Which funding option traditionally involves selling a percentage of the business to an outside party?
Asset Lease
Which funding tool involves the leasing of equipment from manufacturers or third party sellers
Venture Capital
Which is NOT a common form of debt for a new business?
Company is not stuck with an aging asset and can trade up Business is able to acquire assets it needs to begin production for minimal cash outlay
Which of the following are advantages of asset-leasing 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 accounts receivable
Which of the following are benefits of factoring for a new business?
Banks Suppliers Credit Cards
Which of the following are considered sources of debt for starting a new business
Accounts payable Petty cash Expense account Payroll
Which of the following are key reports a business should generate?
Possible bankruptcy Increase in interest rate
Which of the following are outcomes of a poorly managed credit card
Individuals with significant inheritances Professionals such as doctors and lawyers High-income executives of large organizations Entrepreneurs who have cashed out
Which of the following are potential business angels
Grants Debt
Which of the following are sources of nonequity capital to start a business?
Founder must clearly outline what rights and expectations each investor has as the business grows Equity investment involves selling a percentage of the business to an outside party In case of dissolution, each investor is entitled to the percentage of the break-up value equal to their investment percentage
Which of the following are true regarding equity investments
A record of payment toward each invoice should be included The record should include date paid, amount paid, and check number or tracking number All invoices received should be recorded
Which of the following are true regarding the Accounts Payable?
Data are tied to the strategic needs of the business Data are obtained in a timely manner
Which of the following are true with regard to managing the flow of data?
Determine percentage of ownership for each founder Determine percentage of ownership reserved for investors Determine fair and valid estimation of value
Which of the following are typically recommended before seeking outside funding?
Women Owned Businesses Veterans
Which of the following examples are typically targets of grants?
The business will not receive the full amount of debt that is due to it
Which of the following is a disadvantage of factoring for a new business?
Crowdfunding
Which of the following is a relatively new means of raising capital that may result in either an equity approach or an in-kind exchange for the firm?
Taxes Base pay and overtime pay rate Number of hours worked Benefit deductions
Which of the following items should be on the payroll record?
Cisco Intel Microsoft
Which of the following large firms has been a leading source of VC in the US?
Government Private foundations
Which of the following typically issues grants?
The risk is perceived to be too high
Why are banks quite often restrictive in their lending to start-up firms?
It helps the companies maintain access to the latest thinking in the field It is one of the least expensive means for a company to try new ideas
Why do companies invest in a new venture with the idea of ultimately purchasing the venture
Supplier
______ credit is a form of nonequity funding for physical assets as well as actual supplies purchased
Debt
______ is a major source of non equity funding and can come from banks, credit cards, or suppliers