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Terms in this set (127)
Some angel investors have formed groups called ? that combine money from different investors.Angel networksWhat is an angel investor?A person who provides money to a business in exchange for debt or equity.The costs of starting up a business and keeping it going until it can pay for itself.Startup costsT or F? Some startup costs are one-time costs that you pay at the beginning.TrueThe costs of running a business. They include both fixed and variable costs that occur while you are running the business.Operating expensesOperating expenses are also called?Operating costs.T or F? In order to be profitable, your company eventually needs to be able to pay for its own operating expenses.TrueT or F? To calculate your startup costs, you will need to make financial projections that show when you expect your company to break even, so that it is able to pay for itself. Then you'll need to make sure that your startup funding will cover the costs until that happens. A company's break-even point is when the company makes enough sales revenue to pay for its expenses. To calculate it, you have to make predictions about your future sales and expenses. You will need to predict your company's future revenue and expenses based on your past experience and on your research of the market and competitors. And When your company reaches the break-even point where it pays for itself, you no longer need startup funding.TrueT or F? If your startup funding doesn't last until the company is able to pay for itself, you will need to get more funding or reduce expenses. Otherwise, the company may have to shut down.TrueT or F? There are many types of startup and operating costs for a business. Here are the following: Location, Utilities, Employees, Supplies, Equipment, Promotion, Administrative, Finance, and Cash Reserve.TrueMoney your company has in the bank. It's similar to the type of financial reserve an individual person might keep in case of emergencies.Cash ReserveA cash reserve is sometimes called a ? because it is there just in case of emergencies.Rainy day fundWhat is a cash reserve?Money your company has in the bankThe movement of money in and out of a business. This only refers to actual money in cash or in the bank, not credit that is owed to the company and counted as income.Cash FlowT or F? Some ways to improve cash flow are: Collect money you are owed as soon as possible, Only offer credit to low-risk borrowers, Don't pay bills early, Keep a cash reserve, Have backup funding in place, and Increase your sales.TrueIf your company doesn't have cash flow, which of these things is likely to happen?You may not be able to pay your bills.Predicting =ForecastingT or F? Accurate forecasting of sales and expenses is important for getting a good estimate of the startup funding you need.TrueA sales forecast is sometimes called a?ProjectionT or F? To help predict your future sales, you should consider the following factors: Your company's history, The Industry, and The Economy.TrueA company's ? is how well the company is doing financially.Financial health? is the money that flows into your company. A company's revenue is also called its?Revenue, incomeA ? is a particular way of creating revenue. Your company may have one revenue stream, or it may have more than one.Revenue stream? are financial costs being paid by the company. This is how money flows out of the company.ExpensesT or F? You can find out if a company is profitable by subtracting its expenses from its revenue.TrueA company's ? is calculated by subtracting the cost of goods sold (supplies and labor) from the total revenue.Gross profit? is calculated by subtracting all expenses from the total revenue.Net profit? are things your company owns that are worth money.AssetsT or F? Because assets are a large part of your company's overall value, they are a major consideration when you're evaluating the company's financial health.TrueT or F? Assets can be liquid or illiquid, or somewhere in between.True? are easily turned into cash.Liquid assetsT or F? Other assets may be sold and turned into cash, such as inventory. The easier it is to sell the inventory, the more liquid it is.True? are assets that are difficult to turn into cash.Illiquid assets? are physical items such as real estate or equipment. They are usually illiquid because they usually take more time to sell.Fixed assetsThe value of a fixed asset may drop over time as the item ages or is used and worn out or damaged. This reduction in value is called?DepreciationIf your company lets customers pay later, instead of when the product is received, the money you are owed is an asset. ? are amounts of money that are owed to the company by customers.Accounts receivableT or F? Often, accounts receivable are due within 30 days, but this can be a problem if you need the money to pay for expenses before the accounts receivable are due.TrueTo get better liquidity from accounts receivable, some companies use? ? is when the company sells its accounts receivable to another company. The company that buys the accounts is called the?Factoring, factorT or F? The factor pays the company right away for the accounts and then collects the money from the customers when it is due. The factor usually charges between 1% and 15% for doing this, which means the company doesn't get the full amount owed in accounts receivable. Instead, the company gets about 85% or 90% of the amount.TrueT or F? If a customer fails to pay, the company may have to pay that money back to the factor, depending on the type of agreement the company makes with the factor.TrueAmounts of money that the company owes.Liabilities? is another part of a company's liabilities. These are amounts of money owed to other companies for products.Accounts payableT or F? Accounts payable are products that were received on credit, but not by using credit cards or loans. They are amounts of money owed from one company to another for a product that was provided. Whenever you receive an invoice or bill, it is part of your accounts payable.True? is the value of the company's assets after all creditors are paid except for those with ownership interest in the company. It can be calculated by subtracting the company's liabilities from its assets.EquityThe company's equity is also called its?Net worth? is the flow of money in and out of the company. It's important to track the cash moving in and out of the company to make sure the company can pay its bills on time.Cash flow? are assets that can be turned into cash quickly.Liquid AssetsThe recording, reporting, and analyzing of financial information.AccountingWriting something down, either on paper or on a computer.RecordingThe recording of financial transactions is called?Bookkeeping.T or F? It is wise to record every transaction your company participates in, including all sales and expenses.TrueT or F? Every transaction needs either a receipt or an invoice, depending on when it is paid.TrueA ? is a record of a transaction that already happened. It shows the products that were provided, the cost of each item, the total cost, the tax, and how the payment was made (in cash, by credit card, and so on).receiptAn ? is a record of a product that was provided but not yet paid for. It is similar to a receipt, but it says how much is owed, instead of how much was paid. It also says when payment is due. They are also called?Invoice, bills.In addition to using receipts and invoices, you should record each transaction in an ? also called a?accounting journal, ledgerA company's ? is its main book for recording transactions. It can be on the computer or on paper.ledgerAn ? is a record of a product that was provided but not yet paid for.Invoice? is the set of standards commonly used for accounting in the U.S.Generally accepted accounting principles (GAAP)The GAAP standards are not regulated by the government. Instead, GAAP is regulated by an organization called the?Financial Accounting Standards Board (FASB).T or F? The government accepts and trusts this organization to create appropriate rules and standards for financial accounting and reporting.TrueT or F? Not all companies use GAAP, but many do. The larger and more complex the company, the more likely it is to use GAAP.TrueRecords income when cash is received, and it records expenses when cash is paid out.Cash basis accountingT or F? Cash basis accounting makes it difficult to keep track of money that is owed but not yet paid. If your company gives credit to customers or receives credit from lenders, that information is not tracked well.TrueT or F? Cash basis accounting does not follow GAAP standards, and the Internal Revenue Service (IRS) forbids certain types of organizations from using cash basis accounting.True? is the standard accounting type defined by GAAP. It records income when a product has been provided, even if the payment has not been made yet, as long as it's expected that the cash will be received in the future. It records expenses when the company has committed to a financial obligation, such as receipt of a product from another company, even if the payment has not yet been made.Accrual basis accountingT or F? Accrual basis accounting makes it easier to keep track of money that customers owe the company and money that the company owes.TrueT or F? The main problem with accrual basis accounting is that it does not make it easy to see a company's cash flow. Companies that use accrual-basis accounting must pay close attention to cash flow because although the accrual basis accounting records may show that income can easily cover expenses, the company might not actually have the cash from that income yet.TrueWhich of the following are advantages of accrual basis accounting?Meets GAAP standards, it allows you to track money that is owed but not yet paid.T or F? There are four main financial statements used in GAAP for analyzing a company's financial health.TrueA document that shows the company's revenue and expenses during a specific time period, such as a year, month, or quarter (three months). Also called a ? because it shows whether the company had a profit or a loss during that time period.income statement, profit/loss statementT or F? The Income statement begins by listing: the revenue from the various revenue account types included in the ledger, such as in-store sales, online sales, and any other revenue streams, the cost of goods sold, and expenses such as materials and labor used to produce goods sold, The gross profit is then listed by subtracting the cost of goods sold from the total revenue. Next, all other expenses are listed, separated by category. These expenses are then subtracted from the gross profit to calculate the net profit. If the net profit is less than zero, the company is experiencing a loss.TrueThe net profit is also called the?net incomeA ? shows your company's finances on a specific date in time. It is a snapshot of how your financial position looks at a moment in time. It doesn't cover a time period.balance sheetT or F? The balance sheet lists assets, liabilities, and owner equity. It also includes the balance sheet equation, which is Assets = Liabilities + Owner Equity. Another way of writing the equation is Owner Equity = Assets - Liabilities.TrueThe balance sheet equation is also called the ? because it is also used to balance the ledger and find mistakes in bookkeeping.accounting equationT or F? The owner equity information is taken from the statement of equity.TrueThe ? focuses just on the owner equity. Like the income statement, it covers a specific period of time. It is also called the? .statement of owners' equity, owners' equity statement, equity statement, statement of shareholders' equity, and the statement of retained earningsThe amount of owner equity is equal to the amount the owners invested, plus or minus retained earnings (the company's earnings or losses since it was started). If the company ever distributes earnings to investors, those are called?dividends.T or F? Dividends decrease the company's equity.TrueT or F? An increase in retained earnings increases the company's equity.TrueT or F? The statement of owners' equity tracks retained earnings, investments made in the company, and dividends (money paid out to investors). It states the amount of equity at the beginning of the period, investments made into the company, dividends, and net income during the period. The statement also tells you the final amount of equity at the end of the period.TrueT or F? The statement of owners is calculated by taking the starting equity, adding any new investments made, subtracting dividends paid out, and adding the net income, Equity = Starting equity + investments - dividends + net income.TrueThe ? statement tracks the flow of cash in and out of the company. It focuses on cash instead of income.cash flowT or F? Cash flow statement track: First the sources of cash are listed by revenue type, and then the expenses and cash out entries are listed. It lists sources of cash, uses of cash, and change in cash balance. Cash flowing in is listed normally. Cash flowing out is put in parentheses. When the totals are calculated, the regular numbers are added, and the numbers in parentheses are subtracted.TrueCash comes in and flows out in three main categories:?operating activities, investing activities, and financing activities.Revenues and expenses involved in running the business. Cash flows in from revenue and out through expenses.Operating activitiesCash transactions related to the company's financial investments. Cash can flow in from financial investments the company holds, such as stocks or bonds. The company might receive dividends or interest from those investments, or it might sell off investments for cash. Cash can flow out into investments, too. The company might buy stocks or bonds and lose cash that way.Investing activitiesTransactions that bring cash in or out based on borrowing and lending. Cash flows in from financing when the company borrows money. Making payments on a credit card or bank loan are ways cash can flow out.Financing activitiesIncludes information about retained earnings and dividends.Statement of owners' equityShows revenues and expenses over a period of time.Income statementA snapshot of the company's assets, liabilities, and equity at a moment in time.Balance SheetShows money moving in and out, categorized by operations, investing, and finance.Cash flow statementA mathematical comparison of one thing to another. It is calculated by taking one thing and dividing it by the other. Written as either a number or percentage.RatioIn the business world, a ? is a way to compare two financial factors in order to analyze a company's financial health.financial ratioT or F? Financial ratios are used for comparing a company to another company or to its own past performance. They can show a company's profitability, level of financial risk, efficiency (how well it uses resources), liquidity (ability to pay current debts), and ability to pay long-term debts.True? is the return an investor gets from an equity investment. A company's ? helps show profitability by showing how well the company uses investor money to create profits.Return on equity (ROE)T or F? ROE is calculated with this equation: Net profit before tax ÷ Total equity. To calculate the ROE as a percentage instead of a number, multiply it by 100.TrueT or F? A high number or percentage shows that the company is using investor equity well to produce a good profit. A company's ROE helps investors compare investing in the company with other investment opportunities.& It is most useful for comparing companies in the same industry, since it is affected by startup costs and the amount of investor funding that was needed, and those things vary by the type of company.True? shows a company's profitability by comparing how well the company produces a return from its assets. It compares the company's income to its assets.Return on assets (ROA)T or F? ROA is calculated with this equation: Net profit before tax ÷ Total assets To calculate the ROA as a percentage instead of a number, multiply it by 100.TrueT or F? A high number or percentage shows that the company is using its assets well to produce a good profit. It's best to compare ROA against other companies of a similar type, because the normal level of assets can vary by type of company.TrueThe ? is the comparison of a company's debt to its assets. It helps show how financially stable a company is.debt ratioT or F? The debt ratio is calculated with this equation: Total liabilities ÷ Total assets To calculate the debt ratio as a percentage instead of a number, multiply it by 100.TrueT or F? The higher the number or percentage, the more debt the company has in comparison to its assets. If the debt ratio is more than 1 (or more than 100%), the company has more debt than assets. If it is less than 1 (or less than 100%), the company has more assets than debt. If a company has a lot of debt in comparison to its assets, this makes the company less financially stable and more of a risky investment for an investor.TrueThe ? ratio compares the company's debt to the amount of equity invested into the company. It is another way to show a company's financial stability.debt to equityT or F? The debt to equity ratio is calculated with this equation: Total liabilities ÷ Total equity. To calculate the percentage instead of a number, multiply by 100.TrueT or F? The higher the number or percentage, the more debt the company has in comparison to equity. A high number or percentage means the company is riskier and less financially stable.TrueThe ? ratio shows a company's liquidity at a point in time. A company's ? is its ability to pay its current debts.current, liquidityT or F? The current ratio is calculated with this equation: Current assets ÷ Current liabilitiesTrue? are assets that are expected to be converted to cash within one year.Current assets? are liabilities that are expected to be paid within one year.Current liabilitiesT or F? If the number is higher than 1, the company has enough assets to pay its liabilities. To calculate the percentage instead of a number, multiply by 100. If the percentage is greater than 100%, the company has enough assets to pay its liabilities.TrueTotal liabilities ÷ Total assetsDebt ratioTotal liabilities ÷ Total equityDebt to equityNet profit before tax ÷ Total equityReturn on equityCurrent assets ÷ Current liabilitiesCurrent RatioNet profit before tax ÷ Total assetsReturn on Assets
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