Q&A Hero

Q: Because entrepreneurs do not have Social Security tax taken out of their income by their employer, they must pay a(n) ________. A) self-employment tax B) sales tax C) operating tax D) capital assets tax

Q: Corporate, partnership, individual income tax, and ________ tax returns must be filed on time with the U.S. Internal Revenue Service. A) state B) local - city or county C) self-employment D) township

Q: ________ tax is federal tax that business owners are assessed on wages paid to themselves. A) Sales B) Corporate C) Self-employment D) Unemployment

Q: Which of the following would be the most or least seasonal businesses and therefore have the least or most cyclical cash flow: a. snow plowing; b. high school senior photography; c. cleaning and repairing lawn mowers, d. evening and weekend babysitting? Why?

Q: What is the burn rate? Why is it important?

Q: Future value is a component of the time value of money; however, present value is not.

Q: Factoring is the selling of a business' accounts receivables at a discount to a finance company called a factor in exchange for immediate cash.

Q: Both cash inflows and outflows can be managed to control overall cash flow.

Q: ________ is the amount an investment is worth discounted back to the present. A) Earnings value B) Future value C) Present value D) Tangible value

Q: To manage cash flow, you should ________ and then subtract expenses you expect to incur. A) project gross receipts B) project gross sales C) project cash receipts D) project net income

Q: Credit is ________. A) exemplified by purchasing a product to sell, and you don't have to pay until after you have sold it B) the ability to buy something without spending actual cash C) both of the above D) essentially using someone else's money for gain

Q: Every time an entrepreneur spends cash, she or he takes a risk. If one buys ________, then the entrepreneur faces the risk of storage costs and pilfering. A) a computer for your chief financial officer B) capital assets C) inventory D) None of the above.

Q: The present value of money is based upon the value of your "next-best" opportunity for investment at a particular ROI. If this value is 10%, it is better to get $10,000 at the end of the first year than ________ today. A) $10,000 B) $9,500 C) $9,090 D) $8,000

Q: ________ is the amount an investment is worth discounted back to the present. A) Present value of money B) Future value of money C) Time value of money D) Prediscounted value of money

Q: The ________ value of money is the amount it will be worth a number of periods from the present. A) present B) future C) cash D) investment

Q: If Jacques invests $20,000 at 10% interest for 3 years, what will the future value of the money be? A) $26,000.00 B) $20,606.02 C) $23,606.02 D) $26,620.00

Q: Orders are not entered onto the cash flow statement as cash receipts because you ________. A) don't get the cash until the customer actually pays for the order B) might get them confused with revenue on the income statement C) will have a more accurate cash flow statement if you enter them once a month D) might get a cancellation

Q: What are the two steps in making a cash flow projection? A) projecting receipts and paying bills before they are due B) projecting expected cash expenses and subtracting inventory cost C) projecting cash receipts and subtracting expected cash expenses D) projecting receipts and capital expenditures for a quarter

Q: Which of the following is the bottom line on a cash flow statement? A) net profit B) cost of goods sold C) taxes D) ending cash balance

Q: A(n) ________ rate of return means that interest is earned on the base amount plus any interest previously earned. A) compound B) accrued C) annual D) fixed

Q: A burn rate is ________. A) the number of months a business can survive without making sales B) the amount of cash per month a business can spend before it runs out of cash C) the amount of cash a business burns on rent per month D) the number of days a business can survive without making sales

Q: If Tara invests $10,000 at 5% interest for 5 years, what will her earnings be at the end? A) $607.75 B) $2,762.82 C) $12,500 D) $12,763

Q: The cash flow statement is: cash flow = cash on hand + credit and cash sales - cash disbursements.

Q: ________ = Cash on Hand + Cash Receipts - Cash Disbursement. A) Profit B) Revenue C) Cash flow D) Gross profit

Q: What are the rules to keep cash flowing so that you always have enough cash to pay your bills?

Q: Once a business is operational, an entrepreneur needs to keep an eye on ________, which is defined as "Current Assets minus Current Liabilities." A) working capital B) the operating ratio C) capital assets D) None of the above.

Q: On your cash flow statement, you will need to ________ the amount you deducted from the income statement as a depreciation expense. A) subtract B) amortize C) double D) add back

Q: Which of the following is not a key rule for managing cash flow? A) Check cash balance every day. B) Pay bills as late as possible but on time. C) Pay bills as soon as possible. D) Collect cash as soon as possible.

Q: If the amount of cash that flows in and out of your business changes significantly during certain times of the year, include the following in your business plan: ________. A) a cash flow statement B) a projected cash flow statement C) expectations for seasonal variations D) flow chart

Q: Which business below is most likely to have cash flow that is cyclical? A) gas station B) pet food business C) tax return preparation business D) grocery store

Q: Why is it not a good idea to rely on your income statement to run your business? A) The income statement records cash when it comes into the business. B) The income statement adds non-cash expenses back to the business's earnings. C) The income statement deducts non-cash expenses, such as depreciation, even when no cash is actually flowing out of the business. D) The income statement usually contains errors that other statements don't have.

Q: Which of the three financial statements an entrepreneur prepares is used to guide the day-to-day operations of the business? A) the cash flow statement B) the income statement C) the balance sheet D) tax returns

Q: How could the income statement potentially confuse a business owner?

Q: Cash flow is the lifeblood of a business.

Q: Which statement best describes how the cash flow statement differs from the income statement? A) The income statement records sales and expenses when they happen, not when cash is actually exchanged. The cash flow statement records cash inflows and outflows when they actually occur. B) The income statement records income, as it comes in, while the cash flow statement records cash from sales. C) The income statement keeps track of cash when sales are made. The cash flow statement keeps track of cash after sales are made. D) The cash flow statement also includes the current market value of assets.

Q: How does a debt-to-equity ratio help describe the financial health of a company?

Q: Operating-efficiency ratios are important to a business. They include collection period, debt period, and inventory turnover.

Q: Debt ratios show the relationship between debts and equity.

Q: Firms are concerned about liquidity, which means the ability to convert inventory into credit sales.

Q: If you extend credit, it is critical to minimize this number to keep cash flowing. A) receivable turnover ratio B) inventory turnover ratio C) collection-period ratio D) debt-to-equity ratio

Q: The ________ ratio tells you whether you have enough cash to cover your current debt. A) financial B) operating C) income D) quick

Q: Steve has heard that formulating a common-sized statement for analysis is a good practice. Explain what he needs to do.

Q: What analytic tool allows you to compare income statements from different periods, even if the dollar figures are very different? A) income analyses B) asset analyses C) financial ratios D) same-day statements

Q: When the ratio of expenses versus sales is used to express expenses as a percentage of sales, it is called a(n) ________ ratio. A) current B) operating C) quick D) None of the above.

Q: To create a same-size analysis, calculate each line item as a percentage of ________. A) sales B) income C) costs D) profit

Q: A business's operating ratios are computed by ________. A) cost of goods sold/sales B) expense/sales C) income/sales D) income/profit

Q: The expression, "What you made over what you paid, times one hundred," is a device to remember how to compute ________. A) ROS B) ROA C) ROI D) None of the above.

Q: Return on Sales (ROS) is also called a(n) ________. A) contribution margin B) gross margin C) profit margin D) operating margin

Q: In the United Kingdom, the income statement is called the ________. A) group profit and loss account B) balance sheet C) cash flow analysis D) None of the above.

Q: If you invest $1,525,000 in a business and earn a return of $775,000, what is your ROI? A) 51% B) 42% C) 45% D) 48%

Q: How would you express a ratio as a percentage? A) add a percentage sign B) multiply it by 100 C) divide it by 100 D) None of the above.

Q: Calculate the return on sales for a business that has net income of $25,000 and sales of $60,000. A) 0.52 B) 4.2 C) 42% D) 4.2%

Q: The return on sales ratio is ________. A) net income/sales B) also called the operating ratio C) revenue/expenses D) expenses/sales

Q: ROI is always calculated for ________. A) a month B) a specific time period, such as month or a year C) the length of a business's fiscal year D) a period of time

Q: In a business formula such as Return on Investment, "on" means ________. A) "divided by" B) "on top of" C) "deducted from" D) "subtracted from"

Q: Which of the following is not something that can be invested? A) energy B) time C) expertise D) money

Q: To see how costs are affecting net profit, try analyzing the income statement by expressing each ________. A) as a percentage of costs B) as a percentage of profit C) as a percentage of sales D) as a percentage of administrative expense

Q: What is the purpose of financial ratio analysis?

Q: The balance sheet equation tells us that assets - liabilities = net profit.

Q: You can create ________ from your income statement that will help you analyze your business further. A) financial ratios B) asset categories C) comparisons D) None of the above.

Q: Because different types of assets depreciate at different rates, and because they are purchased at various points in time businesses keep a(n) ________ to track the valuation of each asset that is being depreciated. A) income statement B) balance sheet C) depreciation schedule D) cash flow statement

Q: What must balance with assets on the balance sheet? A) liabilities and owner's equity B) net worth and owner's equity C) capital and owner's equity D) liabilities net profit

Q: Define debt and equity and explain the difference between them. Where does each appear on financial statements?

Q: Owner's equity consists of ________. A) common equity B) preferred equity C) retained earnings D) All of the above.

Q: Liabilities that will be paid over a period of more than one year are ________. A) long-term assets B) long-term liabilities C) equity D) None of the above.

Q: Cash itself or items that could be quickly turned into cash or will be used within 1 year are called ________. A) liquid assets B) long-term assets C) current assets D) liquid cash

Q: Owner's equity is also called ________. A) debt B) assets C) liabilities D) net worth

Q: Gross profit. The results of revenue minus COGS.

Q: Describe the parts of an income statement.

Q: The power of the income statement is that it will tell you whether you are fulfilling the formula of buying low, selling high, and meeting customer needs.

Q: Ideally, you want to have a positive "double" bottom line. This means ________. A) you are achieving twice the revenues you expected B) you have twice the number of customers that you expected C) you have twice the profit you expected D) your profit allows you to stay in business and achieve your mission

Q: An income statement shows whether the difference between revenues (sales) and expenses (costs) is a profit or a ________. A) loss B) net profit C) breakeven D) semi-loss

Q: Jared analyzed the income statement for his independent label and found that for every dollar of sales, 30 cents were spent on cost of goods sold. The gross profit per dollar was 70 cents. If 20 cents were spent on operating costs and 10 cents on taxes, what is the net profit per dollar? A) 60 cents B) 40 cents C) 30 cents D) 20 cents

Q: In the income statement, EBIT minus interest costs equals ________. A) gross profit B) pre-tax profit C) net profit D) COGS

Q: The last line of an income statement shows a business's ________. A) gross profit or gross loss B) profit or loss C) net profit or net loss D) gross margin

Q: Which of the following is not a basic financial document that entrepreneurs use to track their businesses? A) income statement B) cash flow statement C) balance sheet D) market share statement

Q: Give three reasons to keep good records every day.

Q: Describe how an entrepreneur should protect his/her financial records.

Q: The difference between a receipt and an invoice is that the receipt records ________. A) sales B) interest paid C) purchases D) credit transactions

Q: ________ is a review of financial and business records to ascertain integrity and compliance with standards and laws, particularly by the U.S. Internal Revenue Service. A) Scrutiny B) Assessment C) Due diligence D) Audit