BUS 101 Test 3 Study Guide

Question 1

Greater Financial Success
Independence
Flexibility
Challenge
Survival

Answer 1

Reasons to launch a small business

Question 2

People who risk their time, money, and other resources to start and manage a business

Answer 2

Entrepreneurs

Question 3

Entrepreneurs aim to change the world through goods and services
Hope to better themselves but most do not expect huge, transformative growth

Answer 3

The Entrepreneurial Mindset

Question 4

Vison
Self-reliance
Energy
Confidence
Tolerance of uncertainty
Tolerance of Failure

Answer 4

Entrepreneurial Characteristics

Question 5

Friends, family, and personal credit cards

Answer 5

Personal resources

Question 6

Sources include commercial banks, U.S Small Business Administration (SBA), and peer-to-peer lending

Answer 6

Loans

Question 7

Process of funding ventures by raising money from a large number of investors via the internet

Answer 7

Crowdfunding

Question 8

Individuals who invest in start-up companies with high growth potential in exchange for a share of ownership

Answer 8

Angel Investors

Question 9

Companies that invest in start-up businesses with high growth potential in exchange for a share of ownership

Answer 9

Venture Capital Firms

Question 10

Market niches
Personal customer service
Lower overhead costs
Technology

Answer 10

Opportunities

Question 11

High risk of failure
Lack of knowledge and experience
Less money and more regulatory burden
High health insurance costs

Answer 11

Threats

Question 11

High risk of failure
Lack of knowledge and experience
Less money and more regulatory burden
High health insurance costs

Answer 11

Threats

Question 12

An agency of the federal government designed to maintain and strengthen the nation’s economy by aiding, counselling, assisting, and protecting the interests of small businesses

Answer 12

Small Business Administration (SBA)

Question 13

A formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives

Answer 13

Business Plan

Question 13

Rates are higher for “necessity entrepreneurship”—where people have few options

Answer 13

Per capita income

Question 14

Lower in countries that provide a high level of employment protection

Answer 14

Opportunity Costs

Question 15

Complex regulations or lack of cultural support contribute to low rates

Answer 15

Cultural/political environment

Question 16

A system for recognizing, organizing, analysing, and reporting information about the financial transactions that affect an organization

Answer 16

Accounting

Question 17

To provide users with relevant, timely information that can help them make better economic decisions

Answer 17

Accounting’s goal

Question 18

Provides services such as tax preparation, external auditing, and management consulting to clients on a fee basis

Answer 18

Public accountants

Question 19

Work within a company and provide analysis, prepare reports and financial statements, and assist managers

Answer 19

Management accountants

Question 20

Perform accounting functions for local, state, or federal government agencies

Answer 20

Government accountants

Question 21

The branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders

Answer 21

Financial accounting

Question 22

A set of accounting standards that is used in the preparation of financial statements

Answer 22

Generally accepted accounting principles (GAAP)

Question 23

The private board that establishes the generally accepted accounting principles used in the practice of financial accounting

Answer 23

Financial Accounting Standards Board (FASB)

Question 24

Balance sheet Income statement Statement of cash flows

Answer 24

Basic financial statements

Question 25

A financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities, and owners' equity

Answer 25

Balance sheet

Question 26

Assets = Liabilities + Owners' Equity

Answer 26

Accounting equation

Question 27

Resources owned by a firm

Answer 27

Assets

Question 28

Claims that outsiders have against a firm's assets

Answer 28

Owners' equit

Question 29

The financial statement that reports the revenues, expenses, and net income that resulted from a firm's operations over an accounting period

Answer 29

Income statement

Question 30

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income

Answer 30

Revenue

Question 31

Resources that are used up as the result of business operations

Answer 31

Expenses

Question 32

The difference between the revenue a firm earns and the expenses it incurs in a given time period

Answer 32

Net income

Question 33

The financial statement that identifies a firm's sources and uses of cash in a given accounting period

Answer 33

Statement of cash flows

Question 34

Show the amount of cash that flowed into the company from the sale of good and services, as well as cash from dividends and interest received from ownership of the financial securities of other firms

Answer 34

Cash flows from operating activities

Question 35

Show the amount of cash received from the sale of fixed assets (such as land and buildings) and financial assets bought as long-term investments to grow or improve the business

Answer 35

Cash flows from investing activities

Question 36

Show the cash the firm received from issuing additional shares of its own stock or from taking out short-term and long-term loans

Answer 36

Cash flows from financing activities

Question 37

Shows how retained earnings have changed from one accounting period to the next

Answer 37

Statement of retained earnings

Question 38

Shows how net income and dividends affect retained earnings Shows changes in stockholders' equity, such as changes that arise from the issuance of additional shares of stock

Answer 38

Stockholders' equity statement

Question 39

Prepared after conducting an annual external audit of the financial statements Included in the annual report that a firm sends its stockholders

Answer 39

Independent Auditor's Report

Question 40

Analysis of financial statements that compares account values reported on these statements through two or more years to identify changes and trends

Answer 40

Horizontal analysis

Question 41

A management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period

Answer 41

Budgeting

Question 42

Helps managers specify how they intend to achieve goals set during the planning process Encourages communication and coordination among managers and employees Serves as a motivational tool Helps managers evaluate progress and performance

Answer 42

Advantages of budgeting

Question 43

The branch of accounting that provides reports analysis to managers to help them make informed business decisions

Answer 43

Managerial (or management) accounting

Question 44

The funds a firm uses to acquire its assets and finance its operations

Answer 44

Financial capital

Question 45

The functional area of business that is concerned with finding the best sources and uses of financial capital

Answer 45

Finance

Question 46

Maximise the value of the firm to its owners

Answer 46

Goal of financial management

Question 47

The degree of uncertainty regarding the outcome of a decision

Answer 47

Risk

Question 48

The observation that financial opportunities that offer high rates of return are generally riskier than opportunities that offer lower rates of return

Answer 48

Risk-return trade-off

Question 49

Computing ratios that compare values of key accounts listed on a firm's financial statements

Answer 49

Financial ratio analysis

Question 50

The use of debt in a firm's capital structure

Answer 50

Financial leverage

Question 51

Measures ability to pay short-term liabilities as they come due

Answer 51

Liquidity (Current)

Question 52

Measures how effectively a firm is using its assets to generate revenue

Answer 52

Asset management (Inventory turnover/Average collection period)

Question 53

Measures the extent to which a firm relies on debt to meet its financing needs

Answer 53

Leverage (Debt-to-assets)

Question 54

Compares the amount of profit to some measure of resources invested

Answer 54

Profitability (Return on equity/Earnings per share)

Question 55

Provided by owners

Answer 55

Equity financing

Question 56

Provided by creditors and lenders

Answer 56

Debt financing

Question 57

The degree to which a firm depends on one versus the other

Answer 57

Capital structure

Question 58

Interest payments are a tax-deductible expense Firms can acquire additional funds without requiring existing stockholders to invest more of their own money or the sale of stock to new investors

Answer 58

Pros of Debt Financing

Question 59

Requirement to make fixed payments Creditors often impose covenants on the borrower

Answer 59

Cons of Debt Financing

Question 60

More flexible and less risky than debt financing Imposes no required payments

Answer 60

Pros of Equity Financing

Question 61

Does not yield the same tax benefits as debt financing Existing owners might not want a firm to issue more stock as it may dilute their share of ownership Company that relies mainly on equity financing forgoes the opportunity to use financial leverage

Answer 61

Cons of Equity Financing

Question 62

The process a firm uses to evaluate long-term investment proposals

Answer 62

Capital bugeting

Question 63

The principle that a dollar received today is worth more than a dollar received in the future

Answer 63

Time value of money