Intro to Business – Chapter 17 – Managing Business Finances

Set of documents that outline the essential financial facts about the new venture. Financial Plan
Money supplied by investors, banks, or owners of a business. Capital
Estimate of a business’s financial outlook for each of the next few years. Financial Forecast
Plan specifying how money will be used or spent during a particular period. Buget
Systematic process of recording and reporting the financial position of a business. Accounting
Rules that provide a way to communicate financial information to others. They are used by all accountants. Generally Accepted Accounting Principles (GAAP)
Anything of value that is owned or controlled. Property
Property and other items of value owned by a business. Assets
Assets that are used up during the normal cycle of the business. Current Assets
Total amount of money owed to a business. Accounts Receivable
Items of value that will be held for more than one year. Fixed Assets
Present value of assets less all claims against them. Equity
Creditor’s claims to the assets of a business. Liabilities
Short-term liabilities that a business owes to creditors. Accounts Payable
An owner’s claim to the assets of the business. Owner’s Equity
What is the accounting equation? Assets = Liabilities + Owner’s Equity
Documents that summarize the changes resulting from business transactions that occur during an accounting period. Financial Statements
Report of the revenue, expenses, and net income or net loss over an accounting period. Income Statement
Report of the balances in all asset, liability, and owner’s equity accounts. Balance Sheet
Money that is available to a business at any given time. Cash Flows
Financial report that shows incoming and outgoing money during an accounting period. Statement of Cash Flows
What six things does a financial plan does? 1. Identifies business assets.2. Determines needed capital.3. Describes start-up and operating expenses.4. Describes financial records management.5. Forecasts future finances.6. Describes growth financing.
What is the purpose of a financial plan? It outlines essential financial facts about the business and is a guide to secure funding.
What type of a budget is a plan for your income and expenses from the time you start a business to the time it will make a profit? Start-up Budget
What type of a budget is a plan for the actual money the business owner spends on a daily, weekly, or monthly basis? Cash Budget
What type of a budget is a plan for the amount expected to be spent and earned over a given period of time, usually six months or a year? Operating Budget
Why do business owner’s use a budget? Budgets help business owners to predict the amount of money the business will need. They also help them to keep track of and control spending.
What financial statement is also referred to as a profit and loss statement? Income Statement
What financial statement displays the accounting equation? Balance Sheet
Why might an entrepreneur realize that he or she could not secure any investors after developing a financial plan? It might show that the business does not have a realistic possibility of success when income is compared to expenses.
A budget helps a business determine how money will be spend in a given period. Will a business fail if it does not meet is budget? A budget is just a prediction. If it spends more money in one area, but less in another, it doesn’t mean that the business will fail.
Why does the government require corporations to release their financial statements to the public? If you are a stockholder, you own the business and you have every right to know how that business is doing. If you are interested in purchasing stock in a corporation, you have a right to know what corporation do invest it.

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