Learning Objective: 14-01 Explain the need for profit planning for a small business.
34.
Profit planning must be initiated only after all other planning activities have been
completed.
Learning Objective: 14-01 Explain the need for profit planning for a small business.
35.
For small business owners, a lack of accurate cost information can foster the illusion of
making a greater profit than is really earned.
Learning Objective: 14-01 Explain the need for profit planning for a small business.
36.
Since the financial position of a small business is constantly changing, these changes
need not be recorded for further analysis.
Learning Objective: 14-01 Explain the need for profit planning for a small business.
37.
Profits are not necessarily in the form of cash.
38.
If the funds of a small business are invested in a fixed asset, then those funds cannot be
used for paying bills.
39.
The financial structure of a firm remains unchanged as business activities occur.
40.
According to the most basic accounting truth, the total liabilities plus owners’ equity
always exceeds the total assets of the firm.
41.
A balance sheet is prepared at regular intervals to show the assets, liabilities, and owners’
equity of a small business.
42.
Holding too much cash reduces a small business owner’s income because it produces no
revenue.
43.
Selling on credit coupled with a careful selection of customers can help small business
owners maintain a higher level of sales.
44.
The amount borrowed from creditors is divided into current and long-term liabilities in the
financial structure of a small business.
45.
Accounts payable are usually due within a few years.
46.
Maintaining a high level of accounts payable requires a business to have a high level of
current assets.
47.
In the context of small businesses, accounts payable result from giving credit to customers
at a low interest rate.
48.
Owners’ equity is the owners’ share of a business after the financial obligations of the
business are subtracted from the value of its assets.
49.
Small business owners receive income from profits in the form of an increase in their
share of the business through an increase in retained earnings.
50.
The losses incurred by a business increase the owners’ equity.
51.
Small business owners need not absorb the losses of a firm.
52.
If a small business firm has $46,000 in revenue and $24,000 in expenses, its net profit is
$70,000.
53.
The income statement reflects both the revenue and the expenses of a firm.
54.
The profit margin indicates the relationship between revenues and expenses.
55.
In a well-managed small business, the balance sheet is not as important to the owner as
the income statement.
56.
Long-range planning is important for a well-managed small business firm.
14–32
57.
A badly managed small business is more liquid than a well-managed company.
58.
Rapid growth, instead of stability, is emphasized in a well-managed small business firm.
59.
In the context of profit planning for small businesses, the more uncertain the future, the
greater the need for planning.
60.
Kaizen costing refers to a cost reduction method aimed at improving profits.
Essay Questions
61.
What is the importance of accounting for small businesses?
62.
In the context of small businesses, what is the difference between accounts receivable
and accounts payable?
63.
Write a short note on owners’ equity.
64.
Differentiate between revenue and expenses.
65.
List some of the characteristics of a well-managed small business.
66.
List the steps in the process of profit planning for a small business.
67.
Explain how a sales forecast is used to determine the sales volume for a typical small
business.
68.
How can a small business change its planned sales income to improve profits?
Planned sales income may be changed by:
69.
How can a small business decrease planned expenses to improve profits?
A small business can decrease planned expenses by:
70.
What are the alternatives that a small business owner can consider in order to increase
profits?