51) In the Numi Organic Tea case study, Numi Organic Tea was founded based on the principles
of
A) justice.
B) fair trade.
C) equality.
D) none of these.
52) In the Friend’s Home Health case study, the cash flow statement reflected receipts from
A) actual expenses.
B) projected expenses.
C) estimated expenses.
D) all of these.
53) In the context of developing cash flow statements and budgets, what company activities are
typically categorized as operations?
A) Activities related to cash flowing either in or out of a company
B) Activities related to managing a company’s equity capital
C) Activities related to forecasting a company’s performance
D) Activities related to developing new strategies for a company to implement
54) Identify a long-term benefit of developing accurate cash flow statements.
A) They assist a company in securing loans and credit lines in the future.
B) They reduce a company’s vulnerability to competition within its market niche.
C) They improve the long-term profitability of a company.
D) They provide a significant float that allows a company great financial flexibility.
55) In the context of cash flow statements and budgets, for a new entrepreneurial firm, what is a
benefit of separating cash inflows on a cash flow statement into as many categories as possible?
A) It aids in analyzing the actual revenue sources for the firm.
B) It reduces the firm’s taxable income on paper.
C) It identifies weaknesses in the firm’s supply chains.
D) It reduces the firm’s vulnerability to undesirable market conditions.
56) A ________ is an analysis by a small business owner of the best-case and the worst-case
financial scenarios.
A) gap analysis
B) deficit analysis
C) sensitivity analysis
D) forecast analysis
57) Mark, a new business owner, creates two cash flow statements for his firm. The first increases
the monthly revenue of his firm by 40 percent, while the other reduces the monthly revenue by 40
percent. He compares the effect of each scenario on his firm’s business to understand its financial
situation. In this scenario, Mark is developing a ________.
A) gap analysis
B) balance sheet
C) sensitivity analysis
D) break-even analysis
58) In the context of financial tools, identify a difference between how traditional Fortune 500
firms and entrepreneurial ventures approach break-even analysis.
A) Traditional Fortune 500 firms calculate breakeven using profit, whereas entrepreneurial
ventures calculate breakeven using cash flow.
B) Traditional Fortune 500 firms estimate breakeven based on gross profits, whereas
entrepreneurial ventures estimate breakeven using net profits.
C) Traditional Fortune 500 firms calculate breakeven from returns on initial investments, whereas
entrepreneurial ventures calculate breakeven from the profit margin from each sale.
D) Traditional Fortune 500 firms estimate breakeven as the point where costs equal sales, whereas
entrepreneurial ventures estimate breakeven as the point where cash flow becomes positive.
59) A ________ describes estimates by a small business owner of what the balance sheets and
income statements will look like in the future.
A) pro forma
B) balance sheet
C) current asset
D) cash flow
60) A ________ is a summary of the assets and liabilities of a small business.
A) pro forma
B) balance sheet
C) current asset
D) cash flow
61) A ________ can easily be converted to cash, such as accounts receivable and notes receivable.
A) pro forma
B) balance sheet
C) current asset
D) cash flow
62) Marcus performs an analysis of his new business to anticipate its future requirements. He
makes a list of the various assets the firm must account for. He categorizes each asset in two lists:
one for assets that can be easily converted into cash and the other for assets that have a physical
presence. In this scenario, Marcus is analyzing his new business by
A) creating a balance sheet.
B) compiling an income statement.
C) compiling a break-even analysis.
D) creating a cash flow statement.
63) In the context of balance sheets, the current assets of a firm minus its current liabilities are
referred to as the ________.
A) organizational budget
B) variable costs
C) working capital
D) break-even point
64) ________ are owed by a business and are ultimately due more than a year from the current
date.
A) Current assets
B) Long-term liabilities
C) Current balance liabilities
D) Pro forma liabilities
65) The assets minus the liabilities of a firm reflected on the balance sheet should total
A) to half of the profits.
B) the number predicted by the pro forma balance sheet.
C) to zero.
D) the sum of current liabilities.
66) Ingrid is the owner of an entrepreneurial firm. She makes an estimate of the assets and
liabilities of the firm. She then uses these estimates to plan the future activities of the firm. In this
scenario, Ingrid creates a
A) time value of money graph.
B) deviation analysis.
C) cash flow statement.
D) pro forma balance sheet.
67) The focus of an income statement is on
A) profits.
B) assets.
C) liabilities.
D) cash.
68) An income statement provides both the ________ and the ________ profit figures for a firm.
A) current; long-term
B) gross; net
C) fixed; varied
D) goods; services
69) In the context of financial tools, identify a true statement about income statements.
A) Income statements summarize a firm’s assets and liabilities.
B) For an entrepreneurial firm, predicting sales is key to developing income statements.
C) Income statements only estimate the net profit figures for a firm during each financial quarter.
D) When creating income statements, entrepreneurs must be liberal when estimating demand for
their firms’ products.
70) The ________ of money is calculated on the value of an investment in time and money, if the
owner did not do the proposed venture.
A) expected inflow
B) accurate rate
C) future value
D) time value
71) ________ is a tool for the estimation of when a business’s income exceeds its expenses.
A) Gap deficit analysis
B) Long-term analysis
C) Cash flow analysis
D) Break-even analysis
72) ________ costs must be paid regardless of how many products or services are sold.
A) Expected
B) Current
C) Fixed
D) Variable
73) ________ costs change according to how many goods are produced.
A) Expected
B) Current
C) Fixed
D) Variable
74) In the context of financial tools, when a new venture’s net cash flow exceeds the initial
investment plus the time value of the money invested, the venture is said to have achieved
________.
A) positive equity
B) entrepreneurial breakeven
C) long-term sustainability
D) positive float
75) Which of the following terms is used to describe assets that can be easily converted to cash?
A) Fixed liabilities
B) Fixed assets
C) Current assets
D) Current profits
76) An investment into a small business by owners is called ________.
77) A ________ projects all the costs that will be incurred by an organization over a specified
period of time.
78) ________ is the situation where there is a difference between when the money goes out to pay
business expenses and when it comes in from sales.
79) A ________ is an examination of the best-case and the worst-case cash flow scenarios.
80) A ________ analysis is an analytic tool that identifies the differences between the predicted
and the actual performance of a company over time.
81) An example of a(n) ________ asset is a delivery truck used by a florist to deliver flowers to
customers.
82) The focus of an income statement is on ________ rather than on cash.
83) Rent is an example of a(n) ________.
84) The term ________ simply mean that an entrepreneur estimates what the balance sheets and
income statements will look like in the future.
85) Explain why cash flow is important to a new business owner.
86) How is an income statement used by a new business?
87) Why is a break-even analysis important to a new business?
88) Explain the purpose of a cash flow statement, and list five of the basic elements.
89) In the context of cash flow statements and budgets, what is a sensitivity analysis? Why is it
important when developing a new business idea?
90) What is a balance sheet? How can it be used by businesses?
91) Name the two liabilities a balance sheet must account for and give examples of both.
92) Describe fixed costs and variable costs. Give one example of each type of cost.
93) What is a balance sheet? Why is it called a snapshot of a firm?