978-1259912191 Chapter 7 Solutions Manual Part 1

Chapter Seven: Financing and Accounting

Key Terms

Asset-based lending: A loan provided for the purchase of a necessary asset for the

business. (LO 7-2)

Asset lease: A form of lease tied to a particular asset used by a business to conserve

cash and maintain the latest versions of whatever equipment is available. (LO 7-2)

Business angels: High-net-worth individuals who invest in businesses not as a

business, but as an individual. (LO 7-2)

Credit card: Card entitling one to revolving credit that is not tied to any particular asset,

does not have a set repayment schedule, typically has a set upper limit, and is usually

tied to a much higher interest rate than that of a bank loan. (LO 7.2)

Crowdfunding: Funds received by a business by soliciting a large number of very small

investors usually via the Internet. (LO 7-2)

Debt: A generic term used to describe any type of non-equity funding tied to the

business. (LO 7-2)

Equity investment: Funds received by a business in exchange for a percentage

ownership of the business. (LO 7-2)

Factoring: Accounts receivable that are sold at a discount to another company in order

to receive immediate cash. (LO 7-2)

Grants: Special funds, neither equity nor debt that do not require repayment and are

designed to aid businesses in specific areas. (LO 7-2)

Loan: Contractual agreement whereby the firm receives some amount of money that

must be repaid over a specified period of time at a specified interest rate. (LO 7-2)

Profit & Loss (P&L Statement): A financial statement that summarizes the revenues,

costs and expenses incurred during a specific period of time. (LO 7-3)

Shrinkage: The difference between what is sold and what was brought into the

business. (LO 7-3)

IM 7-1

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

Supplier credit: Another form of non-equity funding that is available. Suppliers often

will provide credit on both physical assets (refrigerators, molding, equipment, etc.) and

the actual supplies provided. (LO 7-2)

Venture capital fund: A fund that is organized to make significant equity investments in

high-growth new ventures. (LO 7-2)Suggested Text Respons

Opening Vignette – “Christopher Gray-Scholly” p. 123

IM 7-2

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

Student responses will vary.

Exercise 1- p. 132

Student responses will vary.

Ethical Challenge – p. 132

Student responses will vary.

Exercise 2 – p. 133

Student responses will vary.

Review Questions p. 137

1. How can using loans help the new business grow? Loans may provide the

2. Explain the best use of credit cards in a new business operation. Credit cards

3. What are the negative impacts of supplier credit on the new business start-up?

4. How can a new business take advantage of grants? If the business is in a specific

IM 7-3

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

5. Why should a new businessperson be wary of equity investments by other

companies? Other companies may be using the new business to try out new ideas or

6. How will venture capital impact a growing business? Venture capitalists seek

7. What are the pros of having angel investors in a new business? Angel investors

8. How can asset leases be used to improve the income generation of a new

9. Why might a business choose to factor its accounts? Factoring allows the

10. How might an entrepreneur find out how much a business is worth? An

11. What factors impact how much equity a new business gives away for a set

12. How does a new businessperson use a P&L statement? The P & L represents

13. Why should a new business spend time setting up a chart of accounts? The

IM 7-4

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

Class Activities and Sample Assignments

1. In groups, ask students to discuss the importance of proper accounting systems

when starting a new business. Next, ask each group to list at least one or two

important concepts. List the student responses on a blackboard or a flip chart and

discuss them as a group. (LO 7-3)

2. Discuss the Profit and Loss Statement (P&L Statement) and explain to the students

that it provides data that represents the performance of a firm over a specific period

of time. Next, ensure that the students understand how important accurate records

are to the small business. (LO 7-3)

3. In groups, ask students to evaluate the various sources a new small business owner

can consider to fund the new small business. Next, ask students to rank order the

sources from the most attractive sources to the least attractive sources. Next, ask

them how a new small business owner can obtain the financing needed to initiate

the business. (LO 7-1, 7-2, 7-3)

4. Divide the students into groups. Ask each group of students to find an accounting

software package that a new small business owner could use to initiate the owner’s

accounting records. Ask them to discuss the features, benefits, advantages,

disadvantages of each, and to discuss a particular business that the software would

be most appropriate for. Discuss this as a group and list the outcomes revealed on a

flip chart or blackboard. (LO 7-3)

5. Discuss with the students the key components in the chart of accounts. Ask the

students to summarize what it is, and why it should continue to be evaluated by the

new small business owner. (LO 7-3)

6. Ask students to discuss how a new small business owner can manage the data flow

for the new small business. Next, ask them to discuss the advantages and

disadvantages to the founder. (LO 7-3)

7. In groups, ask the students to discuss what resources they would use to fund the

following types of business: (LO 7-1, 7-2, 7-3)

a. Large manufacturing business

b. Small restaurant business that accepts cash only

c. A large retail store

d. A medium size contracting firm

IM 7-5

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

Discussion Questions for Online/Hybrid classes

1. What are equity investments? Discuss how they assist the new entrepreneurial

business owner with the costs related to the new business start-up. (LO 7-2)

2. Summarize the key issues associated with new small business financing. Why is the

appropriate amount of funding important to the new small business owner. (LO 7-1,

7-2, 7-3)

3. What is non-equity funding? Summarize the different types of funding that new small

business owners can consider for their funding needs. (LO 7-2)

4. What is equity funding? Discuss how businesses make equity investments in other

start-up firms. Be specific. (LO 7-2)

5. What are business angels? What are the advantages and disadvantages associated

with angel investing? (LO 7-2)

6. What is a chart of accounts? What activities does it list? Be specific. (LO 7-3)

7. Summarize how a new small business person can manage the data flow for the new

small business. (LO 7-3)

8. What is just-in-time inventory? What does it accomplish? (LO 7-3)

9. Compare and contrast grants and loans. Discuss the advantages and disadvantages

of each type of fund source. (LO 7-2)

10. What is the importance of proper accounting when starting a business? (LO 7-3)

Discussion Questions for Online/Hybrid classes-Responses

1. What are equity investments? Discuss how they assist the new

entrepreneurial business owner with the costs related to the new

business start-up. (LO 7-2) Equity investments are funds received by a

IM 7-6

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

2. Summarize the key issues associated with new small business financing.

Why is the appropriate amount of funding important to the new small

business owner (LO 7-1, 7-2, 7-3) The new small business must determine

3. What is non-equity funding? Summarize the different types of funding

that new small business owners can consider for their funding needs.

4. What is equity funding? Discuss how businesses make equity

investments in other start-up firms. Be specific. (LO 7-2) Equity funding is

5. What are business angels? What are the advantages and disadvantages

associated with angel investing? (LO 7-2) Angel investors are high net

6. What is a chart of accounts? What activities does it list? Be specific. (LO

IM 7-7

written consent of McGraw-Hill Education.

Chapter Seven: Financing and Accounting

7. Summarize how a new small business person can manage the data flow

for the new small business. (LO 7-3) The key to managing data is obtaining

8. What is just-in-time inventory? What does it accomplish? (LO 7-3)

9. Compare and contrast grants and loans. Discuss the advantages and

disadvantages of each type of fund source. (LO 7-2) Grants do not need to

10.What is the importance of proper accounting when starting a business?

IM 7-8

written consent of McGraw-Hill Education.