Which of the following statements is FALSE:
A balance sheet consists of financial information at a specific moment in time. An income statement consists of financial information over a specified period of time. A current liability is debt that is due in six months. Owner's equity equals assets less liabilities.
The first number your banker will be probably be looking at in your financial statements will be:
Owner's equity Current ratio Current earnings Cash flow projection
As a start-up business, it is better to prepare your payroll checks and manage payroll accounting and reporting yourself.
True False
If you plan to have a business that requires inventory or if you are going to manufacture products, the IRS will generally require that you use:
The cash method of accounting The accrual method of accounting
Where is the best place to find out financial (and other) information about the large public competitors that you must deal with?
A professional stock broker Annual reports to shareholders Interviews with key executives
Which of the following expenses is a non-cash expense?
Insurance premiums Interest on loans Depreciation Taxes paid
In the cash basis of accounting, you match revenue with expense regardless when the cash may or may not be collected.
True False
Once you have prepared your cash flow projection, which of the following scenarios would be the best course to take:
Change (modify) the numbers every twelve months. Try as much as possible to change your strategy as you go along so the numbers in your projection maintain liquidity.
On your cash flow projection, each period of time analyzed will include: Starting cash plus cash sales plus any other cash sources, less cost of sales, less all other cash expenses resulting in ending cash.
True False
In your Business Plan, your one-year cash flow projection indicates that after six months you will go negative $50,000 due to receivables outpacing your income. You should:
When that future time comes, ask your vendors for longer payment terms to maintain liquidity. Reduce your prices to generate cash to make up for your negative cash position. Have financing in place before you start, either from vendors, lenders or your mother-in-law in order to provide the cash for this anticipated future condition. If you experience a negative cash flow due to slow paying customers, you should slow your own payments to vendors proportionately. If and when the condition actually does arise, make an appointment with your bank, show them your cash flow problem and arrange for supplemental financing.
