Chap 10 - Balance Sheet to end

The entrepreneur should also prepare a projected balance sheet depicting the _____ of the business at the _______.

condition; end of the first year

will require the use of the pro forma income and cash flow statements to help justify some of the figures.

balance sheet

reflects the position of the business at the end of the first year.

pro forma balance sheet

it tells the entrepreneur a measure of the company’s solvency.

pro forma balance sheet

those expected to be converted into cash within the year

current assets

those that must be paid within the current year

current liabilities

indicates how well the firm can pay its bills.

ratio analysis of current assets to current liabilities

A ratio of _____ would indicate that the company needs an infusion of cash in order to meet its current obligations.

less than 1:1

Every business transaction affects the balance sheet, but because of the _______, as well as need, it is common to prepare balance sheets at periodic intervals (i.e., quarterly or annually).

time and expense

Every business transaction affects the balance sheet, but because of the time and expense, as well as need, it is common to prepare balance sheets at ________ (i.e., quarterly or annually).

periodic intervals

is a picture of the business at a certain moment in time and does not cover a period of time

balance sheet

These represent everything of value that is owned by the business.

Assets

is not necessarily meant to imply the cost of replacement or what its market value would be but is the actual cost or amount expended for the asset.

Value

Assets are categorized as:

current or fixed

include cash and anything else that is expected to be converted into cash or consumed in the operation of the business during a period of one year or less.

current assets

are those that are tangible and will be used over a long period of time.

Fixed assets

are often dominated by receivables or money that is owed to the new venture from customers.

Current assets

_______ of these receivables is important to the cash flow of the business since the longer it takes for customers to pay their bills, the more stress is placed on the cash needs of the venture.

Management

These accounts represent everything owed to creditors.

Liabilities

Some of these amounts may be due within a year

current liabilitieso

should the entrepreneurs need to borrow money from a bank for the future purchase of equipment or for additional growth capital, the balance sheet would show long-term liabilities in the form of a ___________.

note payable equal to the principal amount borrowed

any interest on this note would appear as an _____ in the income statement, and the payment of any _______ would be shown in the cash flow statement.

expense; principal

Subsequent end-of-year balance sheets would show only the remaining amount of principal due on the _____.

note payable

Although prompt payment of what is owed (payables) establishes good credit ratings and a good relationship with suppliers, it is often necessary to _____ payments of bills to more effectively manage cash flow.

delay

Ideally, any business owner wants bills to be paid on time by suppliers so that he or she can pay any bills owed on time. Unfortunately, during ____, many firms hold back payment of their bills to better manage cash flow.

recessions

This amount represents the excess of all assets over all liabilities.

Owner equity

It represents the net worth of the business.

Owner equity

Any profit from the business will also be included in the net worth as ______.

retained earnings

_____ increases assets and owners’ equity

revenue

_____ decrease owners’ equity and either increase liabilities or decrease assets.

expenses

is a useful technique for determining how many units must be sold or how much sales volume must be achieved to do this.

Break-even analysis

must be covered by sales volume for a company to break even.

obligations or fixed costs

is that volume of sales at which the business will neither make a profit nor incur a loss.

breakeven

indicates to the entrepreneur the volume of sales needed to cover total variable and fixed expenses.

break-even sales point

Sales in excess of the break-even point will result in a ____ as long as the selling price remains above the costs necessary to produce each unit (variable cost).

profit

Sales in excess of the break-even point will result in a profit as long as the ________ remains above the costs necessary to produce each unit (variable cost).

selling price

As long as the _____ is greater than the variable costs per unit, some contribution can be made to cover fixed costs.

selling price

As long as the selling price is greater than the variable costs per unit, some contribution can be made to cover fixed costs. Eventually, these contributions will be sufficient to pay all ______, at which point the firm has reached breakeven.

fixed costs

The major weakness in calculating the breakeven lies in determining whether a cost is ______.

fixed or variable

it is reasonable to regard costs such as depreciation, salaries and wages, rent, and insurance as _____.

fixed

Materials, selling expenses such as commissions, and direct labor are most likely to be ______.

variable costs

These usually can be determined by allocating the direct labor, materials, and other expenses that are incurred with the production of a single unit.

variable costs per unit

are determined by weighting the costs as a function of the sales projections for each product.

fixed costs

illustrates the disposition of earnings from operations and from other financing.

pro forma sources and applications of funds statement

Its purpose is to show how net income and financing were used to increase assets or to pay off debt.

pro forma sources and applications of funds statement

helps the entrepreneur as well as investors to better understand the financial well-being of the company as well as the effectiveness of the financial management policies of the company.

sources and applications of funds statement

available for the entrepreneur that can track financial data and generate any important financial statement.

financial software packages

For purposes of completing the pro forma statements, at least in the business planning stage, it is probably easiest to use a ______, since numbers may change often as the entrepreneur begins to develop budgets for the pro forma statements.

spreadsheet program

is the most widely used spreadsheet software and is relatively simple to use.

Microsoft Excel

The value of using a _____ in the start-up phase for financial projections is simply being able to present different scenarios and assess their impact on the pro forma statements.

spreadsheet

will provide a quick assessment of the likely financial projections given different scenarios.

computer spreadsheet software

It is recommended in the start-up stage, where the venture is very small and limited in time and resources, that the software selected be _______.

very simple and easy to use

The entrepreneur will need _____ to maintain the books and to generate financial statements

software

Most of these _________ allow for check writing, payroll, invoicing, inventory manage ment, bill paying, credit management, and taxes.

software packages

One of the simplest and probably the most widely used small business accounting software package is ________.

Intuit’s Quickbooks

is also well regarded by experts and offers a variety of versions depending on your needs

Sage50

provides a sales estimate in the first year (monthly basis) and projects operating expenses each month.

pro forma income statement

are determined from the appropriate budgets, which are based on marketing plan projections and objectives.

sales estimate

It reflects the difference between cash actually received and cash disbursements.

cash flow

Some cash disbursements are not ______ (e.g., repayment of loan principal)

operating expenses

some operating expenses are not a ______ (e.g., depreciation expense).

cash disbursement

The break-even point can be determined from _______.

projected income

This measures the point where total revenue equals total cost.

break-even point

helps the entrepreneur understand how the net income for the year was disposed of and the effect of the movement of cash through the business.

pro forma sources and applications of funds statement

It emphasizes the interrelationship of assets, liabilities, and stockholders’ equity to working capital.

pro forma sources and applications of funds statement

to assist the entrepreneur in accounting, payroll, inventory, billing, and so on are readily available.

Software packages