Financial Accounting and Business Plans

Question 1

What is Financial Accounting???

Answer 1

the process of recording / analyzing the financial data of a business.

Question 2

Management Accounting is…

Answer 2

concerned with costs and benefits of activities of an enterprise.

Question 3

The flow of money in a company is measured…

Answer 3

1. Through variables that is variables that are measured with respect to time using an INCOME STATEMENT summarizes the companies revenues and expenses over a period of time
2. Across variables that is variables that are measured at a point in time using a BALANCE SHEET. A document that shows the company’s financial position at a particular time.

Question 4

Owners’ Equity is equal to

Answer 4

Assets – Liabilities

Question 5

Three basic ways to structure a business…

Answer 5

1. Sole proprietorship
2. Partnership
3. Corporation

Question 6

Sole proprietorship

Answer 6

1. Business owned by one person.
2. Simplest and least regulated form of business.
3. Owner keeps all of the profit but at the same time has UNLIMITED LIABILITY

Question 7

Partnership

Answer 7

1. Business owned by two or more people.
2. All profits and losses are shared according to the PARTNERSHIP AGREEMENT
3. In a limited partnership, some partners are only involved as investors.
   ***Limited partners have limited liability

Question 8

Corporation

Answer 8

1. Owned by shareholders.
2. Board of directors responsible for selecting managers to run the business.
3. It is a business entity with its own rights and responsibilities, separate from the owners.
   ***Owners have limited liability up to the amount of their investment.

Question 9

Profits is equal to…

Answer 9

Revenue – Expenses
***After deducting taxes we arrive at NET PROFIT/INCOME

Question 10

Working capital =

Answer 10

current assets − current liabilities

Question 11

Current ratio =

Answer 11

Current assets ÷ Current liabilities
***A current ratio of 2 is considered adequate.

Question 12

Acid test ratio =

Answer 12

Quick assets (assets that are quickly converted to cash.)÷ Current liabilities

**An acid test ratio of 1 is considered adequate.

Question 13

Debt management ratios are…

Answer 13

ration that show the extent firm relies on debt.

Question 14

Equity ratio =

Answer 14

Total equity ÷ (Total liabilities + Total equity)

therefore: Total equity ÷ Total assets

***The smaller the ratio the more dependent the firm is on debt

Question 15

Step 1 of preparation Business Plan???

Answer 15

1. Executive Summary
   -Company’s mission statement
   -Products and services that the company provides
   -Overall financial health of company
   -Future plans

Question 16

Step 2 of preparation Business Plan???

Answer 16

Company Description
-Products/services and market needs
Why is the company necessary and who are the target consumers?
-Company’s HR capabilities
Experience and education of key employees
-Competitive advantages of the company
What Technology, location, production capability, and personnel makes the company stand out?

Question 17

Step 3 of preparation Business Plan???

Answer 17

Market Analysis/Future Outlook
-What is out target market
-Future trends

Question 18

Step 4 of preparation Business Plan???

Answer 18

Management, Structure and Organization of the business

Question 19

Step 5 of preparation Business Plan???

Answer 19

Where is funding coming from???
-Owners and investors
-Banks and other financial institutions
-How company will attract investors for new projects or expansion.

Question 20

Step 6 of preparation Business Plan???

Answer 20

Sales and Marketing
-Recognition and fulfillment of needs.
-Communication mechanisms (surveys, advertisements).
-Promotions