Deck 14: Cash Flow and Taxes

Question 1

A (n)________ statement summarizes the cash coming into and going out of the business over a specified period of time.

A) Business plan
B) Balance sheet
C) Income
D) Cash flow
E) pitch

Answer 1

D

Question 2

Which statement best describes how the cash flow statement differs from the income statement?

A) The income statement records sales and expenses when they happen, not when cash is actually exchanged. The cash flow statement records cash inflows and outflows when they actually occur.
B) The income statement records income, as it comes in, while the cash flow statement records cash from sales.
C) The income statement keeps track of cash when sales are made; the cash flow statement keeps track of cash after sales are made.
D) All of the above
E) None of the above

Answer 2

A

Question 3

Because entrepreneurs do not have Social Security tax taken out of their income by their employer, they must pay a(n) ________.

A) Self-employment tax
B) Capital assets tax
C) Operating tax
D) Sales tax
E) All of the above

Answer 3

A

Question 4

The legal structure you decide on will affect the taxes you pay. However, certain administrative tasks will be the same for all legal structures and include ________.

A) Obtaining a federal identification number for the company that you can use in all interactions with the federal government
B) Obtaining a sales and use tax registration number from the state
C) Both A and B
D) Filing articles of incorporation
E) None of the above

Question 5

Receipts minus disbursements = the money you take in minus the money that you spend = ________.

A) Cash flow
B) Profit
C) Revenue
D) Gross profit
E) COGS

Question 6

A burn rate is ________.

A) The amount of cash per month that a business can spend before it runs out of cash
B) The number of months that a business can survive without making sales
C) The amount of cash that a business burns on rent per month
D) Cash saved by a business
E) None of the above

Question 7

Once a business begins to grow, an entrepreneur needs to keep an eye on ________, which is defined as "Current Assets minus Current Liabilities."

A) Working capital
B) The operating ratio
C) Capital assets
D) All of the above
E) None of the above

Question 8

Credit is ________.

A) The ability to buy something without spending actual cash
B) Exemplified by purchasing a product to sell, and you don't have to pay until after you have sold it
C) Both A and B
D) Getting money for free and buying the things you want
E) None of the above

Question 9

On your cash flow statement, you will need to ________ the amount you deducted from the income statement as a depreciation expense.

A) Add back
B) Amortize
C) Subtract
D) Multiply
E) Divide

Question 10

Orders are not entered onto the cash flow statement as cash receipts because you ________.

A) Don't get the cash until the customer actually pays for the order
B) Will have a more accurate cash flow statement if you enter them once a month
C) Might get them confused with revenue on the income statement
D) All of the above
E) None of the above

Question 11

Entrepreneurs should always ________.

A) Keep records, file returns, and pay taxes on time
B) Ask to be audited by the IRS
C) Pay self-employment tax
D) Avoid expenses

Question 12

Why is it not a good idea to rely on your income statement to run your business?

A) The income statement deducts noncash expenses, such as depreciation, even when no cash is actually flowing out of the business.
B) The income statement records cash when it comes into the business.
C) The income statement adds noncash expenses back to the business's earnings.
D) All of the above
E) None of the above

Question 13

Make your life easier at tax time by keeping ________.

A) Complete financial records
B) High net income
C) Operating ratios
D) A good working capital figure
E) High long-term liabilities

Question 14

As a sole proprietorship, you sell tangible products to the public at retail. You will need to pay ________.

A) Sales tax
B) Services tax
C) Self-employment tax
D) Improvement tax
E) Both A and C

Question 15

Every time an entrepreneur spends cash, she or he takes a risk. If the entrepreneur buys ________, then he or she faces the risk of storage costs and pilfering.

A) Inventory
B) Capital assets
C) A computer for your chief financial officer
D) Gum
E) None of the above

Question 16

A ________ legal structure for your business offers a tax shelter to some partners and can offer a more creative allocation of profit and loss.

A) Limited liability corporation
B) Sole proprietorship
C) Limited partnership
D) Partnership
E) All of the above

Question 17

________ is the amount an investment is worth discounted back to the present.

A) Present value of money
B) Time value of money
C) Future value of money
D) Upcoming value of money
E) None of the above

Question 18

Failure to file and pay income tax is a criminal offense called tax ________.

A) Evasion
B) Fraud
C) Avoidance
D) Shirking
E) Elusion

Question 19

A(n) ________ rate of return means that interest is earned on the base amount plus any interest previously earned.

A) Accrued
B) Compound
C) Annual
D) Quarterly
E) Monthly

Question 20

Which of the following is not a key rule for managing cash flow?

A) Pay bills as soon as possible.
B) Collect cash as soon as possible.
C) Check cash balance every day.
D) Pay bills as late as possible but on time.
E) All of the above are key rules.

Question 21

What are the two steps in making a cash flow projection?

A) Projecting cash receipts and subtracting expected cash expenses
B) Projecting expected cash expenses and subtracting inventory cost
C) Projecting receipts and paying bills before they are due
D) Projected bills and adding cash receipts
E) Past cash receipts and subtracting future cash receipts

Question 22

If the amount of cash that flows in and out of your business changes significantly during certain times of the year, include the following in your business plan: ________.

A) A seasonality scenario
B) A projected cash flow statement
C) A cash flow statement
D) An income statement
E) A fiscal scenario

Question 23

Inflow of cash is money coming into the business, usually from sales.

Question 24

Cash is essential for the initial investment, ongoing operations, and growth of a business.

Question 25

To manage cash flow, you should ________ and then subtract expenses you expect to incur.

A) Project cash receipts
B) Project net income
C) Project gross sales
D) Project gross receipts
E) Project gross liabilities

Question 26

There is often a time lag between making a sale and getting paid. This is evidence that cash flow is not documented on the income statement.

Question 27

All of the receivables owed to you will be collected sooner or later.

Question 28

An example of seasonal business is a card shop during Mother's Day or Christmas.

Question 29

The present value of money is based upon the value of your "next-best" opportunity for investment at a particular ROI. If this value is 10%, it is better to get $10,000 at the end of the first year than ________ today.

A) $8,800
B) $9,500
C) $10,000
D) All of the above
E) None of the above

Question 30

Which business is most likely to have cash flow that is cyclical?

A) Tax return preparation business
B) Gas station
C) Pet food business
D) Grocery store
E) Pharmacy

Question 31

The cash flow statement summarizes the cash coming into and going out of the business over a specified time frame.

Question 32

You can calculate your cash balance by subtracting cash disbursements from accounts receivable receipts.

Question 33

Which of the following is the bottom line on a cash flow statement?

A) Ending cash balance
B) Cost of goods sold
C) Net profit
D) Taxes
E) None of the above

Question 34

Businesses typically sell for several times their income, because the future stream of income is being sold. The price of the business is its ________.

A) Present value
B) Future value
C) Five time earnings
D) Past value
E) Value prior to start-up

Question 35

Keeping timely and accurate inventory records is vital to controlling inventory costs.

Question 36

Pilferage is theft of inventory.

Question 37

Which of the three financial statements an entrepreneur prepares is used to guide the day-to-day operations of the business?

A) The cash flow statement
B) The balance sheet
C) The income statement
D) All of the above
E) None of the above

Question 38

If Jacques invests $20,000 at 10% interest for 3 years, what will the future value of the money be?

A) $26,620.00
B) $6,620.00
C) $20,606.02
D) $28,606.02
E) $22,620.00

Question 39

If Tara invests $10,000 at 5% interest for 5 years, what will her earnings be at the end?

A) $2,762.81
B) $12,500
C) $607.75
D) $45,000.65
E) $3,098.32

Question 40

The last section of an income statement shows the net change in cash flow. This tells the entrepreneur whether the business had a positive or negative cash flow that month.

Question 41

How could the income statement potentially confuse a business owner?

Question 42

Which of the following would be the most or least seasonal businesses and therefore have the most or least cyclical cash flow: a. snow plowing; b. high school senior photography; c. cleaning and repairing lawn mowers; d. evening and weekend babysitting? Why?

Question 43

Inventory does not tie up cash. You should have as much inventory on hand as possible.

Question 44

What are the tax issues for the various legal structures your business can have?

Question 45

You will have few opportunities to negotiate vendor payments.

Question 46

Why would collecting all money owed within 30 days and paying bills in 90 days help protect a business? Is there a potential downside to this behavior? What is it and why?

Question 47

What are the rules to keep cash flowing so that you always have enough cash to pay your bills?

Question 48

All profit earned by a sole proprietorship belongs to the owner and affects his/her tax liability.

Question 49

Factoring provides cash to companies in exchange for the rights to cash that will be collected from their customers.

Question 50

Noncash expenses are expenses recorded as adjustments to asset values such as depreciation.