Question 1

It is possible to sell products and have no cash coming into a company.

Accepted Answer

It is possible to sell products on credit, meaning the customers do not pay immediately and cash does not come into the company right away. Additionally, if the company has expenses and debt to pay off, the money may not remain in the company after the products are sold.

Question 2

When there is a doubling in orders for a new business's products or services in a single month, it leads to an immediate increase in the cash flowing into the business.

Accepted Answer

A doubling in orders does not immediately increase cash flow because there is typically a delay between when orders are placed and when payments are received, especially if the business offers credit terms to its customers. Additionally, fulfilling a larger volume of orders may require upfront costs.

Question 3

A cash flow statement is the same as a budget.

Accepted Answer

A cash flow statement and a budget are not the same thing. A budget is a plan for income and expenses over a specific period of time, while a cash flow statement is a financial report that shows the inflows and outflows of cash within a business during a particular period of time.

Question 4

A general rule of thumb when examining the initial equity needs of a new venture is to base it on equity investments competitors have made into their businesses.

Accepted Answer

The initial equity needs of a new venture should be based on the specific needs and goals of that venture, not the investments of competitors. Each venture is unique and requires a tailored approach to determining its initial equity needs.

Question 5

A firm obtains profits when its sales revenue is higher than its expenses.

Accepted Answer

A firm's profits are calculated by subtracting its expenses from its sales revenue. Therefore, if the sales revenue is higher than the expenses, the firm will obtain profits.

Question 6

In a small business, profits will demonstrate to the owner if the business is viable over the long term.

Accepted Answer

The answer of In a small business, profits will demonstrate...

Question 7

If a small firm is making a profit, then the firm must have a positive cash flow.

Accepted Answer

A small firm can make a profit but still have negative cash flow if its cash outflows (such as expenses and investments) are greater than its cash inflows (such as revenue and financing). Therefore, making a profit does not necessarily guarantee positive cash flow.

Question 8

Everything in cash flow in a small business is related to one activity: operations.

Accepted Answer

Cash flow in a small business is mainly generated from the operational activities, such as sales, production, and expenses related to day-to-day functioning of the business. Other activities like investments and financing may also impact cash flow, but they are not as significant as operations.

Question 9

A budget details all the expenses incurred by a company within a specified period.

Accepted Answer

A budget is a financial plan that estimates both the revenue and expenses for a specified future period, not just the expenses.

Question 10

A budget does the exact opposite of a cash flow statement.

Accepted Answer

The answer of A budget does the exact opposite of...

Question 11

In a business, the actual cash that flows into the firm minus the cash that goes out of it is known as cash flow.

Accepted Answer

Cash flow is the net amount of cash that remains after all expenses have been paid.

Question 12

A new small business must pay its vendors by using purchase orders.

Accepted Answer

A new small business has multiple options for paying vendors, including cash, credit, electronic transfers, or checks, and does not necessarily have to use purchase orders. Purchase orders are a tool for ordering goods or services, not a mandatory payment method.

Question 13

To prevent a cash crunch, a company must accurately forecast its actual cash flow.

Accepted Answer

Accurately forecasting cash flow helps a company to plan and allocate its resources effectively, enabling it to prevent a cash crunch.

Question 14

Float is the difference between the money going out and the money coming in.

Accepted Answer

Float is the difference between the cash outflows and inflows of a business or individual, and refers to the time it takes for a payment to be processed and reflected in the account balance.

Question 15

One of the fundamental realities of starting a new business is that it takes a period of time for the new venture to ramp up sales and then to obtain cash from those sales.

Accepted Answer

This is true because it takes time to establish a customer base, build brand awareness, and develop effective marketing strategies. During this period, the business may incur expenses without generating significant revenue, which can create financial challenges.

Question 16

Cash flow in a business is the same as profit.

Accepted Answer

Cash flow and profit are two different concepts. Cash flow refers to the amount of money going in and out of a business, while profit is the amount of money left over after all expenses have been paid. A business can have positive cash flow without making a profit, and it can have a profit without positive cash flow.

Question 17

A deviation analysis is a review of the differences between the predicted and the actual performance of cash flows.

Accepted Answer

A deviation analysis is specifically focused on comparing predicted and actual cash flow performance to identify any discrepancies or variances.

Question 18

For a proposed new business, a financial analysis focuses exclusively on its ability to generate positive cash flow in the shortest time possible.

Accepted Answer

A financial analysis that focuses exclusively on the ability of a new business to generate positive cash flow in the shortest time possible is commonly known as a cash flow analysis. This type of analysis is typically done to evaluate the financial feasibility of the proposed business and to assess the risk involved in investing in the business. It is important to evaluate the ability of a new business to generate positive cash flow since cash flow is critical in the early stages of a business when it is making a start. Therefore, the proposed statement is true.

Question 19

In a large firm, when there is a separation between managers and ownership, profits are a useful measure to evaluate a manager's performance.

Accepted Answer

When there is a separation between managers and ownership, profit becomes the primary measure to evaluate the performance of a manager as it reflects their ability to generate revenue and minimize expenses.

Question 20

In order to determine a firm's cash flow, the firm's owner must calculate the entire cash flow projection and multiply that by 150 percent to determine if the firm can meet its financial obligations.

Accepted Answer

The answer of In order to determine a firm's cash...

Quiz 6: Analyzing Cash Flow and Other Financial Information