Chapter 9 Cash Flow and Taxes Entrepreneurship IT

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

• 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.

• The income statement records income, as it comes in, while the cash flow statement records cash from sales.

• The income statement keeps track of cash when sales are made. The cash flow statement keeps track of cash after sales are made.

• The cash flow statement also includes the current market value of assets.

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

• the cash flow statement

• the income statement

• the balance sheet

• tax returns

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

• The income statement records cash when it comes into the business.

• The income statement adds non-cash expenses back to the business's earnings.

• The income statement deducts non-cash expenses, such as depreciation, even when no cash is actually flowing out of the business.

• The income statement usually contains errors that other statements don't have.

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

• gas station

• pet food business

• tax return preparation business

• grocery store

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 cash flow statement

• a projected cash flow statement

• expectations for seasonal variations

• flow chart

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

• Check cash balance every day.

• Pay bills as late as possible but on time.

• Pay bills as soon as possible.

• Collect cash as soon as possible.

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

• subtract

• amortize

• double

• add back

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

• working capital

• the operating ratio

• capital assets

• None of the above.

________ = Cash on Hand + Cash Receipts - Cash Disbursement.

• Profit

• Revenue

• Cash flow

• Gross profit

A burn rate is ________.

• the number of months a business can survive without making sales

• the amount of cash per month a business can spend before it runs out of cash

• the amount of cash a business burns on rent per month

• the number of days a business can survive without making sales