BP Ch. 12.1 Financial Planning

Match the following terms and definitions

• the costs of operating a business

• revenue

• expenses exceed revenue

• budget

• a detailed plan for the financial needs of a business

• loss

• all income that a business receives over a period of time

• profit

• revenue is greater than expenses

• expenses

Many businesses fail due to

• poor financial planning.

• hiring too many employees.

• over planning.

• not repairing equipment and updating technology.

Basic Financial Equation=

• Revenue - Expenses = Profit or Loss

• Profit -Revenue = Loss

• Loss-Revenue = Profit

• Profit + Revenue = Loss

If a business has annual revenue of $5 million and expenses of $4.5 million, did the business make a profit or suffer a loss?

• Profit

• Loss

If revenue exceeds expenses ________ results.

• loss

• profit

Most small businesses use the ______ method where income and expenses are recorded when money is actually received or a payment is made.

• cash

• accrual

Reorder the following steps of the budgeting process

• prepare a list of each type of income and expense

• explain the budget to people who need financial information to make decisions

• create budget by calculating each type of income, expense, and amount of net income or loss

• gather accurate information from business records and other information sources for each type of income & expense

Which type of specialized business budget plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable?

• operating budget

• start-up budget

• cash budget

Which type of business budget is an estimate of the actual money received and paid out for a specific period of time; anticipates the amount of money that will come into a business and will be paid out during each week or month.

• operating budget

• cash budget

• start-up budget

Which type of budget describes the financial plan for ongoing operations of the business for a specific period of time; usually 3-months, 6-months, or one year.

• operating budget

• cash budget

• start-up budget