Assessment 1,2,3,5

1. True or False. Financial planning is needed by small businesses only until they begin to make a profit.
False

2. The basic financial equation is
D. revenue - expenses = profit or loss

3. True or False. A cash budget is an estimate of the actual money received and paid out for a specific period.
True

5. Use the basic financial equation to determine the profit or loss for each of the following:
a. revenue $85,695; expenses $72,624
$85,695-$72,624 = $13,071
b. revenue $1,824,300; expenses $2, 183,680
$1,824,300-$2, 183,680 =  -$359,380
c. revenue $729,655; expenses $499,220
$729,655 - $499,220 = $230,435

Chapter 12 Section 1 Checkpoints

1. What is the basic financial equation for businesses?
Revenue - Expenses = Profit or Loss

2. What are the four steps in preparing a business budget?
- Prepare a list of each type of income and expense that will be a part of the budget.
-Gather accurate information sources for each type of income and expense.
-Create the budget by calculating each type of income. expense, and the amount of net income or loss.
- Explain the budget to people who need financial information to make decisions.

3.Identify and describe the three types of budgets needed by all businesses.
- Start-up budget
- Operating budget
- Cash budget

Chapter 12 Section 1 Vocabulary

1. revenue- all income that a business receives over a period of time
2. expenses- the costs of operating a business
3. budget- provides detailed plans for the financial needs of individuals
4. start-up budget- plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable
5. operating budget- describes the financial plan for ongoing operations of the business for a specific period
6. cash budget- an estimate of the actual money received and paid out for a specific period