Taxes represent ________.

Tax payments represent an outflow of cash from the business. Therefore, financial managers must be involved in tax management and must keep abreast of changes in tax law. Financial managers also carefully analyze the tax implications of various managerial decisions in an attempt to minimize the taxes paid by the business.

Internal audits are important because:

Without internal audits, the accounting statements would be less reliable. It’s the job of the internal auditor to be objective and critical when looking at such statements and ensure the statements’ accuracy.

Jackie Jones is a finance manager for Pretty Poseys, a wholesale florist. As finance manager, which of the following would be one of Jackie’s responsibilities?

Financial managers examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm like creating a spending plan.

Financial controls are designed to help managers to:

Financial control is the process in which a firm periodically compares its actual revenues, costs, and expenses with its budget. Managers use this information to take corrective action.

Rachael Straub works in finance for a small microbrewery. This week Rachael is working on a budget for the next 12 months. She has been doing research to determine prices for the new equipment they will need in the next 12 months to stay competitive in this market. Which of the steps in financial planning is Rachael involved in?

A short-term forecast is the prediction of revenues, costs, and expenses for a period of one year or less. Since Rachael is developing a 12-month budget, she’s forecasting short-term financial needs.

Guillermo is currently in the process of projecting how much his firm will have to spend on supplies, travel, rent, advertising, and salaries for the coming financial year. Guillermo is working on the:

An operating (or master) budget ties together the firm’s other budgets and summarizes its proposed financial activities.

If your job is to compare actual expenses incurred by your company with financial projections previously created, you are performing the task of ________.

Financial control is the process of periodically comparing actual revenues, and expenses, with the projected budget.

The time value of money means that:

The interest a firm gains on its investments is important in maximizing profits. That’s why it’s better for businesses to have money now rather than later. It allows them to invest right away.

Accepting bank credit cards represents one way to decrease:

One way to decrease the time and therefore expense involved in collecting accounts receivable is to accept bank credit cards such as MasterCard or Visa. Businesses must pay a fee to accept credit cards, but the fees are generally not considered excessive compared to the benefits the cards provide.

What is the major problem with selling on credit?

Particularly for a relatively new business, selling on credit ties up expected business assets (cash) in credit accounts. Less cash is available for the purchasing of new inventory or for paying bills.

Companies must have a carefully constructed inventory policy in order to:

A carefully constructed inventory policy helps manage the firm’s available funds and maximize profitability.

Debt financing:

Debt financing is funds raised through various forms of borrowing that must be repaid.

Commercial finance companies accept more risk than banks, and the interest rates they charge are usually ________ than commercial banks.

Since commercial finance companies assume higher degrees of risk than commercial banks, they usually charge higher interest rates than banks.

The Credit Card Responsibility Accountability and Disclosure Act of 2009 did very little to protect ________ from increases in credit-card interest rates and fees.

The Credit Card Responsibility Accountability and Disclosure Act of 2009 lowered interest rates for individual consumers, but did not include any interest rate charge relief for small businesses.

Marco’s Italian Gardens, an authentic Italian restaurant in suburban Chicago, worked with a local bank for a ________. This unsecured source of funds was available for Marco to tap into if he needed immediate funds for the business. He liked the fact that he had a cushion and only used it if he fell short of funds.

A line of credit is a short-term loan provided by a bank or other lending institution, for a given amount. The loan is unsecured and must be repaid within a year. It is not guaranteed.

Backstreet Books, Inc., an eclectic book and music store near a large college campus, is a reseller. The operation buys books almost every day. Deliveries are constantly part of the day-to-day operation of the firm. The transportation company that delivers to Backstreet Books provides this service on trade credit terms of 3/5, net 30. This means the firm ________.

The first number represents the percent discount. The second number represents the duration of time the buyer is given to pay, if the discount is applicable. The buyer of this service will receive a 3% discount if he/she pays the bill within 5 days of receipt of service. “Net 30” means the entire bill is due within 30 days, without additional penalty but with no discount.

Which of the following is a long-term debt obligation of a corporation or government?

A bond is a long-term debt obligation of a corporation or government.

The financial manager for Bellandro Bay Brewery is working with the firm’s marketing department to bring out a new line of pumpkin ale. The new product development and subsequent production will require a long-term investment of funds by the company. Which of the following sources of financing would be representative of such a long-term funding requirement?

Long-term financing decisions require the finance manager to consider different sources of financing. The issuance of bonds, which usually carries terms of repayment that are greater than one year and typically 10-20 years, is a financing consideration in this situation.

One advantage in using retained earnings as a long-term source of funds is ________.

Retained earnings are profits that companies keep and reinvest in the firm. These profits are an equity investment. As a form of funding, the use of retained earnings is essentially the use of the firm’s own money. Finance managers are not obligated to pay interest to anyone, for the use of these funds. Although the owners of the business would expect a return on all equity investment, the cost of capital is never as high on retained earnings as it is on the use of other equity funds.