Accounting & auditingLesson 4 of 4 in the course Entrepreneurial Finance and Accounting

Startup Financial Statements, Cash Projections, and Break-Even Analysis

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Financial statements turn accounting records into useful information for owners, managers, lenders, and investors. This lesson introduces the three primary statements and explains how the balance sheet summarizes a startup’s financial position.

An accounting system records and classifies transactions. Financial statements summarize those records so people can evaluate a business and make decisions. Internally, owners use them to manage operations; externally, investors and lenders use them to assess the venture and its financing needs.

All flashcards

Accounting equation
Assets = Liabilities + Equity; business resources are financed by creditors and owners.
Balance sheet
A statement showing a company's assets, liabilities, and equity at a specific date.
Statement of cash flows
A statement reporting cash received and cash paid over a period.
Run rate
An estimate that extends a current level of activity over a longer period.
Break-even point
The sales level at which total revenue equals total costs.

Quiz questions

  1. Which statement reports a company's operating results over a period of time?Answer: The income statement
  2. Which cash-flow category generally includes buying a long-term asset such as a pizza oven?Answer: Investing activities
  3. A business has monthly sales of $10,000. What is its simple annual sales run rate if that pace continues?Answer: $120,000
  4. A business has monthly fixed costs of $2,000 and contribution margin of $8 per unit. How many units must it sell to break even?Answer: 250 units
  5. What is a key purpose of financial projections for a startup?Answer: To estimate future operations and anticipate cash or financing needs.

Based on Entrepreneurship by Michael Laverty, Chris Littel (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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