PRM Exam 2
Flashcards
(2025-2026)
Question and Answers
Expert Verified
(With A+ Grades Guarantee)
, Capital needs for setup (operations taking place before business opening)
Lease deposit and renovation
Equipment and fixtures
Inventory
Licenses and permits
Capital needs for start-up (used just prior to business opening; 2-3 weeks before and after opening)
Decorative fixtures
Office supplies
Promotional expenditure
Types of capital and definitions Working capital: money available to carry on day-to day activities
Short-term capital: money borrowed to finance obligations over short time period
Long-term capital: longer time period (as much as 10 years)
Sources for long-term capital Personal funds
Equity financing (selling partial ownership to investors)
Debt financing: loans with interest
Sources of equity financing Partner
-General: helps with management
-Limited: not involved in mgmt
Relative
Friend
Venture capitalist
Stocks
-Common: max return on investment
-Preferred: gives investor first prefernce on company assets after debtors receive
their money
-Convertible preferred stocks
Sources of debt financing Commercial banks
Commercial finance companies
Life insurance companies
Consumer finance companes
Government (Samll Business Administration)
Suppliers
Miscellaneous
What is the business entity concept? Every business is treated as a separate entity, distinct from owners and every other
business
What is the cost principle? All goods and services purchased are recorded at cost (does not reflect current
worth)
What is the stable dollar concept? Books are not adjusted based on changing value of the dollar (inflation, deflation...)
What is accrual accounting? Revenues recognized when good/services are rendered, not necessarily when cash
is received
Prepaid expenses are considered what on the balance Assets (though they become expenses as they are used)
sheet?
Define current assets Cash assets or assets that will become cahs w/in a year (cash, accounts receivable,
inventory; short-term investments may be too)
Flashcards
(2025-2026)
Question and Answers
Expert Verified
(With A+ Grades Guarantee)
, Capital needs for setup (operations taking place before business opening)
Lease deposit and renovation
Equipment and fixtures
Inventory
Licenses and permits
Capital needs for start-up (used just prior to business opening; 2-3 weeks before and after opening)
Decorative fixtures
Office supplies
Promotional expenditure
Types of capital and definitions Working capital: money available to carry on day-to day activities
Short-term capital: money borrowed to finance obligations over short time period
Long-term capital: longer time period (as much as 10 years)
Sources for long-term capital Personal funds
Equity financing (selling partial ownership to investors)
Debt financing: loans with interest
Sources of equity financing Partner
-General: helps with management
-Limited: not involved in mgmt
Relative
Friend
Venture capitalist
Stocks
-Common: max return on investment
-Preferred: gives investor first prefernce on company assets after debtors receive
their money
-Convertible preferred stocks
Sources of debt financing Commercial banks
Commercial finance companies
Life insurance companies
Consumer finance companes
Government (Samll Business Administration)
Suppliers
Miscellaneous
What is the business entity concept? Every business is treated as a separate entity, distinct from owners and every other
business
What is the cost principle? All goods and services purchased are recorded at cost (does not reflect current
worth)
What is the stable dollar concept? Books are not adjusted based on changing value of the dollar (inflation, deflation...)
What is accrual accounting? Revenues recognized when good/services are rendered, not necessarily when cash
is received
Prepaid expenses are considered what on the balance Assets (though they become expenses as they are used)
sheet?
Define current assets Cash assets or assets that will become cahs w/in a year (cash, accounts receivable,
inventory; short-term investments may be too)
