Jill Wants to Start Her Own Business, but Knows Little

question 151

Multiple Choice

Jill wants to start her own business, but knows little about how to set up an accounting system or interpret financial information. "I'm not worried about accounting," she tells her friends. "I'll just hire a part-time bookkeeper to handle all that type of stuff, and focus my attention on what I like-finding ways to satisfy my customers." Which of the following is the best response to Jill's comments?

• A)Fine. Just make sure the bookkeeper you hire knows how to use a database, since this type of software is the heart of any efficient accounting system.
• B)Although you can hire someone to keep your books, you'll still need to know how to read, understand, and interpret basic accounting reports in order to make good business decisions.
• C)Most entrepreneurs would agree with your opinion. The work done by accountants is mainly clerical in nature, so time spent by business owners on accounting tends to take them away from more important tasks.
• D)You have a good plan. Only managers of large firms require knowledge of accounting. Owners and managers of small businesses can

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Definitions:

Total Cost

The sum of all expenses, both fixed and variable, involved in producing a good or providing a service.

Fixed Cost

Costs that do not change in total regardless of the level of output or activity in the short term.

Average Fixed Cost

The fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced.

Variable Cost

Costs that change in proportion to the level of activity or volume of production in a business.