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📈Business > 💚13 Finance > Flashcards

💚13 Finance Flashcards

1
Q

Whats budgeting

A

Managing money properly to ensure you have enough cash abailavle to pay bills

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2
Q

Define cash flow forecast

A

Written plan in which a business sets out its expected future receipts and payments over a period.

Helps it to estimate if itll have surplus or deficit in future

Can then plan out actions to deal with the estimate

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3
Q

Name some ways a Business can Receive cash

A

Selling goods to customers

Cash received from customers sold to on credit

Income earned on investments (interest etc)

Rent from tenants

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4
Q

Name some ways a Business can Spend Cash

A

Buy stock
Paying suppliers on credit
Buy fixed assets
Paid out in dividends
Pay expenses (wages ins electricity)
Paid to revenue (tax)

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5
Q

How to deal with an expected future business deficit

A

Increase Cash Receipts
-credit control methods, discount if they
pay quicker
-sell some investments
-have a sale,encourage spending

Reduce Cash Payments
-spread big payments out (HP)
-make cutbacks (wage cuts,cheaper
services)
-reduce amnt paid out in dividends, offer
free shares in business instead

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6
Q

Why does a business prepare a Cash Flow Forecast??

A

Avoid Cash Deficits
-Gives time to plan and make changes

Improve Financial Control
-Compare predictions and actual
receipts and payments, see if on track

Raise Finance
-Show investors it wont run out of cash,
wont go bankrupt, convinces investors
to provide w money.

Increase Profits
-Know when theyll have excess cash and can plan to invest it and earn interest

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7
Q

What is a HOUSEHOLD BUDGET

A

Written plan in which a family sets out its expected future cash receipts and payments over a period.

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8
Q

What categories can household expenditure fall under

A

Fixed-Monthly bills,amnt stays the same

Irregular-Bills but amnt changes

Discretionary-Optional spending

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9
Q

Ways household can receive money

A

Wages/Jobseekers allowance

Child Benefit

Interest on savings

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10
Q

Ways household can spend money

A

Household Expenses-food, mortgage etc

Buy Fixed Assets-Tv, car, fridge

Paying Local Authority-Bin charges, motor tax etc.

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11
Q

How does a Household deal with a predicted deficit

A

Increase Receipts
-Overtime, extra part time job
-Rent out a spare room

Reduce Payments
-Spread out payments, hire purchase
-Make cutbacks

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12
Q

Why does a household prepare a budget??

A

Avoid Cash Deficits
-Can plan to make changes

Manage Money Better
-Highlights areas of overspending

Raise Finance
-Show bank to convince for a loan

Maximise Investments
-Can plan to invest any cash surplus

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13
Q

What is a spreadsheet

A

Computer software that is used to do basic maths calculations.
Can be used to draft CFF

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14
Q

Advantages of a spreadsheet

A

Performs basic maths calculations accurately and quickly saving time and money

Allows for “what if?” analysis, can know how vulnerable they are to changes

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15
Q

Name HOUSEHOLD SHORT TERM sources of finance

A

Bank Overdraft
Accrued Expenses
Credit Card

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16
Q

Name BUSINESS SHORT TERM sources of finance

A

Bank Overdraft
Accrued Expenses
Credit Card
Trade Credit
Factoring

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17
Q

Name HOUSEHOLD MEDIUM TERM FINANCE

A

Hire purchase
Leasing
Personal loan

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18
Q

Name BuSineSs MEDIUM TERM FINANCE

A

Hire purchase
Leasing
Medium term loan

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19
Q

Name HOUSEHOLD LONG TERM finnance

A

Mortgage
Savings

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20
Q

NameBuSiNeSs LONG TERM finnance

A

Debentures
Retained Earnings
Grants
Equity Capital
Tracker Mortgage

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21
Q

How long is considered short term

A

Under a year

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22
Q

How long is considered medium term

A

1-5 years

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23
Q

How long is considered Long term

A

5+ years

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24
Q

What is a bank overdraft??

A

ST H+B
Source of finance where the bank allows u to pay for things even tho you don’t have enough money in your current acc.

Pay back sometime during the year with interest

Stock,groceries

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25
Q

What are the advantages of a Bank overdraft (ST H+B)

A

Interest is only paid in the amount overdrawn not on the full limit

No security needed

B:Tax deductible

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26
Q

What are the disadvantages of a bank overdraft (ST H+B)

A

Interest rate is high

Bank can ask u to pay back immediatley

Bank imposed extra charges if u go over limit

Must be overdraft free at least 30days yearly

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27
Q

What is accrued expenses

A

ST H+B
Supplier allows u to use its services now without immediate payment.
Supplier sends bill at end of month and a deadline

Electic,phone,gas etc

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28
Q

What are the advantages of Accrued Expenses (ST H+B)

A

No interest charged
No security needed

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29
Q

What are the disadvantages of Accrued Expenses (ST H+B)

A

Cut off if u take to long to pay bill, then may have to pay reconnection fee

Only suitable for certain purchases such as utility services

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30
Q

What is a Credit Card

A

ST H+B
Pay for g+s with a cc, the cc company pays and u pay them back at a later daye
Good for small value item or short term items

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31
Q

Advantages of a Cc (ST H+B)

A

No interest charged if u pay in full on time
Safer than cash cuz u can cancel a cc if its stolen

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32
Q

Disadvantages of a Cc (ST H+B)

A

If not paid on time interest is charged at a v high rate

Must pay a govt tax for each cc u own

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33
Q

What is factoring

A

ST B-Only
Raise money by selling debtors to a bank for cash who then pressure debtors for money

Factoring With Recourse:business must reimburse bank if debtors sold dont pay bank

Factoring Without Recourse:business doesnt have to reimburse bank if debtors dont pay it

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34
Q

What are the advantages of Factoring (ST B-ONLY)

A

No security needed
Entrepreneurs ownership not affected

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35
Q

What are the disadvantages of Factoring (ST B-ONLY)

A

Expensive as bank charges high fee for the service

Can only be used by businesses that sell a lot on credit (have a lot of debtors)

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36
Q

What is Trade Credit

A

ST B-ONLY
Supplier allows the business to buy stock from it now without having to pay for it now

Bill sent to buyer at end of month and a date is set out to repay

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37
Q

Whatre the advantages of Trade Credit (ST B-ONLY)

A

Free source of finance, no interest if paid ontime

Tax deductible

No security needed

Entrepreneurs ownership not affected

38
Q

Whatre the disadvantages of Trade Credit (ST B-ONLY)

A

If deliberately keeps suppliers waiting all the time (LEANING ON THE TRADE) the business will lose its credit rsting

If bill paid late it loses out on any cash discounts offered by supplier for early payment

39
Q

What is LEANING ON THE TRADE

A

When a business deliberately keeps its suppliers waiting for their money, all the time

The business will lose its credit rating and find it very hard to get credits in the future


40
Q

What is Hire Purchase

A

MT (H+B)
Buying an asset and taking delivery of it now but paying for it in instalments

Eventually own it

Once uve paid 1/3 the HP company can only repossess with permission of judge

U can end a HP if uve paid 1/2

Used to buy relatively ecpensive stuff used up within 5 years (cars,machinery)

41
Q

What are the advantages of Hire Purchase (MT H+B)

A

No security neefed
B-ONLY: Tax deductions
B-ONLY:Entrepreneurs ownership not affected (dont have to give shares etc)

42
Q

What are the disadvantages of Hire Purchase (MT H+B)

A

Expensive as interest is high

If u cant repay asset will be repossessed

U pay interest on initial sum borrowed, no reduction for instalments paid

43
Q

What is Leasing

A

MT H+B
Rent the asset up to 5 yrs.
Pay monnthly lease for use
Never own it
Hand back asset at end of lease
Cars,furniture,equipment

44
Q

What are the advantages of Leasing (MT H+B)

A

No security needed
Can always have up to date equipment
B: Tax deductible
B:Ownership not affected

45
Q

What are the disadvantages of Leasing (MT H+B)

A

If u cant afford the payments asset is repossesed

If u rent it for a long time it might have been cheaper to just buy the item

46
Q

What is a personal loan?

A

MT H-ONLY
borrow money from bank/CU pay back in regular instalments over 5 yrs

Fixed rate-Interest doesnt change
Variable Rate-Interest changes in accordance with ECB rates

Tvs, Cars

47
Q

What are the advantages of a personal loan? (MT H-ONLY)

A

Interest rate cheaper than HP
No security needed

48
Q

What are the disadvantages of a personal loan? (MT H-ONLY)

A

Pay interest on initial sum borrowed. No reduction for instalments paid

49
Q

What is a medium term loan

A

MT B-ONLY
Borrow money from bank pay back over 5 yrs in instalments plus interest

Fixed rate:Interest doesnt change
Variable rate:Interest change in accordance with ECB

Cars machines equipment

50
Q

What are the advantages of a medium term loan (MT B-ONLY)

A

Interest cheaper than HP
Interest paid os tax deductible
Entrepreneurs control not affected

51
Q

What are the disadvantages of a medium term loan (MT B-ONLY)

A

Security required, assets may be repossessed if business cant repay

If ECB raises interest rates and the loan is variable the monthly repayments increase

52
Q

What is a mortgage

A

LT H-ONLY
Loan used to buy a house.
Paid back in 20-35 yrs
If u cant repay house will b repossed
Monthly repayments
Fixed or variable rates
Buy house or extension

53
Q

What are the advantages of a mortgage (LT H-ONLY)

A

Interest rate on mortgage is cheapest rate on ANY loan

54
Q

What are the disadvantages of a mortgage (LT H-ONLY)

A

If family cant afford repayments, house repossed

55
Q

What is SAVINGS

A

LT H-ONLY
Amnt of income family hasnt spent but has set aside for future use.

Used to buy relatively expensive items thatll last longer than five yrs

56
Q

What are the advantages of Savings (LT H-ONLY)

A

No interest to repay as money isnt borrowed

No security needed^

57
Q

What are the disadvantages of Savings (LT H-ONLY)

A

May take years to build up

58
Q

What are retained earnings

A

LT B-ONLY
Also called reserves
Profits that business has saved up over the years to reinvest in the business

Used for premises or business expansion

59
Q

What are the advantages of Retained Earnings (LT B-ONLY)

A

No interest to repay
No security needed
Ownership not affected

60
Q

What are the disadvantages of Retained Earnings (LT B-ONLY)

A

Not available to new businesses as theyve to be built up over years

Businesses that save a lot of their profits may have bad relationships with shareholders

61
Q

What are grants

A

LT B-ONLY

Sum of money the govt gives a business to help it pay for things it needs. Businesses create employment

Permanent source of finance doesnt have to be repaid if u obey all conditions

Premises or business expansioon

62
Q

What are the advantages of Grants, (LT B-ONLY)

A

No interest to repay
No security needed
Ownership not affected

63
Q

What are the disadvantages of Grants, (LT B-ONLY)

A

Strict conditions
Only given a % of the money u need

64
Q

What are debentures

A

LT B-ONLY
Lt loan used on a company.
Loan is secured on the companys assets
If u cant repay the bank will repossess its building or other valuable assets
Company pays interest every year but pays back the loan in a lump sum
Interesr rate fixed

Major extensions last longer rhan 5yrs

65
Q

What are the advantages of Debentures (LT B-ONLY)

A

Interest is tax deductible
Ownership not affected

66
Q

What are the disadvantages of Debentures (LT B-ONLY)

A

Security required

Increase the company’s debt/equity ratio. This increases company’s annual interest payments and chances of going bankrupt

67
Q

What is equity capital

A

LT B-ONLY
Getting finance by selling some shares to investors for money

Investors (shareholders) get dividends every year (part of the profits) and get a vote in the company for every share they have

68
Q

What are the advantages of Equity Capital (LT B-ONLY)

A

No interest to repay, dividends only have to be paid at directors discretion

No security needed

Money raised is permanent source of finance

69
Q

What are the disadvantages of Equity Capital (LT B-ONLY)

A

Reduced % ownership

Any dividends the business pays out arent tax deductible

Organising the sale of shares is expensive. Advertisements stockbrokers and lawyers

70
Q

What are the things judged when applying for a loan??

A

Character
-Honest+reputable
-Job/business details

Capacity
-If it has sufficient income to repay
-P60
-Audited copy of business P&L account
to see if profits are sufficient

Collateral
-Valuable assets as security
-Household details
-Business balance sheet so assets can be
examined

Credit Rating
-Good history taking out loans+repaying
-Ever gone bankrupt/defaulted on any
loans, credit check

71
Q

Factors to consider when choosing a source of finance

A

1.Cost
-Shop around cheapest APRs, no
documentation fees etc.

2.Purpose of Loan
-Match source of finance to the item, no
point taking out a loan longer than life
of asset
-ST, MT, LT

3.Security
-Weigh up advantage of finance source with risk of losing their valuable assets

4.Tax Implications
-See if u get a tax deduction on the source of finance

5.Control B-ONLY
-Involves giving away shares? This will reduce ownership and control

72
Q

what is a APR

A

Annual Percentage rate
-Total cost of borrowing expressed as a % of the anount borrowed
-Includes interest charged and any other charges (documentation fees)

73
Q

What is a current account

A

Bank account that businesses and households can use for handling money that comes in and goes out all the time 

74
Q

what services does a current account to provide?

A

Cheque
Standing order
Direct debit
Paypath
ATM cards,
Debit cards,
Bank statements

75
Q

Whats a cheque (current acc services)

A

Written document that the current account holder fills in.

Bank deducts sum of money written on cheque out of her account and pays it to person named on cheque

76
Q

Whats a standing order (Current acc services)

A

current account holder instructs her bank to take the same amount of money out of her account every period and pay to the account she has named

Used to pay regular bills.
Same amount each month

satellite TV insurance premiums, debenture interest

77
Q

Whats a Direct Debit (Current acc services)

A

current account holder, instruct her bank to take whatever sum of money is told to buy a person she names and pay it into their account every period

Amount changes each time

Pay bills where bill is different amount every month,
telephone electricity 

78
Q

Whats a Paypath (Current acc services)

A

employees net wages are paid directly into her bank account, transferred electronically from her employers account into hers

Safer than being paid in cash for both 

79
Q

Whats a ATM (Current acc services)

A

Automated Teller Machine

allows current account holder to withdraw money 24 hours a day

needs a PIN
Also check balance or buy phone credit


80
Q

Whats a Debit Card (Current acc services)

A

Account holder pay for things without inconvenience or cost of writing a cheque

Bank automatically takes money from your account and deposits it into the shops account within a few days. 

81
Q

Whats a Bank Statement (Current acc services)

A

document u receive from bank, stating all transactions that took place on the account over a period of time together with balance left in the account 

82
Q

Household and Business Management
1.BUDGETING

A

both plan out all the cash they will expect to receive and spend in the future
Can then take appropriate steps to deal with the deficit or surplus 

83
Q

Household and Business Management
2.SOURCES OF FINANCE

A

both raise finance and fill in forms to apply for loans
both will choose source of finance with lowest APR to save money


84
Q

Household and Business Management
3.CONTROLLING

A

Both use stock control to make sure they don’t run out of products/food

85
Q

Household and Business Management
4.COMMUNICATIONS

A

both use internal and external communications

internal: instructing children/employees,

external: communication with banks and government

86
Q

Household and Business Activities
1Taxation

A

Business managers workout tax the business owes

households do not have to work at their own tax

87
Q

Household and Business Activities
2.SIZE

A

businesses are much larger and hire, a professional managers

households manage themselves

88
Q

Household and Business Activities
3MISSION

A

businesses main aim is producing and selling for profit

household main aim is a social unit for love and support.

89
Q

Household and Business Activities
4MANPOWER PLANNING

A

businesses, engage in manpower planning to make sure they have the right number of employees to do all the jobs

households don’t 

90
Q

What are the business finance sources that are TAX DEDUCTIBLE

A

Bank overdraft (ST)
Trade Credit (ST)
Hire Purchase (MT) -interest only
Leasing (MT)
MT loan (MT)- interest only
Debentures (LT)-interest only

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