AF - Accounting And Finance Objectives & Sources of Finance (Accounting And Finance)

Question 1

What is a financial objective for a new business?

Answer 1

• Survive

- Sufficient funds to stay in business and produce goods

Question 2

What is vital in a business?

Answer 2

Ensuring it is sufficient Working Capital and enough cash to keep the business operating

Question 3

What is the reason for having accounting and financial objectives?

Answer 3

Is a fundamental way of measuring the performance of business

Question 4

The level of profit or loss is an obvious indicator of what?

Answer 4

Of the businesses success or failure

Question 5

What do the reports from an income statement and balance sheet show?

Answer 5

• Allows the business to see where the main problems may be

- Business can prioritise it’s strategies to improve its situation

Question 6

Who are the financial objectives used by?

Answer 6

Various stakeholders

Question 7

Why do stakeholders use financial accounts?

Answer 7

• Measure the performance of the business

- Help judge the progress of the business in terms of meeting its targets in a given period of time.

Question 8

What do the business objectives allow stakeholders to do?

Answer 8

Allows stakeholders to judge its performance when compared to others in the same market (Benchmarking)

Question 9

Why is Benchmarking important for potential investors?

Answer 9

• Potential investors will wants to see how the business is performing prior to investing
• Potential Creditors will want to judge wether the business is performing sufficiently well in order to pay back any borrowing.

Question 10

How does comparing financial results effect management?

Answer 10

Management may have to alter its financial strategy in order to put the business on a better course if it wasn’t already.

Question 11

Problems with making financial comparisons?

Answer 11

• Could be prone to bias or misinterpretation

- Assets May be valued in a different manner

Question 12

What is meant by Benchmarking?

Answer 12

Comparing yourself to the best in the industry.

Question 13

What should you look for when look at a financial data case study?

Answer 13

External factors affecting the numbers

Question 14

What is it important to remember when setting financial objectives?

Answer 14

• Legal statues and size of the business
• Other objectives of the business
• State of the Economy
• The Level of Competition within the market
• Government impacts
• Monetary Policy Committee and Interest Rates

Question 15

What is a vital part of a business?

Answer 15

The financial informations and the financial objectives of that business.

Question 16

What information can a stakeholder ascertain from the financial objectives and data?

Answer 16

• Members of the board of direction or managers will use this information to make decisions on the future of the business
• Potential Shareholders/Investors will looks at these accounts before deciding to invest in the business
• Banks will look at the accounts to see if the business can afford its repayments
• Potential our existing suppliers will use this data to assess wether it is safe to trade with the business

Question 17

Why is it essential that financial information is accurate?

Answer 17

Because of the large amount of interest and uses the information has

Question 18

What does setting clear financial objectives allow the business or stakeholders to do?

Answer 18

• Have Targets to aim for
• Assess the progress of the business in meeting there objectives
• Have access to Information showing the financial status of the firm
• Assess the business in terms of liquidity

Question 19

Why is this financial data important for all business departments?

Answer 19

• so departments know the available funds, pay rises to employees and resources

Question 20

Why may accounts be inaccurate?

Answer 20

• To present the business in a favourable light to stakeholders
• Encourage shareholders to hold or buy shares
• Suggest the business is able to borrow money is able to pay off loans
• Prevent employees being concerned about the security of employment

Question 21

What is Short-term Finance?

Answer 21

The finance needed for the day-to-day running of the business (Working Capital)

Question 22

What is Working Capital?

Answer 22

Short term finance required for the day to day running of the business.

Question 23

Is short term finance the same as Working Capital?

Answer 23

Yeah

Question 24

What do we classify as short term?

Answer 24

Up to 3 years

Question 25

When may short term finance be used?

Answer 25

When cash flow is poor

Question 26

What is good cash flow?

Answer 26

When there is a sufficient inflow of cash (Revenue) to meet cash outflows

Question 27

What is Cashflow?

Answer 27

A business need sufficient inflows of cash to finance is day to day outgoing, if cash receipts are insufficient the business is said to have a cash flow problem.

Question 28

Sources of short term finance?

Answer 28

Banks

Question 29

What kind of bank account does a business need in order to create overdrafts?

Answer 29

A current account

Question 30

What are the interest rates of current accounts?

Answer 30

Nothing or very little interest

Question 31

What can a firm do if it has a current account?

Answer 31

Funds can be taken out whenever necessary

Question 32

Do business and an unlimited overdraft?

Answer 32

No the bank permits a certain level of overdraft

Question 33

Interest is only charge on the amount of money that is [………]

Answer 33

Overdrawn

Question 34

An overdraft is a [……………] for a business

Answer 34

Safety net

Question 35

What should and overdraft not be used to purchase?

Answer 35

Capital items

Question 36

Where do Loans and Overdrafts come from ?

Answer 36

The bank

Question 37

What are short term loads used for?

Answer 37

Used to buy specific pieces of equipment or buy certain raw materials in order to fulfil a contract