BUSINESS FINACE Flashcards
What are retained profits?
A business holding back profits from previous years.
The business doesn’t go into debt.
What is an advantage of retained profits?
Can be used to make larger purchases such as assets or bulk buying.
What is a disadvantage of retained profits?
A business can find it more difficult to grow if it regularly uses retained profits, especially to solve short-term cash-flow problems.
What are sales of assets?
Selling something that the business no longer needs.
What is an advantage of selling assets?
The money doesn’t need to be repaid.
What is a disadvantage of selling assets?
If the finance is required urgently, the business may have to sell assets for less than they are worth.
What are trade credits?
Allows businesses to provide goods from suppliers and pay for them at a later date.
What is an advantage of trade credits?
This allows a business to sell goods at a higher price and earn profits before the bill needs to be paid.
What is a disadvantage of trade credits?
Discounts from prompt payments are lost.
What are grants?
Money given to the business from the local government.
What is an advantage of grants?
The money does not need to be repaid.
What is a disadvantage of grants?
Can be complicated to apply for and may require the business to meet certain requirements.
What is a mortgage?
A large sum of money borrowed from a bank to secure a property.
What is an advantage of a mortgage?
It can be paid back over a long period of time.
What is a disadvantage of a mortgage?
The mortgage provider owns the property until the last payment has been made, meaning the business can lose the property if they can’t keep up with payments.
What is the purpose of cash budgeting?
To predict a positive cash-flow situation (surplus)
to predict a negative cash-flow situation (deficit).
TO Allow investment to be planned during a surplace
What is a solution for too much money tied up in inventory?
Use just-in-time inventory control or sell excess inventory.
What is a solution for too many credit sales?
Offer cash discounts to encourage customers to pay in cash.
What is the opening balance in cash budgeting?
Amount of cash available at the start of the month.
What is the closing balance in cash budgeting?
Amount of money available at the end of the month.
What does a negative closing balance indicate?
The business had a deficit, meaning their payments outweigh their receipts.
What is the purpose of financial statements for owners?
To assess profits and to inform decision-making.
What is sales revenue?
The amount of money made from selling goods or services.
What is gross profit?
The profit made from buying and selling, calculated by sales revenue minus cost of sales.
