Chapter 5: Finance & Accounting

Question 1

Finance

Answer 1

money, the funds.

Question 2

Start-up capital

Answer 2

capital needed by an entrepreneur to set up a business

Question 3

Working capital

Answer 3

capital needed to pay for raw materials, day-to-day running costs and credit offered to customers. ; current assets - current liabilities

Question 4

Capital expenditure

Answer 4

involves the purchase of assets that are expected to last for more than one year, such as building and machinery

Question 5

Revenue expenditure

Answer 5

spending on all costs and assets other than fixed assets and includes wages and salaries and materials bought for stock

Question 6

Liquidity

Answer 6

ability of a firm to be able to pay its short-term debts

Question 7

Liquidation

Answer 7

when a firm ceases trading and its assets are sold for cash to pay suppliers and other creditors

Question 8

Illiquid

Answer 8

unable to pay its immediate or short-term debts.

Question 9

Internal financing

Answer 9

finance which is raised internally ; does not increase the debts (borrowings) of the business.

Question 10

External financing

Answer 10

finance provided by people or institutions outside the business ; creates a debt that will require payment.

Question 11

Short-term source of finance

Answer 11

needed for the day-to-day running of a business and is usually for a period of less than 1 year.

Question 12

Overdraft

Answer 12

bank agrees to a business borrowing up to an agreed limit as and when required.

Question 13

Factoring

Answer 13

selling of claims over trade receivables to a debt factor in exchange for immediate liquidity – only a proportion of the value of the debts will be received as cash.