chapter 7 Flashcards
what is a supplier?
a person or organisation that provides the goods/materials or services that an enterprise needs in order to operate
what is trade payable?
the amount of money owed by the enterprise to suppliers, such as for raw material received but not paid for
what is revenue?
the money that comes into an enterprise from selling goods and services. to work out revenue you do a simple calculation: selling price x quantity sold = revenue
why would you need to use trade credit?
if the enterprise does not have the money to buy the things it needs and they cannot continue operating
some suppliers might let the enterprise have the things it needs on a buy now pay later basis
TRADE CREDIT
what does trade credit mean for an enterprise?
they can buy the items they need and then have an agreed number of days to pay the supplier
describe trade payables and what it means for the enterprise
money owed by the enterprise to suppliers for items bought on credit is TRADE PAYABLES
this means the enterprise can make its product, sell it, and pay the bill with the revenue it makes or it can pay the bill and keep it in the enterprise bank account to gain more interest
what happens if an enterprise goes over the greed number of days for trade credit?
there will be extra penalties, such as a percentage increase in the bill
some agreements also have rewards for early payments like a percentage discount
what is a customer?
a person or organisation that buys goods/materials or services from an enterprise
what is a trade receivable?
the amount of money owed to the enterprise by customers who have had goods or services but not paid for them yet
like guaranteed money
what are goods?
the finished product an enterprise sells to its customers
what is a service?
something that an enterprise might do for their customers like cleaning windows or walking dogs or washing cars
what is cash flow?
the movement of money in and out of the enterprise
why is a startup unlikely to get trade credit with their suppliers?
because they have not yet established that they are financially sound and able to pay their bills on time even
but with financial planning maybe even they can negotiate a trade credit deal with suppliers
what is the key benefit of trade credit for a supplier?
it encourages repeat custom
why would enterprises want to offer their customers trade credit?
so that they too can benefit from the repeat custom that it often brings
the amount of money owed by customers is shown in the accounts as trade receivables
