Finance Flashcards
Define owners capital
Owners’ capital – the owners’ savings are invested
Advantages of owners capital
- No need to repay
- No interest to pay
Disadvantages of owners capital
- Owner risks savings.
- Owner may not have (enough) savings.
Define retained profit
money not distributed to the owners (shareholders) as profit
Advantages of retained profit
- No need to repay
- No interest to pay
Disadvantages of retained profit
- Business may not have made profits
- Owners will not get profit as income
Advantages of sales of assets
- No need to repay.
- No interest to pay.
- Good if selling off old equipment or stock.
Advantages of sales of assets
No need to repay.
No interest to pay.
Good if selling off old equipment or stock.
Disadvantages of sales of assets
- May be difficult to sell.
- May take time to sell.
Advantages of an overdraft
Meets short-term cash flow problem.
Interest is only paid on the amount owed.
Define an overdraft
a bank makes available to a business more money than they have in their account.
Disadvantage of an overdraft
Interest is charged for each day money is owed, which can be expensive.
Define trade credit
a business sells goods after agreeing to pay for them at a later date
Advantages of trade credit
No interest if repaid within agreed time limit.
Can help with a cash flow problem.
Disadvantages of trade credit
Goods must be paid for even if they do not sell.
Interest is charged if payment is late.
