Finance Flashcards
What’s a budget
This is a document which controls financial plans over a given period of time and gives excepted levels of revenue
Advantages of a budget
Controlling income and expenditure
Regulate spends
Provide clear targets
Can act as a motivator
Disadvantages of a budget
Time consuming to make
Poorly construed budgets can lead to poor decisions
It’s only an estimate and other factors may change, meaning the budget will loose its significance
What’s a variance within a budget
An unexpected change from the budget figure, and they can occur when the actual figure for sales differ from the budgeted value.
What’s a favourable variance
When the profit made are higher then the budget suggested.
Expenditure is less then expected
Revenue is higher then expected
What’s an adverse finance
This is when the profits are lower then planned
Expenditure is higher then expected
Revenue is lower then expected
3 internal sources of finance
Retained profit/ own funds
Working capital
Sales of assets
What are 3 external sources of finance
Bank loan
Leasing (when a company gains the use of a productive asset with out ever owning it)
Trade credit (businesses will buy items such as fuel and raw materials, however will pay for them on a later date)
Advantages and disadvantages of raising own funds as a source of finance
Immediately available
Might not be enough money to cover the costs
Advantages and disadvantages of working capital
With trade credit being reduced and collecting depts more efficiently, a business will revive more customers quickly
A sudden increase in demand could lead top loss of sales, as delivery dates can’t be met
Advantages and disadvantages of selling assets
Selling machinery they don’t use no more will create them money and save them space
Smaller businesses are more likely to not have any unwanted assets, adn selling assets might be time consuming
Advantages and disadvantages of a bank loan
If the application for the loan is sucessful, the money will be available immediately, and will be a large source of money
The business has to pay back interest on the lone, meaning they have to pay back more then they borrowed.
Advantages and disadvantages of leasing
Easy to obtain, and equipment can be updated regularly
Over a ling period of time it can become expensive
Advantages and disadvantages of trade credit
First 30-90 days are interest free
Late payments can lead to businesses having a bad reputation for suppliers
What’s a cash flow forecast
A estimate of the movement of cash into a business over a period of time.
