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btec business > finance > Flashcards

finance Flashcards

1
Q

functions of money

A

unit of account- it allows us to place monetary value on goods and services
means of exchange- allows us to trade
store of value- allows us to use it in the future as it keeps its value

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2
Q

Advantages of cash

A

-most widely accepted form of exchange
-physical not virtual
- makes budgeting easier

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3
Q

Disadvantages of cash

A

-can be stolen or lost
- threat of counterfeit (fraud)
- only appropriate on purchases up to a certain amount
- can’t be used online

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4
Q

debit card

A

(payments come directly from the account)

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5
Q

advantages of debit cards

A
  • no need to carry cash
  • secure method of payment with low risk of theft
  • widely accepted
  • offers protection on purchases
  • suitable for online transactions
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6
Q

disadvantages of debit cards

A
  • overspending
  • not accepted or appropriate for small transactions
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7
Q

credit card

A

(can delay payments)

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8
Q

advantages of credit cards

A
  • allows a period of credit that is interest free (a month)
  • most cards are widely accepted
  • loyalty schemes are often offered (collect points or cash back)
  • offers a degree of protection on purchases
  • suitable for online transactions
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9
Q

disadvantages of credit cards

A
  • interest is charged on balances not paid off within a month
  • can encourage overspending and therefore being in debt
  • interest is charged on cash withdrawals
  • limit is set on the amount of credit allowed
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10
Q

cheque

A

(a written order to a bank to transfer money from one persons account to another)

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11
Q

advantages of a cheque

A
  • low risk
  • widely accepted for face to face and postal transactions
  • no need to provide change as the amount is written
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12
Q

disadvantages of a cheque

A
  • time consuming
  • old fashioned
  • easy to make errors
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13
Q

advantages of a electronic transfer

A
  • instant
  • provides a record of payment
  • no additional costs
  • easy to use
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14
Q

disadvantages of electronic transfers

A
  • transfer could get lost
  • not useful for face to face
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15
Q

direct debit

A

(agreement made with a bank to allow a third party to withdraw money and set a pay day)

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16
Q

advantages of direct debit

A
  • easy to pay for regular payments like bills
  • quick and easy
  • amount paid can vary
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17
Q

disadvantages of direct debit

A
  • if payer makes a mistake then payee has to claim back the money
  • payer determines the amount paid each time
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18
Q

standing order

A

(agreement made with the bank to transfer a fixed sum of money on a set date on a regular basis) e.g phone bill

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19
Q

advantages of standing order

A
  • same amount paid each time is easy
  • easy to set up and cancel
  • don’t need to remember to make regular payments
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20
Q

disadvantages of standing order

A
  • payments are taken regardless of the customers balance so may have to use an overdraft
  • payments will continue unless cancelled
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21
Q

pre paid card

A

(money is uploaded onto a card with transactions then being withdrawn to reduce the balance)

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22
Q

advantages of a pre paid card

A
  • can set up a budget in advance to avoid overspending
  • if lost or stolen it’s limited to the remaining balance
  • effective way of controlling the amount spent
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23
Q

disadvantages of a pre paid card

A
  • no protection if lost
  • sometimes require an initial fee
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24
Q

advantages of a contactless card

A
  • easy
  • secure method of making payments
  • popular
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25
Q

disadvantages of contact less cards

A
  • only accepted for small transactions
  • not widely accepted as it’s new tech
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26
Q

charge card

A

(allows customers to delay payments for a short period of time)

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27
Q

advantages of charge cards

A
  • reduces risk of debt
  • allows a short period of credit
  • don’t need to carry cash
  • offers additional perks
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28
Q

disadvantages of charge cards

A
  • must be paid in full each month
  • often an annual fixed fee
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29
Q

store card

A

(retail outlets can delay payments for customers)

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30
Q

advantages of store cards

A
  • allows a short period of credit
  • often offers discounts
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31
Q

disadvantages of store card

A
  • only accepted in issuing store
  • can encourage overspending
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32
Q

advantages of mobile banking

A
  • convenient
  • secure
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33
Q

disadvantages of online banking

A
  • features are limited
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34
Q

BACS

A

(transferring payments from one account to another within 3 days

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35
Q

advantages of BACS

A
  • instant transfers
  • can be accessed in many ways
  • no additional costs
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36
Q

disadvantages for BACS

A
  • faster payment not offered from all banks
  • limit set on the amount transferred
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37
Q

CHAPS

A

(can transfer payments from one account to another on the day)

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38
Q

advantages of CHAPS

A
  • transfers can be made the same day
  • no limit to the amount transferred
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39
Q

disadvantages for CHAPS

A
  • there is a fixed charge per transaction
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40
Q

^ methods of payment

A
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41
Q

overdraft

A

(you can borrow extra money through your account)

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42
Q

advantages of overdrafts

A
  • can be paid off without penalties
  • provides a short term solution
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43
Q

disadvantages of an overdraft

A
  • interest charges are often high
  • not the cheapest form of borrowing
  • could encourage overspending
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44
Q

advantages of personal loans

A
  • useful when paying for a big item like a house
  • makes budgeting easier
  • regular payments
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45
Q

disadvantages of personal loans

A
  • not suitable for short term loans
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46
Q

hire purchase

A

(customer makes a down payment when buying an expensive item)

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47
Q

advantages of a hire purchase

A
  • spreads the cost of an expensive item over time
  • credit is secured against a specific item
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48
Q

disadvantages of hire purchase

A
  • high interest charges
  • agreements can be manipulated to make a purchase seem appealing
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49
Q

advantages of a mortgage

A
  • can spread the payment over a long period of time
  • interest rates could be fixed reducing the risk of fluctuations
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50
Q

disadvantages of a mortgage

A
  • interest payments could vary which could be hard to meet expenses
  • could lose your home if you fail to pay or could affect your credit rating
  • penalties may be applied to pay early
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51
Q

payday loans

A

(cover immediate financial needs but is repaid on the next payday)

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52
Q

advantages of payday loans

A
  • solve short term cash flow problems
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53
Q

disadvantages of payday loans

A
  • interest rates are very high and can spiral out of control if not paid on time
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54
Q

^ types of borrowing

A
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55
Q

expenditure

A

(the amount of money you need to cover all your expenses/ outgoings)

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56
Q

ISA

A

individual savings account

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57
Q

advantages of ISA

A
  • interest rates are slightly higher than in other saving accounts
  • tax is not charged on interest earned allowing the customer to keep the rewards for saving
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58
Q

disadvantage of ISA

A
  • set limit on how much you put in
  • can’t withdraw from it too often
  • notice is often required to make withdrawals
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59
Q

advantages deposit and saving accounts

A
  • interest is earned on positive balances
  • accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan
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60
Q

disadvantages of deposit and savings accounts

A
  • interest earned is taxed
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61
Q

premium bonds

A

(savings account where the interest paid is decided in a monthly prize draw)

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62
Q

advantages or premium bonds

A
  • you can claim premium bonds immediately if someone passes away
  • are safe and secure
  • no limited amount of money you can win
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63
Q

disadvantages of premium bonds

A
  • no guarantee of winning
  • a risk of losing value (your balance)
  • no regular income
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64
Q

bonds and gilts

A

(lending money to the gov in return for regular interest)

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65
Q

advantages of bonds and gilts

A
  • regular fixed returns
  • spreads risk across a range of markets
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66
Q

disadvantages of bonds and gilts

A
  • risk of losing some or all value of the investment if the bond of gilts value falls
  • interest payments may not be received if the issuer is unable to make payments
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67
Q

advantages of shares

A
  • share prices fluctuate offering a potential high reward
  • as part owners you may get discounts and special offers
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68
Q

disadvantages of shares

A
  • share prices fluctuate which could be bad
  • no guarantee of any reward
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69
Q

advantages of pensions

A
  • encourages people to save throughout their life
  • savings may be boosted by employers contributions increasing the final value of the savings
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70
Q

disadvantages of pensions

A
  • final outcome is difficult to predict
  • if you move jobs it may mean a policy stops and another starts, reducing the overall value
  • if payments are deducted this may affect short term living standards
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71
Q

^ savings and investment

A
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72
Q

advantages of car insurance

A
  • protects you from damage or theft
  • meets legal requirements
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73
Q

disadvantages of car insurance

A
  • premiums can be high (like for young drivers)
  • excess money may need to be paid (you may still need to pay for some damages)
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74
Q

advantages of home and contents

A
  • protects against damage which may be too expensive to repair resulting in a loss of a home
  • contents are protected inside and outside the house
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75
Q

disadvantages of home and contents

A
  • premiums are an additional expense to home ownership
  • some items cannot be replaced due to value (like jewellery or a painting)
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76
Q

advantages of life insurance

A
  • provides peace of mind to family when you have lost someone
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77
Q

advantages of travel insurance

A
  • protects your belongings
  • protects against cancellations or delays
  • covers medical costs when your on holiday
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78
Q

disadvantages of travel insurance

A
  • may be a waste if you don’t travel much
  • additional costs when travelling abroad
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79
Q

advantages of pet insurance

A
  • avoids expensive pet fees
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80
Q

disadvantages of pet insurance

A
  • an additional monthly expense to protect against the unexpected
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81
Q

advantages of health insurance

A
  • some compensation is provided when your ill which can reduce financial burden
  • if used to fund private care you can get better facilities and quicker treatments
82
Q

disadvantages of health insurance

A
  • won’t cover pre known conditions
  • you may not need to use it
83
Q

margin of safety

A

actual output or sales divided by break even point

84
Q

break even point

A

fixed costs divided by contribution per unit

85
Q

contribution per unit

A

selling price - variable costs

86
Q

closing balance

A

open balance + net cash flow

87
Q

profit

A

sales revenue - total costs

88
Q

sales revenue

A

total units sold x price of each unit

89
Q

total contribution

A

sales revenue + total variable costs

90
Q

contribution margin

A

revenue - fixed costs

91
Q

bank of england

A

UKs central bank
responsibilities include legal tender and setting interest rates for the uk

92
Q

building societies

A

-these are organisations that handle -financial transactions and stored money on behalf of customers
-members and account owners are part owners of the building society

93
Q

credit unions

A
  • these are non profit organisations
  • members are the owners
94
Q

national savings and investments

A
  • this is a government backed organisation that offers a secure savings option
  • offers a range of options such as ISA
    premium bonds and so on
95
Q

insurance companies

A
  • protect against the risk of loss
  • are profit making organisations
96
Q

pension companies

A
  • sell policies to individuals or to their employer so they can save for retirement
97
Q

pawnbrokers

A
  • loan money against the security of a personal asset
98
Q

advantages of building societies

A
  • offer a range of services and account types
  • secure
  • owned by members so costs are kept down
99
Q

disadvantages of building societies

A
  • savings are only protected up to a certain amount so if the society goes bankrupt then savings above the certain amount get lost
100
Q

^types of current account

A
101
Q

standard

A

provides full day to day bank facilities e.g cheques and debit cards

102
Q

packaged premium

A

additional charge in return for extras e.g discounted home insurance, no fee overdraft and access to things like tickets to concerts

103
Q

basic

A

limited features
held by a person with no credit history

104
Q

students

A

for students
free overdraft facilities

105
Q

^types of borrowing

A
106
Q

overdraft

A

can withdraw money from a current account that you don’t have

107
Q

adv of overdraft

A

flexible
quick to arrange
not normally a charge if you pay off the overdraft earlier than expected

108
Q

disad of overdraft

A

charged interest for borrowing
may affect your credit score

109
Q

personal loan

A

borrow a set amount of money which is repaid in regular instalments with interest

110
Q

adv of personal loan

A

flexible
fast funding
positive credit score
higher borrowing limit than credit card and lower interest rates

111
Q

disad for personal loan

A

fees and penalties
interest charges
credit impact
debt

112
Q

hire purchase

A

pay for an item in instalments to own

113
Q

adv for hired purchase

A

flexible
ownership
cash flow
immediate access

114
Q

disad of hire purchase

A

asset depreciation
overall cost
ongoing fixed payments

115
Q

payday loan

A

get money quickly but have to pay it back in full on time

116
Q

adv for payday loans

A

quick money

117
Q

disad of payday loan

A

debt
have to pay more and more if you don’t pay on time

118
Q

^ communication with customers

A
119
Q

branch

A

physical place to get financial advice

120
Q

online banking

A
121
Q

telephone banking

A
122
Q

mobile banking

A
123
Q

citizens advice

A

run by charities
advise on financial and non financial issues

124
Q

debt counsellor

A

professionals who offer advice on how to manage debt

125
Q

individual voluntary arrangements bankruptcy (IVA)

A

a gov organisation that allows an individual to declare themselves bankrupt while agreeing to pay all or part of the money they owe to creditors

126
Q

^accounting

A
127
Q

accounting

A

recording financial transactions, planning and produce financial info

128
Q

capital income

A

money invested by the owners or other investors used to set up the business or buy additional equipment

129
Q

revenue income

A

money coming into the business from performing day to day function selling goods or providing a service e.g sales (cash or credit), rent received

130
Q

expenditure

A

money spent by the business

131
Q

capital expenditure

A

used to buy capital items that stay in the business for a long time

132
Q

non current assets

A

tangible items e.g land, equipment, vehicles

133
Q

intangible assets

A

cannot be touched e.g trademarks, brand names

134
Q

revenue expenditure

A

spending on things like rent, salaries, wages etc

135
Q

crowdfunding

A

large group of people invest small amounts

136
Q

venture capital

A

investing in a business for a stake

137
Q

debt factoring

A

selling debts of a business to third party for money

138
Q

leasing

A

pay to use an asset in instalments

139
Q

trade credit

A

allow a customer to purchase now and pay later

140
Q

grant

A

gov gives money to a business

141
Q

peer to peer lending

A

business lending money to another

142
Q

invoice discounting

A

making a product or service cheaper

143
Q

retained profit formula

A

profit= sales revenue-total cost

144
Q

net current assets formula

A

current assets-current liabilities

145
Q

variable costs

A

raw materials

146
Q

semi variable costs

A

part of the costs stays the same but part varies depending on business activity e.g worked paid a fixed rate to varies overtime

147
Q

fixed costs

A

rent

148
Q

total costs formula

A

fixed costs+ total variable costs

149
Q

total revenue

A

selling price x quantity sold

150
Q

cash inflows/receipts

A

money coming into business e.g cash sales, loans

151
Q

cash outflow/payments

A

money going out e.g rent

152
Q

opening balance formula

A

same as the closing balance at the start of the month before

153
Q

closing balance

A

opening balance + net cash flow

154
Q

liquidity

A

measures a firms ability to meet short term cash payments

155
Q

statement income

A
156
Q

accrual

A

an expense is paid after a period to which it relates

157
Q

prepayment

A
158
Q

statement of financial position

A

snapshot of the net worth of the business, summary of what the business owns (assets) and what it owes (liabilities)

159
Q

current liabilities

A

things owned by the business that must be repaid within a 12 month period e.g overdraft

160
Q

non current liabilities

A

things a business owes that will take longer than a year to repay

161
Q

depreciation

A

used to spread the cost of an asset over its useful life

162
Q

straight line depreciation

A

asset is depreciated by a set amount each year

163
Q

reducing balance depreciation

A

asset is depreciated by a set % of its remaining value each year

164
Q

^ ratio analysis

A
165
Q

gross profit margin

A

ratio looks at gross profit as a % of sales turnover

166
Q

mark up

A

ratio calculates gross profit as a % of the cost of sales

167
Q

net profit margin

A

ratio shows net profit as a % of sales

168
Q

return on capital employed (ROCE)

A

shows the % return a business is achieving from the capital invested to generate the return

169
Q

current ratio

A

shows a business the amount of current assets it owns in relation the amount of current liabilities it owes

170
Q

liquid capital ratio

A

shows accurate liquidity as it removes the least liquid of all current assets e.g inventories

171
Q

trade receivable

A

how long it takes for debtors to pay and is expressed as a number of days

172
Q

trade payable

A

how long it takes a firm to pay for goods and services bought on credit and is expressed as a number of days

173
Q

inventory turnover

A

shows the average amount of time an item of stock is held by a business and is expressed as a number of days

174
Q

net cash flow

A

inflow - outflow

175
Q

total revenue

A

price x quantity sold

176
Q

total costs

A

fixed + variable

177
Q

profit

A

total revenue - total costs

178
Q

total contribution

A

sales revenue - total variable costs

179
Q

contribution (per unit)

A

selling price - variable cost (per unit)

180
Q

profit (using contribution)

A

contribution per unit x margin of safety

181
Q

break even output

A

total fixed costs / unit contribution

182
Q

margin of safety

A

actual sales - break even level of output

183
Q

revenue

A

unit price x quantity sold

184
Q

gross profit formula

A

sales revenue - cost of goods sold

185
Q

cost of goods sold formula

A

opening inventory + purchases - closing inventory

186
Q

profit/ loss for the year formula

A

gross profit - expenses + other income

187
Q

net book value formula

A

cost - depreciation

188
Q

net current assets formula

A

current assets - current liabilities

189
Q

net assets formula

A

non current assets + net current assets - long term liabilities

190
Q

capital employed formula

A

opening capital + profit for the year less drawings

191
Q

balance sheet (what needs to balance)

A

net assets = capital employed

192
Q

gross profit margin formula

A

gross profit / revenue x100

193
Q

mark up formula

A

gross profit / cost of sales x100

194
Q

profit margin

A

profit / revenue x100

195
Q

return on capital employed formula

A

profit / capital employed x100

196
Q

current ratio

A

current assets / current liabilities

197
Q

liquid capital ratio

A

current assets - inventory / current liabilities

198
Q

trade receivable

A

trade receivable / credit sales x365

199
Q

trade payable

A

trade payable / credit purchases x365

200
Q

inventory turnover

A

average inventory / cost of sales x365

btec business (1 decks)

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