finance Flashcards
What is a source of finance?
sources of finance are the ways that business get money - internal or external
what is owners investment?
an internal source of finance to set up a business money comes from owners savings
advantages of owners investment?
don’t owe anyone money
owner has full control of business
disadvantages of owner investment
if business fails personal savings may be lost.
what is retained profit?
a internal form of finance where pervious profits from the business reinvested back into the business.
advantages of retained profits
don’t owe anyone money owner
disadvantages of retained profits
takes a long time to build up
what is a bank overdraft?
an external finance that allows you to spend more money than you have
advantages of bank overdraft
can be arranged quickly
disadvantages of bank overdraft
expensive as a high rate of daily interest.
only available for small sums of money
what is a bank loan?
an external finance which means a fixed amount of money is given to a business by the bank that must be repaid overtime with interest, usually in monthly installments
advantages of a bank loan
arranged quickly
can be repaid overtime a long period of time
disadvantages of a bank loan
interest must be paid
what is a mortgage?
an external finance that is a long term source borrowed from the bank secured against property paid over a long period of time.
advantages of a mortgage?
given for a long time
can raise large amounts of money quickly
disadvantages of a mortgage?
interest charged on loan
can lose property if payments are missed
what is hire purchase?
an external finance used for vehicles. deposit is paid upfront and the rest of the money is paid back in monthly installments. only own the vehicle once final purchase is made
advantages of hire purchase
expensive vehicles can be purchased and paid back overtime
disadvantages of hire purchase
interest charged
only own after final payment made
what is leasing?
an external finances which means renting machinery and vehicles. monthly payments are made.
advantages of leasing?
leasing companies are responsible for fixing anything that breaks down
disadvantages of leasing?
never own the asset
can work out more expensive overtime that purchasing yourself
what are factors that impact choosing a source of finances?
the purpose of the finances
objectives of organization
amount of finance required to have business
the type of business
length of time finance is required for
what is break even?
the point where a business has sold enough products/services to cover all of their costs
no profit or loss at this point
what is a fixed cost?
costs that do not change regardless to the number of products being made.
includes rent, advertising, rates and salaries
what is variable costs
costa that do change with the number of products being made
includes raw materials and electricity
what is total costs?
the fixed costs and the variable costs added together.
cash budgeting - what is cash flow?
cash flow is all the money that flows in and out of a business.
if the business has more money out than coming in they will be in debt
what is cash budgeting?
when a business plans how much they will bring in and how much they need to spend
helps business avoid debt and liquidation (not allowed to trade and all assets sold)
what is a receipt in cash budgeting?
receipt is money going in
business get money from selling their products this is called sales
what is payments in cash budgeting?
payments are money that goes out
the money is spent on things like
purchases = raw matériels
wages = pay workers
electricity = rent
what are cash flow problems?
low sales
too much money tied up in stock - can’t pay bills
customers taking to long to pay bills
suppliers not allowed credit
over investment
increase in expenses
solving cash flow problems?
cheap suppliers
lease machinery
sell any assets not being used effectively
apply for loan
offer discounts to customers if they pay upfront
increase advertisement
justification for using a cash budget
can identify times where there may be a shortage of cash, this will allows the business to plan ahead and arrange extra funding such as a bank overdraft
it can help manage expense. when expenses are high it will be highlighted by a cash budget
it will show where a business has more cash than expected (surplus) or less cash than expected (deficit) allows a business to plan and make better decisions
what is an income statement?
an income statement shows the profit or loss made by a business over a period of time. (usually for the year)
it is factual because it has already happened
what are income statements used for?
to calculate the total costs of expenses
to calculate the profit/ loss made for the year
legal reasons (limited companies need income statements)
tax reasons
calculate costs of sales
to compare with the previous years or other companies
what is online banking used for in technology of finance
saved the business time as employees don’t need to take trips to the bank
the business can get money quicker from customers as instant payments can be made using phones or computers
payments to suppliers can be made instantly meaning they are not late
means there is less physical cash in the business meaning better security
however, if internet is down might not have access to online or risk of hacking
what is accounting software
Helps business to track income, expenses and financial transactions.means all accounting related processes are in one area which makes it easier for the business
what is financial management s software?
allows a business to use software that makes it easier to create financial plans
the business inputs their predicted sales and expenses
the software then creates a budget for the business showing how much they will make and spend each month
how do businesses use spreadsheets?
can be used to produce graphs and charts from financial data.
can also be used to create cash budgets and income statements
however employees often need trained on how to use the software
can be saved to a computer so you don’t have lots of paper to lose
benefits of electronic fund transfer?
contactless payments and use of technology such as apple pay
allows for fast transactions and is quicker and more convenient than using cash
how do you calculate total profit
sales revenue - total costs
how do you calculate selling price?
sales revenue
———————-
output
how to calculate the break even point?
fixed cost
—————
selling price - variable costs
