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finance Flashcards

1
Q

What is a source of finance?

A

sources of finance are the ways that business get money - internal or external

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2
Q

what is owners investment?

A

an internal source of finance to set up a business money comes from owners savings

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3
Q

advantages of owners investment?

A

don’t owe anyone money
owner has full control of business

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4
Q

disadvantages of owner investment

A

if business fails personal savings may be lost.

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5
Q

what is retained profit?

A

a internal form of finance where pervious profits from the business reinvested back into the business.

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6
Q

advantages of retained profits

A

don’t owe anyone money owner

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7
Q

disadvantages of retained profits

A

takes a long time to build up

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8
Q

what is a bank overdraft?

A

an external finance that allows you to spend more money than you have

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9
Q

advantages of bank overdraft

A

can be arranged quickly

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10
Q

disadvantages of bank overdraft

A

expensive as a high rate of daily interest.
only available for small sums of money

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11
Q

what is a bank loan?

A

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

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12
Q

advantages of a bank loan

A

arranged quickly
can be repaid overtime a long period of time

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13
Q

disadvantages of a bank loan

A

interest must be paid

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14
Q

what is a mortgage?

A

an external finance that is a long term source borrowed from the bank secured against property paid over a long period of time.

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15
Q

advantages of a mortgage?

A

given for a long time
can raise large amounts of money quickly

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16
Q

disadvantages of a mortgage?

A

interest charged on loan
can lose property if payments are missed

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17
Q

what is hire purchase?

A

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

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18
Q

advantages of hire purchase

A

expensive vehicles can be purchased and paid back overtime

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19
Q

disadvantages of hire purchase

A

interest charged
only own after final payment made

20
Q

what is leasing?

A

an external finances which means renting machinery and vehicles. monthly payments are made.

21
Q

advantages of leasing?

A

leasing companies are responsible for fixing anything that breaks down

22
Q

disadvantages of leasing?

A

never own the asset
can work out more expensive overtime that purchasing yourself

23
Q

what are factors that impact choosing a source of finances?

A

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

24
Q

what is break even?

A

the point where a business has sold enough products/services to cover all of their costs
no profit or loss at this point

25
what is a fixed cost?
costs that do not change regardless to the number of products being made. includes rent, advertising, rates and salaries
26
what is variable costs
costa that do change with the number of products being made includes raw materials and electricity
27
what is total costs?
the fixed costs and the variable costs added together.
28
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
29
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)
30
what is a receipt in cash budgeting?
receipt is money going in business get money from selling their products this is called sales
31
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
32
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
33
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
34
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
35
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
36
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
37
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
38
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
39
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
40
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
41
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
42
43
how do you calculate total profit
sales revenue - total costs
44
how do you calculate selling price?
sales revenue ———————- output
45
how to calculate the break even point?
fixed cost ————— selling price - variable costs
46

Business (5 decks)

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