Finance and Accounting Flashcards
Start up capital
Capital needed by an entrepreneur to set up a business
Capital ependiture
Involves purchasing assets that are expected to last over a year such as buildings and machinery.
Revenue expenditure
Spending on all costs and assets other than fixed assets. It includes wages and salaries and materials bought for inventory.
Working capital
Capital needed to pay for raw materials, day to day running costs and credit offered to customers
Liquidity
The ability of a firm to pay its short term debts
Liquidation
When a firm stops trading and its assets are sold for cash to pay suppliers and other creditors
Overdraft
Bank agrees to business borrowing up an agreed limit as and when required
Grants
Dont have to pay back, however not widely available
Reduce working capital
Relatively easy, increases efficiencies, however dangers of reducing too much.
Retained profits
Source of permanent finance
Venture capital
Risk capital invested in business that have good profit potential but do not find it easy to gain finance from other sources.
Average cost
Total cost of items produced
Direct costs
These are costs that can be clearly identified with each unit of production and can be allocated to a cost centre
Indirect costs
Costs that cannot be identified with a unit of production or allocated accurately
Marginal cost
Cost of producing the next item
Fixed cost
Costs that do not change with output
Variable costs
Costs that vary with output
Total costs
Fixed cost + variable costs
Break even point of production
Level of output at which total costs equal total revenue neither a profit or a loss is made.
Income statement
Records the revenue, costs and profit of a business pver a given period of time.
Cost of sales
Asset
This is an item owned by a person or company that is regarded as having value.
Cash
Money in the form of notes, coins, cheques etc.
Cash flow
The sum of cash payments to a business less than the sum of cash payments made by the business
Difference between cash and profit
Cash is the difference between money coming in and money going out
Profit is difference between sales revenue and costs
