Finance C10 i think *G11 Flashcards
Income statement is now know as
Statement of comprehensive income
Balance sheet is now known as
Statement of financial position
What are the five financial concepts in a business environment
Income
Expenses
Owners equity
Assets
Liability
What is income
Money the business receives when goods are sold/services are rendered
Examples of income *4
*current (from services rendered)
*sales (when goods are sold)
*rent income
*interest income (money saved from the bank)
What’s expenses
What the business has to pay for a service rendered to the business
Examples of expenses *6
*water and electricity
*repairs
*telephone
*advertising
*insurance
*salaries/wages
When are salaries and wages paid
Salaries - monthly
Wages - weekly
Profit =
Income - expenses
How can a business obtain cash *3
*owners capital
*selling assets for cash
*taking out loans
Cash flow =
The cash portion of various transactions
What is owners equity
The value of the owners money in the business
Profits …. owners equity
Increase
What decreases owners equity
Drawings - taking out money or assets for personal use
What are assets
Possessions of the business
Assets = a + b
a owners equity
b liabilities
Assets are used to…
Make money
Types of assets *2
Non- current (long term)
Current
Examples of long term assets *4
*land and buildings
*vehicles
*equipment
*investments longer than a year
Examples of current assest *3
*trading inventory
*cash
*debtors
What are liabilities
The debt of the business
Types of liabilities *2
Non current
Current
An example of non current liability
Mortgage bond
Examples of current liabilities *2
*creditors
*bank overdraft
Mortgage bond definition
A long term loan from the bank
used to but land or buildings
Statement of comprehensive income includes *2
Income
Expenses
Statement of financial position includes *3
*owners equity
*assets
*liabilities
Fixed costs…
Remain the same irrespective of output
People with fixed salaries are…
*are part of fixed costs
*are not directly directly involved in the production process
Example of workers with fixed salaries *3
Cleaners
Secretary
Manager
Variable costs are costs that
Vary according to output produced
Examples of variable costs *3
Water and electricity
Raw materials
Wages of workers that get paid according to output produced
Total cost =
Fixed + variable cost
Costs per unit =
Total costs / number of units produced
Break even point is when…
Income=total costs
Therefore neither profit or loss
What is the safety margin
How far above the break even point the business has to perform
to ensure it can safely continue to exist
What is a feasibility study
The process of assessing a business idea’s potential
Viable and feasible meaning
Viable - ability to sustain itself and make profit
Feasible- if possible and practical to implement
Why is a feasibility study important *4
*it determines the possibility of success
*forces an entrepreneur to focus on facts by answering questions objectively
*forces one to think about what they want to do and if there’s an opportunity to make money
*guides business to develop business plan
What are the steps in a feasibility study *3
Describe business idea
Describe market via research
Consider other factors after realising idea is viable
Describe step one if a feasibility study *2
*provide a description for whafs being sold
*state why idea is unique to competitors
What questions should be asked in step one of a feasibility study *4
*will the business manufacture the product
*will a patent be used
*what distribution channels will be used
*who is the supplier
What should be researched (in the market) in step 2 of feasibility study *4
*who is the target market
*is there potential for growth
*is the market price sensitive
*who are the competitors
What should the business consider after realising the idea is viable *4
*skills needed
*equipment needed
*location
*capital needed
What is money management
The ability to obtain optimum return from their money
What can the business owner choose to do with profit *3
*withdrawing for personal capacity
*withdrawing for personal capacity
*investing it in the business
What 2 purposes of investment are there
*to generate monthly income
*to achieve long term growth
Name a pro and con of selling on credit
Pro - healthy profit
Con - cash flow issues if money isn’t payed back
If ones aim is to crate a monthly stream of income, where should they consider investing it *2
The bank
Property
What does ROI measure
The profitability of a business
Equation for ROI =
Additional money generated by investment/ Original amount
X
100/1
What criteria indicates the success of a business in the future *4
*industry type
*business brand strength
*liquidity
*management team
Business brand strength is
An indicator of how people view the brand
Therefore and indicator of support
What does a good management team do *2
*understand business dynamics
*ensures the business gets publicity for the right reasons
Liquidity can refer to
How easily it is to get out of and investment
Bad debt =
Debt the business is unable to collect and needs to be written off
Is possible but expensive
Insurers need information on *2
*amount of stock on hand
*how much was stolen
EPOSSE stands for
Electronic
Point
Of
Scale
Scanning
Equipment
What does an EPOSSE system do
Automatically subtract stock from records as they’re scanned from the till
Why is break even important
It provides information on how much expenses need to be exceeded
To make profit
Units aka
Goods produced
Overdraft definition
Withdrawal of more money than what is in the account
Overhead expenses consist of
Fixed and variable costs
Overhead expenses are expenses that
Are not related to production, rather the general business functions
Credit limit means
The maximum a person is allowed to spent from business undertaking
Theft =
Goods taken from property after forced entry
Short term capital aka
Working capital
Examples of short term capital *6
Overdraft
Short term loan
Credit card
Trade credit
Instalment sale transactions
Leases
Trade credit is when
Supplier allows buyer credit based on credit worthiness
Leases is when
One pays a monthly installment but ownership is never possessed
Long term capital aka
Fixed capital
Examples of long term capital
Selling shares, bank loan
Explain insurance on building
Any structural damage
Types of risk for insurance on building *4
*fire
*natural disaster
*explosions
*vehicle impact
Explain business interruption insurance *2
*loss that results in reduction in turnover
*can occur over incidents preventing customers from accessing b.s
Explain fidelity insurance
Theft by employees (money or stock)
Explain public liability *2
*owner/employee causes damage to customer property
*injury/death during during course of business
Explain insurance on vehicles *2
*can be fully comprehensive
*or cover 3rd party
Explain theft, burglary and robberies
*Insurance needs info on how much stock was on hand and how much was stolen
Easier with an EPOSSE system
Explain EPOSSE system
Electronic Point Of Scale Scanning Equipment
Stock is automatically subtracted from records as they’re scanned from till
Explain bad debt
Debt the business is unable to collect and needs to be written off
