Finance: key terms Flashcards
Budget
A financial plan for the future that sets out targets for sales revenue and expenditures
Income budget
Target set for the amount of revenue to be achieved in a specific time period and informs predicted cash inflows on the c ash flow forecast
Expenditure budget
Informs predicted cash outflows in the cash flow forecast
Profit budget
A target set for surpluses between income and expenditures in a given period of time
Owners capital
Savings from owner that is transferred into the business- internal finance
Retained profit
Profit saved up over time and invested into the business- internal finance
Sale of assets
Items of value are sold and the cash generates income- internal finance
Overdraft
Spend more money than they have in their current bank account- external finance
Bank loans
Make regular repayments over a long period of time with added interest- external finance
Share capital
Limited companies sell shares to raise finance-0 external finance
Venture capital
Cash rich investors provides a business with finance for an agreed share of the business- external finance
Leasing
Businesses pay a monthly payment in return for the use of an asset
Trade credit
A business receives goods from a supplier but pays them later- external finance
Debt factoring
Businesses sell the debt that is owing to them to a factoring company- external finance
Cash flow
The movement of money into and out of the business
Cash flow forecast
Shows expected flows of cash into and out pf the business over a trading period in the immediate future
NET cash flow
Total rev - total expenditure
Closing balance
NET cash flow + opening balance
Opening balance
Closing balance + NET cash flow
Sales revenue
Money coming in from sales
Quantity sold x selling price
Cost of sales
Cost directly linked to the production of the goods and services sold
Gross profit
Sales rev - cost of sales
Operating profit
Gross profit - expenses
Exceptional items
Any usually large or infrequent transaction
NET profit
Gross profit - expenses
High profit quality
Source of profit from normal trading (i.e. sales of core goods/services), therefore likely to be repeated next year
Low profit quality
Source of profit from other activities other than sales (e.g. selling assets), therefore unlikely to be repeated next year
