Finance - Sources Flashcards

1
Q

What is finance?

A

Every business needs finance to carry out their aims and objective. Finance is available through internal and external sources

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2
Q

What are 3 advantages of internal finance?

A
  1. No interest has to be paid
  2. The affairs of the business are kept private
  3. Doesn’t have to be repaid
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3
Q

What is a disadvantage of internal sources of finance?

A

There may not be enough money available

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4
Q

Name the 5 internal sources of finance

A
  1. Owners investment
  2. Retained profits
  3. Sale of inventory
  4. Sales on non current (fixed) things
  5. Debt collection
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5
Q

Name 3 advantages of owners investment

A
  1. A cheaper form of finance for most businesses
  2. The money invested belongs to the owner and therefore doesn’t have to be repaid
  3. Doesn’t attract payment interests
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6
Q

Name 2 disadvantages of owners investment

A
  1. Owners may not have access to additional money
  2. If used in a sole trader business or partnership, unlimited liability means owners could lose their private assets
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7
Q

Name 3 advantages of retained profits

A
  1. Cheaper form of finance for most businesses
  2. The source of this finance doesn’t attract interest payments
  3. Accumulated profits belong to the owner and doesn’t have to be repaid
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8
Q

Name 2 disadvantages of retained profits

A
  1. This source of finance is only available when the business is making a profit
  2. Many businesses withdraw all profits through drawing or dividends
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9
Q

Name an advantage of sale of inventory

A

This makes cash available very quickly

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10
Q

Name a disadvantage of sale of inventory

A

The cash is required for buying more inventory so the business can continue to make a profit, so it isn’t able to spend on other things

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11
Q

Name an advantage of sales on non current (fixed) things

A

This source raises finance very quickly without any debt and interest charges

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12
Q

Name a disadvantage of sales on non current (fixed) things

A

Very few businesses are able to sell valuable and continue trading at the same level

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13
Q

Name an advantage of debt collection

A
  1. The business has access to finance immediately
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14
Q

Name a disadvantage of debt collection

A

There’s no guarantee that the discounted offers to pay early will be accepted by customers

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