Finance (unit 6) Flashcards
What is the difference between assets and liabilities?
assets are what a company owns and liabilities are what a company owes other parties
What are current liabilities?
a company’s short term financial obligations that are due within one year eg rental fees or payroll due
What are non current liabilities?
financial obligations that are due in long term and not expected to be paid back within one year
What are contingent liabilities?
a potential liability that may occur in the future eg a pending lawsuit
What is a current asset?
any resource that can be sold for cash in one year. shows the company’s current cash available
What is a non current asset?
also known as long term assets, assets and property owned by a business which are not easily converted into cash in one year
Sale of assets
a business sells items for cash
eg machinery or transport
This is when a business sells items that they no longer need for example machinery or transport. They can then use this money to re-invest into other areas of the business.
Advantage of selling assets
does not need to be repaid
Disadvantage of selling assets
may be difficult and take time to sell the assets
What is an overdraft?
an overdraft is an agreement with the bank to allow the business to spend or withdraw more than is in their account
What is a bank loan?
It is a fixed amount of money that is given to a business by the bank that has to be repaid over time with interest, usually in monthly instalments
Advantage of bank loan
can be paid over a long period of time
Disadvantage of bank loan
interest has to be paid in addition
What is retained profit?
Retained profit is profit that has been made by the business in previous years that is then reinvested back into the company
What is a share issue?
hare issue is a source of finance that is only available to private or public limited companies
Such businesses can decide to issue more shares in the company and obtain finance from their sale.
