Hhhh Flashcards
Finance
It is the money required in the business. Needed to set up the business,expand etc
What does finance department do
- record financial transactions
- prepare final accounts
- cash flow forecast
- make important decisions
- provide info to managers
Why business may need finance
Start up capital
To pay day to day expenses
Purchasing NCA
To invest in the latest technology
Start up capital
It is the initial capital used in the business to buy fixed and current assets before it can start trading
Working capital
Finance needed by a business to pay its day-to-day running expenses
Capital expenditure
It is the money spent on fixed assests(assests that will last for more than a year)
Revenue expenditure
It is similar to working capital, it is the money spent on day-to-day expenses which does not involve the purchase of long term assests
Internal finance
it is obtained from within the business itself
Retained profit
Profit kept in the business after owners have been given their share of the profit. Firms can invest this profit back in the business
Avantage of retained profits
-does not have to be repaid
-No interest ha to be paid
Disadvantage of retained profits
- A new business will not have retained profit
-Profits may be too finance
-May reduce the owners share of profit
Advantages of sales of existing assets
-Makes better use of capitak tied up in the business
-Does not become a debt for the business
Disadvantage of sales of existing assets
-Surplus assets will not be available in a new business
-Takes time to sell and ammount may not be enough
Sale and lease back
Sell a non-current asset and then lease it back from the owner
Benefits of sale and leaseback
-There is no direct cost
-It can often raise large amounts of money
Limitationss of sales and leaseback
-Increase in fixed costs
-Lease will increase each time it is renewed
-They may need to find new premises if owner decides not lease any more
