introduction to finance & accounting Flashcards
what is borrowing?
lending (getting) money from a variety of places such as banks for a cost-often interest.
what is saving?
lending (giving) money to a variety of places such as banks for gain-often interest.
what is a principle?
the amount saved or earned at the start
what is interest?
the amount of money earned when saving or borrowing.
what are interest rates ?
the mathematical basis of calculating how much is earned on savings or borrowings expressed as a %.
who sets interest rates?
central banks.
examples: Bank of England & Central Bank of Oman.
What is simple interest?
Interest that is paid only on the principle of a loan and not on any interest.
What is compound interest?
Interest that is paid on the principle amount and the accumulated interest of previous periods.
start-up capital
the amount of money needed to start a business
working capital
the capital needed to pay for raw materials, day-today running costs and credit offered to customers
the day to day finance needs of a business
what is short term finance ?
money required for short periods of time up to one year.
what is long term finance?
money required for more than one year.
what is profit?
the value of goods sold (revenue) less costs.
what is revenue ?
money coming into the business.
external sources
Money that comes from outside the business
from banks and interest
Internal sources
money that comes from within the business
from personal savings,selling assets and retained profit
rights issue
when you sell more shares to existing shareholders to raise more finance
bank overdraft
When a business can spend more money than it has in its account and it needs to be approved by the bank
trade payables
where a business buys resources on credit and pays for them later (30-60 days)
trade receivables
when a business offers credit to its customers who may not have to pay for 30-60 days
current assets
cash or likely to be turned into cash within 12 months.
current liabilities
depts that have to be paid within a year
capital expenditure
money spent on non current assets such as buildings which will last more than a year
revenue expenditure
money spent on day to day expenses such as wages and rent
