Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Unit 3 > Section D > Flashcards

Section D Flashcards

1
Q

Define capital expenditure.

A

the purchase of long-term physical assets used in a business’s operations. (money needed to get a business started) e.g. In a restaurant: tables, chairs, kitchen etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define revenue expenditure.

A

any money spent by a business that covers short-term expenses. e.g. In a restaurant: ingredients etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define asset.

A

anything that has a resale value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the 3 sources of internal finance?

A

Retained profit
Net current assets
Sale of assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define retained profit

A

the profit kept in the company rather than paid out to shareholders as a dividend

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define net current assets

A

the amount of money a company has on hand, or will have in a given year (total assets- liabilities)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define sale of assets

A

this is when a business sells items that they no longer need, for example machinery or transport. They can use this money to re-invest into other areas of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the advantages of retained profts?

A
  • creates a financial safety net
  • creates funding for growth as a company can reinvest in itself and grow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the advantages of net current assets?

A
  • provides a clear picture of the company’s assets and liabilities
  • shows the ability to pay off short-term debts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the advantages of sale of assets

A
  • creates funds to pay off debt
  • reduces liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the disadvantages of a retained profit?

A
  • can lead to tax evasion
  • can lead to over-capitalisation (where the businesses equity and debt are worth more than its assets)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the disadvantages of net current assets?

A
  • they may not increase in value while held
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the disadvantages of sale of assets?

A
  • you may not have enough assets to sell to raise the amount of money you need
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When would retained profits be used?

A
  • When businesses need funding for expansion/ investing in new equipment or technology
  • paying off debt
  • increasing the company’s cash reserves
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When would net current assets be used?

A

in a business balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When would sale of assets be used?

A
  • when you want to sell your business in a whole or part
  • when you want to pay off your debts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Give some sources of external finance.

A

owners capital, mortgages, debt factoring, grants, donations, loans, crowd-funding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Define internal finance.

A

money available from within the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Define external finance.

A

money available from outside the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

When is the time limit for a source of finance to be short term?

A

paid back within 1 year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define owners capital.

A

the amount of money and resources an owner invests into their business to help it succeed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Define loans.

A

A sum of money that is borrowed and is expected to be paid back with interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Define crowd-funding.

A

raising money from a large number of people who each contribute a relatively small amount, typically via the internet.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Define mortgages.

A

A long-term loan to fund the purchase of an expensive item that will hold value for a long time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Define venture capital.

A

Investment from an established business into another business in return for a percentage equity in the business

Also known as private equity finance

26
Q

Define debt factoring.

A

The process of selling the debts owed to a business to a financial institution- an external source of finance

27
Q

Define hire purchase.

A

Allows a business to enjoy the use of an asset whilst paying for it in regular installments. The asset remains the property of the seller up until the point where all installments have been made at which point it becomes the property of the buyer

28
Q

Define leasing.

A

Leasing allows a business to benefit from the use of an asset without owning it or buying it outright. The business pays a set amount in installments to lease the asset for a pre-determined period of time and is then returned to the lease company.

29
Q

Define trade credit

A

Paying suppliers a period of time after the goods or services have been received

30
Q

Define grants

A

Grants are fixed amounts of capital provided to business by the government or other organisations to fund specific projects

31
Q

Define donations

A

Any financial contribution made by a corporation to another organization that furthers the contributor’s own objectives.

32
Q

Define peer to peer lending.

A

a type of business loan where a large number of private investors lend to a business, usually through an online platform.

33
Q

Define invoice discounting

A

Enables businesses to gain instant access to cash tied up in unpaid invoice. When you invoice a customer or client, you receive a percentage of the total from the lender, providing your business with a cash flow boost.

34
Q

What are the advantages of owners capital?

A
  • quick and convenient
    -doesn’t require borrowing money
35
Q

What are the advantages of loans?

A
  • fast funding
  • convenient and easy
36
Q

What are the advantages of crowd funding?

A
  • investors can often become your most loyal customers
  • fast funding with no up front fees
37
Q

What are the advantages of mortgages?

A
  • changes can be made to find better deals
  • spreads the cost over a long period of time
38
Q

What are the advantages of venture capital?

A
  • potential for large sums of money for investment
  • can gain expertise to help the business
39
Q

What are the advantages of debt factoring?

A
  • reduces the risk of bad debts
  • good source of short-term finance to help with cash flow problems
40
Q

What are the advantages of hire purchase?

A
  • you can spread the cost over a long period of time
  • you will own the asset after the last payment- making it a favorable alternative to a lease
41
Q

What are the advantages of leasing?

A
  • fixed rate, so monthly costs can be calculated
  • the holder only has to pay for use
42
Q

What are the advantages of trade credit?

A
  • allows the business to be more flexible
  • companies with good trade credit history may be offered discounts
43
Q

What are the advantages of grants?

A
  • they are essentially free money
  • they can promote your business and idea
44
Q

What are the advantages of donations?

A
  • normally provide money to non-profit organisations
  • supports the activities of an organisation
45
Q

What are the advantages of peer to peer lending?

A
  • fast and convenient to complete application
  • possible lower rates than loans from financial institutions
46
Q

What are the advantages of invoice discounting?

A
  • no need to repay and no interest charges
  • no loss of ownership or control
47
Q

What are the disadvantages of owners capital?

A
  • the owner may not have enough savings
  • may need cash for personal use
48
Q

What are the disadvantages of loans?

A
  • you have to pay it back with added interest
  • can affect your credit score if not paid back on time
49
Q

What are the disadvantages of crowd- funding?

A
  • if you don’t reach your target then the finance will be returned to investors
  • getting the rewards or returns wrong can give away too much of the business to investors
50
Q

What are the disadvantages of mortages?

A
  • normally require a deposit
  • payments may be subject to change eg. if interest rates change
51
Q

What are the disadvantages of venture capital?

A
  • partial loss of ownership
  • initially expensive for the firm eg. legal and accounting fees
52
Q

What are the disadvantages of debt factoring?

A
  • may damage the reputation of the firm as they are seen to be in need of short-term finance
  • reduces profitability of the firm because of the fee paid to the financial institution
53
Q

What are the disadvantages of hire purchase?

A
  • you wont own the asset till you make the final payment
  • contracts are fixed so if you cant pay your instalment you will lose the asset and damage your credit rating
54
Q

What are the disadvantages of leasing?

A
  • more expensive than purchase
  • commitment to contract for entire period
55
Q

What are the disadvantages of trade credit?

A
  • some include penalties for late payments
  • hard for new businesses to obtain
56
Q

What are the disadvantages of grants?

A
  • you have to do a lot of research and fill out a lot of paperwork
  • you must be specific about what you will use it for- and you must stick to it
57
Q

What are the disadvantages of donations?

A
  • relies on the generosity of others
  • may be affected at times of economic difficulties
58
Q

What are the disadvantages of peer-to-peer lending?

A
  • you need to pass a credit check
  • could include a loan arrangement fee
59
Q

What are the disadvantages of invoice discounting?

A
  • often only available if purchases are paid in cash
  • it can take time and is complicated to set up
60
Q

Define short- termist.

A

interested in profit now, not in the future

61
Q

What are the factors to consider when choosing an internal source?

A
  • type of business
  • how much finance is needed
  • financial performance of the business
  • new or established business

Business Unit 3 (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions