Unit 2 - Finance

Question 1

Functions of the finance department

Answer 1

• Maintenance of financial records
• Payment of salaries and wages
• Payment of bills and expenses
• Collection of accounts due
• Monitoring funds
• Reporting to management

Question 2

Key financial concepts

Answer 2

• Sources of finance
• Cash flow
• Break-even
• Financial statements
• Financial analysis (ratio analysis)

Question 3

Three main types of finance

Answer 3

Short Term, Medium Term, Long Term

Question 4

Examples of Short Term Sources of Finance

Answer 4

Bank Overdraft
Trade Credit
Debt Factoring

Question 5

Examples of Medium Term Sources of Finance

Answer 5

Grants
Loan from family/friends
Bank loan
Hire purchase
Leasing

Question 6

Examples of Long Term Sources of Finance

Answer 6

Owner savings
Mortgage
Share Issue
Debentures
Venture Capital

Question 7

What is Debt Factoring?

Answer 7

Selling invoices (money due from debtors) to a factoring company.

Adv.
Organisation is guaranteed to receive a % of amount due.
Can save time/money chasing unpaid invoices.

Disadv.
Organisation does not receive full amount of invoice.
Factors only want to buy large value invoices.

Question 8

What is Hire Purchase?

Answer 8

Deposit paid for item and the rest paid in instalments.

Adv.
Can receive item immediately without full payment.
Cost of item is spread = more affordable.
Item is owned after final instalment is paid.

Disadv.
Interest could make item expensive.
Item is not owned till all payments are made.