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A Level Business > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

What are the 4 functions of money?

A

● Means of exchange
● Store value
● Legal tender
● Unit of account

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2
Q

What are the 16 methods of payment?

A

● BACS
● Cash
● CHAPS
● Charge card
● Cheque
● Contactless card
● Credit card
● Debit card
● Direct debit
● Electronic transfer
● FPS
● Mobile banking
● Mobile payment apps
● Standing order
● Store card

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3
Q

What are the 4 types of current account?

A

● Standard account
● Basic account
● Packaged/premium account
● Student account

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4
Q

What is cash back?

A

When the bank gives you a small amount of money back when you purchase from certain businesses.

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5
Q

What is the maximum amount you can save in an ISA?

A

£20,000

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6
Q

What date is the end of the tax year?

A

5th April

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7
Q

What is the minimum age to have a cash ISA?

A

16

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8
Q

What is the minimum age for a stocks & shares ISA?

A

18

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9
Q

What are the age restrictions for a lifetime ISA?

A

18-39

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10
Q

What is the maximum you can put into a lifetime ISA each tax year?

A

£4,000

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11
Q

What bonus does the government pay into your lifetime ISA at the end of each tax year?

A

25% of the money put in that tax year

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12
Q

What can the consumer use the savings in a lifetime ISA for?

A

First home or retirement

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13
Q

What is a disadvantage of a stocks and shares ISA?

A

Savings are at risk if shares decrease in value

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14
Q

Give an advantage of an overdraft.

A

Helps avoid fees from bounced/returned payments; can spend money you don’t have immediately; paying off quickly can increase credit rating

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15
Q

What does ISA stand for?

A

Individual savings account

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16
Q

What is the main advantage of a cash ISA?

A

You don’t have to pay tax on any interest earned

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17
Q

Give a disadvantage of a cash ISA

A

Can only open one in a tax year

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18
Q

What is a disadvantage of overdrafts, credit cards and payday loans?

A

High interest rates

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19
Q

Give an advantage of a personal loan

A

Can borrow more than overdraft; cheaper in interest rates; spread payments over long time period; manageable, fixed monthly repayments

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20
Q

Give a disadvantage of a personal loan.

A

Interest; may be tempted to borrow more for lower interest rates; usually have to borrow at least £1,000 over 1 year

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21
Q

Advantages and disadvantages of cash?

A

●can’t spend what you don’t have
●eliminates hidden fees

●does not build credit score
●Higher risk of theft

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22
Q

Advantages and disadvantages of credit cards?

A

● builds credit score
● convenient and less risk of theft
● delays money coming out of account

● potential to overspend
● processing fees
● high interest on unpaid balances

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23
Q

Advantages and disadvantages of debit cards?

A

● can use online
● convenient
● offers protection
● secure, low theft risk

● not accepted for small transactions
● leaves account immediately

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24
Q

Advantages and disadvantages of standing orders?

A

● usually free
● quick to set up
● payer sets amount and duration

● payee not notified if payment fails
● less flexibility
● risk of late payment
● high administration

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25
Q

Advantages and disadvantages of prepaid cards?

A

● safe and convenient
● not affected by credit score
● spending easily tracked

● doesn’t build credit score
● often fees before use
● lots of fees for withdrawing, reloading, replacement

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26
Q

Advantages and disadvantages of mobile payment apps?

A

● convenient, fast, secure

● can be expensive
● tech issues

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27
Q

Advantages and disadvantages of direct debit?

A

● convenient for recurring payment ● spread costs and budget
● guaranteed

● insufficient funds = overdraft
● refund process takes time
● payments controlled by third party

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28
Q

Advantages and disadvantages of electronic transfer?

A

● faster than other methods
● can be set as automatic for recurring transactions

● payer must have funds immediately
● possible high transaction fees

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29
Q

What is a charge card?

A

A card which usually does not have a spending limit and requires its full bill to be paid each month.

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30
Q

Advantages and disadvantages of charge cards?

A

● uncapped spending means you can spend money you wont have until needed at end of month
● no interest

● v bad for credit score if payments missed
● large annual fees
● minimum income required

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31
Q

Advantages and disadvantages of contactless cards?

A

● quick and convenient
● hygienic

● easier for someone to use stolen card
● impulse payments from convenience

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32
Q

Advantages and disadvantages of store cards?

A

● possible benefits like discounts
● increase credit score

● high interest
● not widely accepted
● v low credit limits

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33
Q

Advantages and disadvantages of mobile banking?

A

● convenient and easy
● fast and always available

● tech problems
● acces to account if phone stolen
● regular use can accumulate significant charges from banks

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34
Q

What is bankers automated clearing services (BACS)?

A

A scheme that facilitates electronic transactions between banks. Bank transfer used for direct debits and direct credits.

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35
Q

Advantages and disadvantages of BACS?

A

● secure and reliable
● free transfers

● costs for transferring abroad
● 3 day processing time
● hard to reclaim funds if error is made in account number

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36
Q

What is faster payments service (FPS)?

A

Fast electronic transfer, from 1 UK bank account to another.

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37
Q

Advantages and disadvantages of FPS?

A

● short processing time - max 2 hrs
● must have sufficient funds to make payments

● limit on amount - often £250,000
● not offered by all banks
● potential for errors

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38
Q

What is clearing house automated payment system (CHAPS)?

A

Electronic transfers with no payment limit that are processed within 1 working day.

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39
Q

Advantages and disadvantages of CHAPS?

A

● quick transfer
● no payment limit
● transfer guaranteed once payment initiated

● transaction costs higher than other methods
● only available during business hours
● potential for errors

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40
Q

Advantages of standard account?

A

No charges on credit balances
Wide range of facilities like chequebook, debit card, overdraft
Convenient for regular payments

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41
Q

Advantages of basic account?

A

Can get with low credit rating
Easy first step for access to banking facilities

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42
Q

Advantages of premium accounts?

A

No charges on credit balances
Wide range of facilities
Convenient for regular payments
Extra perks

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43
Q

Advantages of student accounts?

A

Course fees and student loans are handled easily
Bonuses for students e.g discounts on travel insurance

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44
Q

Disadvantages of standard accounts?

A

Overdraft = potentially high charges
No extra perks

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45
Q

Disadvantages of basic accounts?

A

Limited facilities e.g. no debit card or overdraft

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46
Q

Disadvantages of premium accounts?

A

Additional monthly charges
May not be good value for money if perks not used

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47
Q

Disadvantages of student accounts?

A

Overdraft facility could encourage overspending
High charges for overspending

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48
Q

Features of easy access savings?

A

Often can withdraw savings over the counter, from cash machines with a plastic card, and online quickly and penalty free.
Good for emergency savings.

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49
Q

Features of regular savings accounts?

A

Save monthly chunk of income.
Rules about amounts deposited and withdrawn.
Slightly higher interest rate.

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50
Q

Features of fixed-term deposit accounts?

A

Set money aside for set amount of time
Interest rate fixed in advance
One lump sum and can’t be accessed until end of term
Often have highest interest rates

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51
Q

What are index linked accounts?

A

Same as fixed term deposit accounts but interest changes in line with inflation.

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52
Q

What are premium bonds?

A

Account to store money, but each £1 is a bond bought and monthly prize draw decides interest. Average is 1.25%

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53
Q

Advantages of premium bonds?

A

Potential to win big
Returns not taxed
No risk of losing money
Accessible

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54
Q

Disadvantages of premium bonds?

A

Potential to earn no interest
Low odds of winning
Have to wait a month before eligible to win

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55
Q

What are the fixed interest rates from bonds and gilts called?

A

Coupons

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56
Q

Advantages of bonds and gilts?

A

Could get high return if accept high risk
Often less risky than shares

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57
Q

Disadvantages of bonds and gilts?

A

Lower risk often means lower return
Money at risk and interest rates may pay more in interest

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58
Q

Advantages of shares

A

Can vote on important company decisions
Can earn capital from dividends and selling shares

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59
Q

Disadvantages of shares

A

Scam shares
Have to pay charges
Market is unpredictable

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60
Q

How much is employer contribution to pensions?

A

They match what you put in

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61
Q

What is the state pension?

A

£203.85 a week from age 67.

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62
Q

Advantages of pensions?

A

Not taxed
Compound interest added
Employer contributions
Guaranteed income at end

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63
Q

Disadvantages of pensions?

A

Lack of access
Risk of poor returns - invested in stocks and shares
Complicated- lots of options

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64
Q

Rewards of savings?

A

Interest payments
Money safe
Financial security

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65
Q

Risks of savings?

A

Inflation can reduce the value of the money when withdrawn later down the line.

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66
Q

Rewards of investments?

A

Can be exciting
Potential for high financial return

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67
Q

Risks of investment?

A

No guarantee of return
All/some value may be lost

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68
Q

Define national savings and investments.

A

Government backed organisation that handles financial transactions and stores money on behalf of its members

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69
Q

Responsibilities of the Bank of England?

A

Setting interest rates
Control national debt
Issue legal tender

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70
Q

What are credit unions?

A

Not for profit organisations that handle financial transactions and store money on behalf of members.

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71
Q

List 9 financial institutions

A

Bank of England, Banks, Building societies, Credit unions, National savings and investments, Insurance companies, Pension companies, Pawnbrokers, Payday loan providers

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72
Q

Strengths of Bank of England?

A

Reduce risk through monitoring
Lend to banks
Maintain economic financial stability

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73
Q

Weaknesses of Bank of England

A

Not available to general public
Change to interest rates affects borrowing and saving

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74
Q

Strengths of banks

A

Store money securely
Pay interest to consumers

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75
Q

Weaknesses of banks

A

Only protect savings up to £75,000
Easy access to savings could lead to unnecessary spending

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76
Q

Strengths of building societies

A

Store money securely
Owned by members rather than stakeholders, so running costs are lower and competitive interest rates can be offered

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77
Q

Weaknesses of building societies

A

Accounts inflexible
Penalty for early withdrawal
Not as commercially driven as banks due to absence of shareholders

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78
Q

Strengths of credit unions

A

Lower interest on loans than banks
More interest payed to members

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79
Q

Weaknesses of credit unions

A

Fewer branches means less accessible
Not as commercially driven as banks

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80
Q

Strengths of national savings and investments

A

100% secure - backed by HM treasury

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81
Q

Weaknesses of national savings and investments

A

Consumers may have to pay income tax on returns
Have to give notice period for withdrawal

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82
Q

Strengths of insurance companies

A

Consumer protected against unexpected losses

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83
Q

Weaknesses of insurance companies

A

Insurance may be unnecessary cost

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84
Q

Strengths of pension companies

A

Consumer in control of savings and how they are invested
Employer contributions

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85
Q

Weaknesses of pension companies

A

Can’t access before 55 without damaging costs incurred

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86
Q

Strengths of pawnbrokers

A

Access to funds same day
Can buy back asset

87
Q

Weaknesses of pawnbrokers

A

Minimum borrow often £500 - encouraged to borrow more
Amount offered often lower than market value and have to pay more to retrieve asset
Asset may be sold

88
Q

Role of financial conduct authority?

A

Regulate UK finance industry
Protect customers
Promote competition between financial services
Ensure practices are in interest of consumers
Permit financial services to trade

89
Q

Role of financial services compensation scheme

A

Set up by government
Protect finances when financial services fail
Protect finances up to £85,000

90
Q

Role of financial ombudsmen service

A

Settle complaints between consumers and financial businesses
Remain impartial

91
Q

Role of office of fair trading

A

Uk government department
Economic regulator of country
Protect consumer interests

92
Q

Role of legislation - consumer credit

A

Protect consumers from harm from creditors, banks, and credit card companies

93
Q

Role and features of citizens advice

A

Run by charities
Advice for financial and non financial issues

94
Q

Role of independent financial advisor

A

Professionals who give financial advice

95
Q

Role of debt counsellor

A

Professional offering independent advice on managing debt

96
Q

Role of individual voluntary arrangements (IVA) bankruptcy

A

Government organisation
Allows person to declare bankruptcy

97
Q

Advantages of citizens advice

A

Free
Face to face or over the phone
Impartial

98
Q

Disadvantages of citizens advice

A

Trained volunteers, not professionals - limited financial knowledge

99
Q

Advantages of independent financial advisor

A

Professional
Advice based on individual

100
Q

Disadvantages of independent financial advisor

A

Have to pay fees

101
Q

Advantages of debt counsellors

A

Professionals
Advice most suitable for debt

102
Q

Disadvantages of debt counsellors

A

Charge fees
Advice only for debt

103
Q

Advantages of individual voluntary arrangements (IVAs) bankruptcy

A

Help arrange regular payments
Unbiased as advice is independent

104
Q

Disadvantages of individual voluntary arrangements

A

Charge fees
Negative impact on credit score

105
Q

Advantages of declaring bankruptcy

A

Debts usually written off

106
Q

Disadvantages of declaring bankruptcy

A

Severe credit score impact
Stays on credit report for 7-10 years

107
Q

What does the trade receivables days ratio show?

A

How long in days it takes debtors to pay your business

108
Q

What is the trade receivables days calculation?

A

Trade receivables/credit sales x 365

109
Q

What does the trade payables days ratio show?

A

The average number of days it takes you to pay your creditors

110
Q

What is the trade payables days calculation?

A

Trade payables/credit purchases x 365

111
Q

What does inventory turnover show?

A

The average time that an item of stock is held by a business in days.

112
Q

What I’d the inventory turnover calculation?

A

Average inventory/cost of sales x 365

113
Q

What does current ratio show?

A

How much a business has available (current assets) to pay for its current liabilities

114
Q

What form is current ratio written in?

A

A ratio of ___:1

115
Q

What is the current ratio calculation?

A

Current assets ÷ current liabilities

116
Q

What does liquid capital ratio show?

A

How much a business has available (current assets - inventory) to pay for its current liabilities without stock as this is difficult to turn into cash.

117
Q

In current ratio and liquid capital ratio, what would a result of 1.25:1 show?

A

For every £1 of current liabilities (minus inventory for liquid capital ratio) the business has £1.25 of current assets to pay for it.

118
Q

What is the liquid capital ratio calculation?

A

Current assets - inventory/current liabilities

119
Q

What does the gross profit margin ratio show?

A

What percentage of every £1 of revenue you get to keep as gross profit.

120
Q

What is the gross profit margin calculation?

A

Gross profit/revenue x 100

121
Q

What does mark up show?

A

How much profit you have achieved from the amount you have spent on your cost of sales - e.g 25% means the product has been sold for 25% more than cost of sales

122
Q

What is the mark up calculation?

A

Gross profit/cost of sales x 100

123
Q

What does net profit margin show?

A

The percentage of every £1 of revenue that you get to keep as net profit

124
Q

What is the net profit margin calculation?

A

Net profit/revenue x 100

125
Q

What does ROCE stand for?

A

Return on capital employed

126
Q

What does ROCE show?

A

The % return the business is achieving for the capital that has been invested

127
Q

What is the ROCE calculation?

A

Net profit before interest and tax/capital employed x 100

128
Q

What are premiums?

A

Regular payments made by the consumer to the insurance provider

129
Q

What is excess in insurance?

A

The initial amount that you need to pay before your insurance provider will provide the “pay out” you are claiming for.

130
Q

How does choosing a higher excess amount affect insurance price?

A

Decreases it

131
Q

What cars don’t need insurance?

A

Cars registered as Statutory Off Road Notice (SORN)

132
Q

What is third party car insurance?

A

Only covers damage to someone else’s vehicle or property or injury to someone else in an accident - even if caused by your passenger.
Cheapest, good if car value is low

133
Q

What is third party fire and theft car insurance?

A

Covers same as third party plus covers you for damage caused by fire or having your vehicle stolen

134
Q

What additional cover does fully comprehensive car insurance offer?

A

Pays out for damage to your own car

135
Q

Advantages of pet insurance?

A

Don’t have to choose between expensive bills and letting pet die
Most cover pet boarding costs if you go into hospital
Helps ensure your pet can get right treatment

136
Q

Disadvantages of pet insurance?

A

Very expensive
More expensive with age and health problems
May not need to use it

137
Q

Advantages of car insurance?

A

Protects against expensive repairs/treatment/replacement

138
Q

Disadvantages of car insurance?

A

May never need it
Have to pay more premium after making a claim

139
Q

Advantages of health insurance?

A

Reduce wait time
Choose surgeon and hospital
More likely to get private room
Access to specialist drugs and treatment not available on NHS

140
Q

Disadvantages of health insurance?

A

Might get better care on NHS
Expensive and will go up
Chronic illness and preexisting conditions not covered
Locations may not be convenient

141
Q

Advantages of home insurance?

A

Also protects outside structures which would be expensive to replace

142
Q

Disadvantages of home insurance?

A

May never be needed
Can’t replace sentimental value of items

143
Q

What is life assurance?

A

Builds up and you will eventually earn a pay out.

144
Q

What is life insurance?

A

Taken out for set period of time - pay out if you die in that time.

145
Q

Advantages of life insurance?

A

Financial stability for loved ones if you are not around to provide for them

146
Q

Advantages of life assurance?

A

Income tax free payout
Whenever you pass away, permanent coverage

147
Q

Disadvantage of life assurance over life insurance?

A

More expensive

148
Q

Disadvantages of life insurance?

A

Coverage is temporary
Premiums will rise with age
Worthless if you don’t die within term

149
Q

Advantages of travel insurance?

A

Protects against holiday cancellations and sometimes delays
Protection for personal belongings away from home
Covers medical costs on holiday

150
Q

Disadvantages of travel insurance?

A

May not be used
Additional cost when travelling

151
Q

What do businesses record in their accounts?

A

Profits, revenue
Expenditure, total costs, start up costs
Sales
Tax

152
Q

Who is interested in a business’s accounts?

A

Stakeholders - customers, business angels, government, banks, owners/managers

153
Q

Gross profit equation?

A

Revenue - cost of sales

154
Q

Net profit calculation?

A

Gross profit - expenses

155
Q

What are the headings for a statement of comprehensive income?

A

Revenue
Cost of sales
Gross profit
Expenses
Net profit

156
Q

What are the headings for a statement of financial position?

A

Fixed assets
Total fixed assets
Current assets
Total current assets
Total assets
Current liabilities
Total liabilities
Net assets
Represented by
Total

157
Q

What 2 figures have to match on a balance sheet?

A

Net assets and total

158
Q

What does a statement of financial position show?

A

Snapshot of what the business is worth
Includes how much the business is worth and where that money has come from

159
Q

What is capital expenditure?

A

Money the business spends on large items that stay within the business for a long period of time (capital items)

160
Q

What are fixed/tangible assets?

A

Things like land, premises, machinery, equipment

161
Q

What are intangible assets?

A

Add value to business but can’t be touched e.g. patents, trademark, brand name

162
Q

What is revenue expenditure?

A

Day to day costs of the business e.g. utilities, salaries, stock

163
Q

What is capital income?

A

Large sums of money the business receives occasionally

164
Q

What is revenue income?

A

The money that flows into the business from performing day to day functions

165
Q

What are sources of revenue income?

A

Interest, product sales, leasing, advising other businesses

166
Q

What are sources of capital income?

A

Business loans, mortgages, selling shares, owners capital, debentures

167
Q

What is depreciation?

A

When an asset loses monetary value over its useful life due to wear and tear

168
Q

What is straight line depreciation?

A

Reduces the value of the asset by the same amount each year

169
Q

How to calculate straight line depreciation?

A

Historic value - residual value/expected life = depreciation value per year

170
Q

What is reducing balance depreciation?

A

Reduces the value of the asset by a set % per year - works the same as compound interest

171
Q

What are 13 external sources of finance?

A

Owner’s capital Trade credit
Loans Leasing
Hire purchase Invoice discounting
Debt factoring P2P lending
Mortgages Donations
Venture capital Grants
Crowd funding

172
Q

What is trade credit?

A

Pay supplier for goods you have already received 30-90 days later.

173
Q

What is leasing?

A

The business rents equipment instead of buying it to spread payments.

174
Q

What are grants?

A

Government payments to business given with conditions that don’t need to be payed back.

175
Q

What is peer to peer lending?

A

Small investors use an organisation to help them find businesses to invest in and that organisation takes a fee for matching them to the business.

176
Q

What is invoice discounting?

A

Reductions offered to customers making a product or service cheaper. Usually applied as a % of total value.

177
Q

What is crowd funding?

A

Raising funds online by asking many people to invest a small amount in the business in return for reward or future discount.

178
Q

What is venture capital?

A

Funds from professional investor in return for a share of business ownership and input on decisions.

179
Q

What is debt factoring?

A

Selling business’s invoices to a third party. The debtor now owes money to the factor agency and they will pursue payment.

180
Q

What are the 3 internal sources of finance?

A

Retained profit, net current assets, sale of assets

181
Q

Evaluate net current assets as a source of finance

A

Available quickly
Promotes efficiency - minimises stock holding

Quick inventory turnover can mean struggle to meet demand - not much stock stored
Shorter credit terms puts pressure on customers

182
Q

Evaluate retained profit as a source of finance

A

No interest charges
No loss of ownership

Limited amount available
Reduces payments to shareholders

183
Q

Evaluate owners capital as a source of finance

A

Family and friends more flexible than other lenders
Potential interest free loan

May need money back unexpectedly
May want input on business decisions

184
Q

Evaluate sale of assets as a source of finance

A

No interest charged
Can clear space of unnecessary assets

Will probably sell for less than value
May not sell
May need assets

185
Q

Evaluate loans as a source of finance

A

Pre agreed payments are good for planning
No loss of ownership

Interest
Often secured against asset in case of missed payments

186
Q

Evaluate crowd funding as a source of finance

A

Can get cash from many investors
No interest

Partial loss of ownership
May not attract sufficient investment

187
Q

Evaluate mortgages as a source of finance

A

No loss of ownership
Long time to pay back

Interest
Not suitable short term

188
Q

Evaluate venture capital as a source of finance

A

Advice from investor as well
Connections from investors

Partial loss of ownership
Conflict with investor possible

189
Q

Evaluate hire purchase as a source of finance

A

Avoids need to pay lump sum for asset
Regular installments aid planning

Don’t own asset
Can become more expensive than buying

190
Q

Evaluate trade credit as a source of finance

A

Delays payments so improves cash flow
No loss of ownership

No discounts for early payment
Only short term

191
Q

Evaluate grants as a source of finance

A

No repayment
No interest

Lengthy application
Have to meet conditions

192
Q

Evaluate donations as a source of finance

A

No loss of ownership
No repayment

Often small
Unpredictable

193
Q

Evaluate peer to peer lending as a source of finance

A

Often lower interest rates
Can agree fixed interest which aids planning

Amount available may be limited
Funds may only be available for short period of time

194
Q

Evaluate invoice discounting as a source of finance

A

No repayment or interest
Reduce costs

Often only available when paying in cash
May need to buy more than needed for discount

195
Q

Evaluate cash flow forecast

A

Identify problems
Plan expenditure
Show to investors
Reminder to chase payments

Only forecast - may be inaccurate
May put in unnecessary measures
Can’t plan for unexpected price rises

196
Q

What are the headings for a cash flow forecast?

A

Inflows
Total inflows
Outflows
Total outflows
Net cash flow
Opening balance
Closing balance

197
Q

Positives of breakeven

A

Easy to calculate
Aids planning
Shows revenue at each output

198
Q

Negatives of breakeven

A

Doesn’t acknowledge start up costs
Difficult to use when selling price or variable cost varies
Businesses can be unrealistic in their calculations

199
Q

What are the headings for a statement of comprehensive income

A

Revenue
Cost of sales
Gross profit
Expenses
Net profit

200
Q

Revenue calculation

A

Selling price x quantity sold

201
Q

Gross profit calculation

A

Revenue - cost of sales

202
Q

Net profit calculation

A

Gross profit - expenses

203
Q

Cost of sales calculation

A

Opening inventory - closing inventory + purchases

204
Q

Straight line depreciation calculation

A

(Historic value - residual value)/no. of years

205
Q

What is an accrual?

A

Where you pay after your purchase.

206
Q

What are the headings for a statement of financial position?

A

Non current assets
Current assets
Current liabilities
Net current assets
Non current liabilities
Net assets
Financed by
Capital employed

207
Q

Which ratios are profitability ratios

A

Gross profit margin
Mark up
Net profit margin
Return on capital employed (ROCE)

208
Q

Which ratios are liquidity ratios

A

Current ratio
Liquid capital ratio

209
Q

Which ratios are efficiency ratios

A

Trade receivables days
Trade payables days
Inventory turnover

210
Q

What is profitability?

A

How much profit the business is making in relation to another factor

211
Q

What is liquidity?

A

A measure of how solvent a business is - how they are able to meet their short term debts

212
Q

What is efficiency?

A

How well the business controls the key aspects of the business.

213
Q

Evaluate ratios?

A

Help identify problems
Help decision making

Only predictions - extrapolation, historic values

A Level Business (1 decks)

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