Unit 3 E

Question 1

What is an external source of finance?

Answer 1

Money you fund expenditure from outside the business

Question 2

What is an internal source of finance?

Answer 2

Money you fund expenditure from inside the business

Question 3

Name 3 internal sources of finance.

Answer 3

• Retained profit
• Sale of assets
• Net current assets

Question 4

Name 3 external sources of finance.

Answer 4

• Crowdfunding
• Mortgages
• Venture capital
• Debt factoring

Question 5

What is crowdfunding?

Answer 5

The use of small amounts of capital from a large number of people

Question 6

What is venture capital?

Answer 6

Money invested in a business, usually a startup

Question 7

What is debt factoring?

Answer 7

When a business sells something to another business and then sells that debt to another business to get paid

Question 8

Define cash flow.

Answer 8

The flow of cash in and out of the business through external/internal sources in a set time period

Question 9

What are inflows/receipts?

Answer 9

Cash coming into the business

Question 10

What are cash sales?

Answer 10

Customer pays at the time of purchase

Question 11

What are credit sales?

Answer 11

When the customer pays within a pre-agreed period after the sale

Question 12

What are loans in terms of cash inflow?

Answer 12

Bank loans allow a business to borrow a set amount of money for a specific purpose

Question 13

What does capital introduced mean?

Answer 13

Money invested by the entrepreneur or other shareholder

Question 14

What is the definition of cash outflow?

Answer 14

Money that’s going out of the business

Question 15

Name 3 examples of cash outflows.

Answer 15

• Supplier costs
• Wages
• Rent

Question 16

What is value added tax (VAT)?

Answer 16

A charge on sales of goods and services based on the value of the items sold

Question 17

What is a cash flow forecast?

Answer 17

A document that shows the predicted flow of cash into and out of the business over a given period of time

Question 18

What does opening balance refer to?

Answer 18

The amount of cash available in a business at the start of a time period

Question 19

What is interest?

Answer 19

The amount of money you pay back/receive after borrowing/lending something

Question 20

What is the formula for net cash flow?

Answer 20

Net cash flow = total inflow - total outflow

Question 21

What is revenue income?

Answer 21

Revenue generated when customers buy the goods/services of the business

Question 22

How is rent received a type of revenue income?

Answer 22

Residents generate income by paying rent to the business

Question 23

Define a cash inflow.

Answer 23

Money coming into the business

Question 24

Define a cash outflow.

Answer 24

Money going out of the business

Question 25

Name 3 examples of cash inflows.

Answer 25

• Bank loan
• Cash sales
• Credit sales

Question 26

What is the formula for closing balance?

Answer 26

Net profit + opening balance

Question 27

What might be problems with a cash flow forecast?

Answer 27

• Forecasts are assumptions
• Might be outdated
• Costs could be missed
• Seasonality needs to be considered

Question 28

True or False: A cash flow forecast predicts what is going on in the future.

Answer 28

True

Question 29

What is one advantage of visiting a bank branch in person?

Answer 29

Clear communication with the staff

Question 30

What is one disadvantage of crowdfunding?

Answer 30

Partial loss of ownership

Question 31

How does hire purchase differ from leasing?

Answer 31

In hire purchase, the asset is owned until the final installment, whereas in leasing, the supplier owns the asset

Question 32

What is one advantage of owner’s capital?

Answer 32

No interest payments

Question 33

What is one disadvantage of owner’s capital?

Answer 33

Amount likely to be limited