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

What are cash sales?

Answer 8

Customer pays at the time of purchase

Question 9

What are credit sales?

Answer 9

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

Question 10

What are loans in terms of cash inflow?

Answer 10

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

Question 11

What does capital introduced mean?

Answer 11

Money invested by the entrepreneur or other shareholder

Question 12

What is the definition of cash outflow?

Answer 12

Money that’s going out of the business

Question 13

Name 3 examples of cash outflows.

Answer 13

• Supplier costs
• Wages
• Rent

Question 14

What is value added tax (VAT)?

Answer 14

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

Question 15

What is a cash flow forecast?

Answer 15

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

Question 16

What does opening balance refer to?

Answer 16

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

Question 17

What is interest?

Answer 17

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

Question 18

What is the formula for net cash flow?

Answer 18

Net cash flow = total inflow - total outflow

Question 19

What is revenue income?

Answer 19

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

Question 20

How is rent received a type of revenue income?

Answer 20

Residents generate income by paying rent to the business

Question 21

Define a cash inflow.

Answer 21

Money coming into the business

Question 22

Define a cash outflow.

Answer 22

Money going out of the business

Question 23

Name 3 examples of cash inflows.

Answer 23

• Bank loan
• Cash sales
• Credit sales

Question 24

What is the formula for closing balance?

Answer 24

Net profit + opening balance

Question 25

What might be problems with a cash flow forecast?

Answer 25

* Forecasts are assumptions * Might be outdated * Costs could be missed * Seasonality needs to be considered

Question 26

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

Answer 26

True

Question 27

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

Answer 27

Clear communication with the staff

Question 28

What is one disadvantage of crowdfunding?

Answer 28

Partial loss of ownership

Question 29

How does hire purchase differ from leasing?

Answer 29

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

Question 30

What is one advantage of owner's capital?

Answer 30

No interest payments

Question 31

What is one disadvantage of owner's capital?

Answer 31

Amount likely to be limited

Question 32

What is insolvency?

Answer 32

When a business is unable to meet day-to-day expenditure and repay debts

Question 33

Outline one benefit of a cash flow forecast

Answer 33

Encourages planning ## Footnote Benefits of cash flow forecasts include monitoring finances and helping to raise finance.

Question 34

Outline one limitation of a cash flow forecast

Answer 34

Based on forecasts ## Footnote Limitations include human error, difficulty in planning for unexpected events, and time consumption.

Question 35

What is the formula for contribution per unit?

Answer 35

Selling price - variable cost per unit

Question 36

How is the break-even point calculated?

Answer 36

Fixed costs / contribution per unit

Question 37

What is the formula for contribution per unit

Answer 37

Contribution per unit:selling price -variable cost per unit

Question 38

What is the formula to calculate break even

Answer 38

Fixed costs/contribution per unit

Question 39

What is the formula for total revenue

Answer 39

Quantity sold-Selling price

Question 40

What is the margin of safety and what’s the formula

Answer 40

Its The margin for the business to actually make money Actual sales in units - break even level of sales units