Unit 3 E Flashcards
What is an external source of finance?
Money you fund expenditure from outside the business
What is an internal source of finance?
Money you fund expenditure from inside the business
Name 3 internal sources of finance.
- Retained profit
- Sale of assets
- Net current assets
Name 3 external sources of finance.
- Crowdfunding
- Mortgages
- Venture capital
- Debt factoring
What is crowdfunding?
The use of small amounts of capital from a large number of people
What is venture capital?
Money invested in a business, usually a startup
What is debt factoring?
When a business sells something to another business and then sells that debt to another business to get paid
What are cash sales?
Customer pays at the time of purchase
What are credit sales?
When the customer pays within a pre-agreed period after the sale
What are loans in terms of cash inflow?
Bank loans allow a business to borrow a set amount of money for a specific purpose
What does capital introduced mean?
Money invested by the entrepreneur or other shareholder
What is the definition of cash outflow?
Money that’s going out of the business
Name 3 examples of cash outflows.
- Supplier costs
- Wages
- Rent
What is value added tax (VAT)?
A charge on sales of goods and services based on the value of the items sold
What is a cash flow forecast?
A document that shows the predicted flow of cash into and out of the business over a given period of time
What does opening balance refer to?
The amount of cash available in a business at the start of a time period
What is interest?
The amount of money you pay back/receive after borrowing/lending something
What is the formula for net cash flow?
Net cash flow = total inflow - total outflow
What is revenue income?
Revenue generated when customers buy the goods/services of the business
How is rent received a type of revenue income?
Residents generate income by paying rent to the business
Define a cash inflow.
Money coming into the business
Define a cash outflow.
Money going out of the business
Name 3 examples of cash inflows.
- Bank loan
- Cash sales
- Credit sales
What is the formula for closing balance?
Net profit + opening balance
What might be problems with a cash flow forecast?
- Forecasts are assumptions
- Might be outdated
- Costs could be missed
- Seasonality needs to be considered
True or False: A cash flow forecast predicts what is going on in the future.
True
What is one advantage of visiting a bank branch in person?
Clear communication with the staff
What is one disadvantage of crowdfunding?
Partial loss of ownership
How does hire purchase differ from leasing?
In hire purchase, the asset is owned until the final installment, whereas in leasing, the supplier owns the asset
What is one advantage of owner’s capital?
No interest payments
What is one disadvantage of owner’s capital?
Amount likely to be limited
What is insolvency?
When a business is unable to meet day-to-day expenditure and repay debts
Outline one benefit of a cash flow forecast
Encourages planning
Benefits of cash flow forecasts include monitoring finances and helping to raise finance.
Outline one limitation of a cash flow forecast
Based on forecasts
Limitations include human error, difficulty in planning for unexpected events, and time consumption.
What is the formula for contribution per unit?
Selling price - variable cost per unit
How is the break-even point calculated?
Fixed costs / contribution per unit
What is the formula for contribution per unit
Contribution per unit:selling price -variable cost per unit
What is the formula to calculate break even
Fixed costs/contribution per unit
What is the formula for total revenue
Quantity sold-Selling price
What is the margin of safety and what’s the formula
Its The margin for the business to actually make money
Actual sales in units - break even level of sales units
