Unit 3: Finance and Accounting Flashcards
capital expenditure
money spent to acquire items in a business that will last for more than a year and will be used over and over again (long-term investments)
revenue expenditure
money spent on the day-to-day running of a business
internal sources of finance
money obtained from the businesses own assets or from profit left in the business (retained profit)
external sources of finance
money obtained from sources outside of the business
examples of internal sources of finance
personal funds: key source of finance for sole traders and comes from personal savings
retained profit: profit that remains after a business has paid tax to the government and dividends to shareholders
sale of assets: when a business sells off unwanted or unused assets to raise funds
share capital
this is money raised from the sale of shares of a limited company and is known as equity capital
IPO= Initial Public Offering
this refers to the business converting its legal status to a public limited company by floating (selling) its shares on a stock exchange for the first time
loan capital
also known as debt capital and is money sourced from financial institutions such as banks
debentures/bonds
a type of loan, often used by companies to raise money, that is paid back over a long period of time and at a fixed rate of interest
overdrafts
the bank allows the business to withdraw more money than it currently has in its account
trade credit
this is an agreement between businesses that allows the buyer of goods or services to pay the seller at a later date
grants
these are funds usually provided by a government foundation, trust or other agency to business
subsidies
a subsidy is financial assistance granted by a government, a NGO, or an individual to support business enterprises that are in the public interest
debt factoring
when a business sells its invoice to a third party known as a debt factor. it’s a financial agreement where the factor takes on the responsibility for collecting the debt
leasing
this is where a business enters into a contract with a leasing company to use assets such as machinery, equipment, or property
venture capital
financial capital provide by investors to high-risk, high potential start-up firms or small businesses. venture capitalists usually fund start ups that find it hard to access money from other financial institutions
business angel
also known as angel investors, these are very affluent individuals who provide finance capital to small start-ups or entrepreneurs in return for ownership equity in their business
short-term finance
money needed for the day-to-day running of a business (working capital)- revenue expenditure. this is a finance that lasts for one year or less.these are expected to be paid within 12 months. examples: bank overdrafts, trade credits, and debt factoring
medium-term finance
money used to purchase assets such as equipment and vehicles. this has a duration of between 1-5 years. examples: leasing, medium-term bank loans, and grants
long-term finance
funding obtained for the purpose of purchasing long-term fixed assets (capital expenditure) or other expansion requirements of a business. duration anywhere from 5-30 years. examples: long-term bank loans, and debentures
cost
refers to the total expenditure incurred by a business in order to run its operations. profit or loss cannot be calculated without accurate cost data
revenue
is a measure of the money generated by the sale of goods and services
profit
is calculated by finding out the differences between revenues and costs. a high positive difference is a good indicator of success
fixed costs
costs don’t change as a business changes output. fixed costs exist even if a business is not producing any goods or providing services. examples are: rent, machinery, management salaries, marketing costs (advertising), and insurance
variable cost
costs that change as output changes. if output doubles so would the variable costs. examples: raw materials, and piece-rate or time rate wages. it’s calculated by multiplying by quantity
semi-variable cost
includes both a fixed and variable element. example: fixed cost is insurance and license, variable is fuel and servicing
direct costs
these costs can be clearly linked with each unit of output produced by a business. these are expenses that can be directly traced to a particular product, department or process
indirect costs
costs which cannot be identified with the production of specific goods or services also known as overhead costs. examples include the purchase of a tractor for a farm
total revenue
total income rom the sale of all units of the product
