Unit 3: Finance and Accounting

Question 1

capital expenditure

Answer 1

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)

Question 2

revenue expenditure

Answer 2

money spent on the day-to-day running of a business

Question 3

internal sources of finance

Answer 3

money obtained from the businesses own assets or from profit left in the business (retained profit)

Question 4

external sources of finance

Answer 4

money obtained from sources outside of the business

Question 5

examples of internal sources of finance

Answer 5

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

Question 6

share capital

Answer 6

this is money raised from the sale of shares of a limited company and is known as equity capital

Question 7

IPO= Initial Public Offering

Answer 7

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

Question 8

loan capital

Answer 8

also known as debt capital and is money sourced from financial institutions such as banks

Question 9

debentures/bonds

Answer 9

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

Question 10

overdrafts

Answer 10

the bank allows the business to withdraw more money than it currently has in its account

Question 11

trade credit

Answer 11

this is an agreement between businesses that allows the buyer of goods or services to pay the seller at a later date

Question 12

grants

Answer 12

these are funds usually provided by a government foundation, trust or other agency to business

Question 13

subsidies

Answer 13

a subsidy is financial assistance granted by a government, a NGO, or an individual to support business enterprises that are in the public interest

Question 14

debt factoring

Answer 14

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

Question 15

leasing

Answer 15

this is where a business enters into a contract with a leasing company to use assets such as machinery, equipment, or property

Question 16

venture capital

Answer 16

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

Question 17

business angel

Answer 17

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

Question 18

short-term finance

Answer 18

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

Question 19

medium-term finance

Answer 19

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

Question 20

long-term finance

Answer 20

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

Question 21

cost

Answer 21

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

Question 22

revenue

Answer 22

is a measure of the money generated by the sale of goods and services

Question 23

profit

Answer 23

is calculated by finding out the differences between revenues and costs. a high positive difference is a good indicator of success

Question 24

fixed costs

Answer 24

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

Question 25

variable cost

Answer 25

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

Question 26

semi-variable cost

Answer 26

includes both a fixed and variable element. example: fixed cost is insurance and license, variable is fuel and servicing

Question 27

direct costs

Answer 27

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

Question 28

indirect costs

Answer 28

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

Question 29

total revenue

Answer 29

total income rom the sale of all units of the product