Finance for AQA AS (New spec for first teaching in 2008)

Complete notes for AQA new spec for first teaching 2008

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  • Created on: 20-05-09 19:29
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An agreed plan
establishing, in numerical
financial terms, the policy
to be pursued and
the anticipated outcomes of that policy.
Benefits of Budgets:
Provide direction and coordination
Motivate staff
Improve efficiency
Assess forecasting ability
Drawbacks of Budgets:
Difficult to monitor fairly ­ senior managers are less aware of the
details of expenditure and costs in every department and rely on the
honestly of the budget holder. Similarly, if a budget is not met the
senior manager has to rely on the reasoning of the budget holder.
Allocations may be incorrect
Saving may be sought that are not in the interest of the firm
Changes may not be allowed when the budget is reviewed
Features of a Good Budget:
Be consistent with the aims of the company
Be based on opinions of as many people as possible
Set challenging but realistic targets
Be monitored at regular intervals, allowing for changes in the
business and its environment
Be flexible ­ essential that the budget allows spare capital for
unforeseen circumstances

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process by
which the
outcomes of
budgets are
examined and then compared with the budgeted
figures. The reason for any variances are then found.
Calculating Variances
Variance = Budgeted ­ Actual figure
Favourable variances are when actual revenue is greater than budgeted
revenue, and when actual costs are below the budged costs.
Adverse variances occur when actual revenue is lower than budgeted
revenue, and when actual costs are higher than budgeted costs.…read more

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Losses or low profits ­ if a business has lower sales revenue than
expenditure they may suffer cash problems
Ways of Improving Cash Flow:
Bank Overdraft
Advantages Disadvantages
Easy to arrange Variable interest payments
Flexible (Interest rises and falls with
Interest is only paid on the Bank of England's base rates)
amount owed Higher interest rate than other
No security necessary unlike a methods of borrowing money
bank loan Immediate repayment can be
Shortterm Loan
Advantages Disadvantages
Fixed interest rates Higher interest payments
Lower…read more

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Companies overall profitability is in receiving a low value for the
increased asset
Could affect the ability to make
a profit
Sale and Leaseback
Advantages Disadvantages
Cash inflow is immediate Rent is wasted money
increases flexibility as more Reduces the amount of assets
machinery can be leased which the company own making it
increase output/demand/sales harder to get future loans
Lower cost in the short term leading to higher interest rates
Allows the company to When the lease on the asset
concentrate on producing goods…read more

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Profitability is the ability of a business to generate a profit or the efficiency
of a business in generating profit.…read more

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Even profitable companies can face cash flow problems if they don't plan
carefully. A firm may purchase assets with its profit but not have enough
cash to pay employees wages and even though they could make a profit
every month or year (have have cash from creditors to come which is
sufficient to make a profit) they could still face liquidation as a result of not
being able to pay staff.…read more


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