Business Unit 4

HideShow resource information
What is inflow?
the money coming into the business
1 of 35
What are some examples of inflows?
cash from owner, loans, sales of products
2 of 35
What is outflow?
the money flowing out of a business
3 of 35
What are some examples of outflows?
bills, cost of sales, wages, equipment, interest on loans, advertising
4 of 35
What are the Total Receipts?
This is the amount of money received and actually paid into the bank account during the month
5 of 35
What is Total Payments?
This is the amount of money actually leaving the bank account to pay creditors / suppliers
6 of 35
What is Net inflow/outflow?
this is the difference between the total receipts and the total payments
7 of 35
What is the opening balance?
This is the amount of money in the business’ bank account at the start of the month
8 of 35
What is the closing balance?
This is the total amount of money in the bank account at the end of the month. (Net inflow/outflow + Opening balance)
9 of 35
If the closing balance is in negative figures, what is the problem with this?
If the figure is negative it means the bank account is overdrawn and the business cannot automatically meet its debts and could be in trouble.
10 of 35
What is a forecast?
Businesses try to forecast accurately for weeks and months ahead. The main aim of this is to try and identify potential problems where there might not be enough money in the bank to cover normal bills and any other planned expenditure.
11 of 35
What is the purpose of a budget?
The main purpose of a budget is to control business expenditure and provide employees with a guide to what money is available to spend in a particular time period
12 of 35
How do you work out income?
Income = number of products sold x average price
13 of 35
When does a business break-even?
when it is not making a profit or a loss (total costs = total revenue)
14 of 35
What are fixed costs?
those that do not depend on the amount of goods produced or sold (they have to be paid even if the business sells nothing).
15 of 35
What are variable costs?
those that change in proportion to the level of production.
16 of 35
How is the total amount of money received by a business calculated?
Total Revenue = Selling price per unit x Number of units sold
17 of 35
What are the advantages of break-even charts?
• Quick and simple using the formulae. • Easy to understand. • Helps to spot potential problems. • Can assist when applying for a loan.
18 of 35
What are the disadvantages of break-even charts?
• It is only a forecast. • Assumes all products are made and sold. • Costs may change. • Break-even needs to be recalculated each time a single factor changes.
19 of 35
What are the advantages of using the owners own money?
No interest charges and the money does not have to be repaid
20 of 35
What are the disadvantages of using the owners own money?
If business is sole trader / partnership then the money could be lost if the business fails. The owner may not have enough money to cover the full cost.
21 of 35
What are the advantages of selling shares?
Can raise large amounts of money and no interest charges
22 of 35
What are the disadvantages of selling shares?
More shareholders means that more profit has to be paid out in dividends each year and shareholders may not agree to issuing more shares.
23 of 35
What is retained profit?
At the end of the year the business may decide to reinvest some of the profit back into the business. This is called ‘retained profit’
24 of 35
What are the advantages and disadvantages of using retained profit?
Advantages – Control is kept within the business. No interest charges. Disadvantages – There may not be enough profit to cover the amount needed. Can also leave the business with no contingency money.
25 of 35
What are the advantages of taking a loan?
Can borrow the right amount of money to cover the full amount required. Can decide on how long to borrow the loan over and will know the fixed monthly repayments.
26 of 35
What are the disadvantages of taking loans?
Have to pay interest on the money borrowed. No guarantee the bank will loan them the money. If they cannot pay money back they will lose the security.
27 of 35
What is overdraft?
This is when the business takes more money out of the bank account than it contains. If it is not agreed in advance the bank will charge very high interest rates on a daily basis.
28 of 35
What are the advantages and disadvantages of overdraft?
Advantages – Can help with short term cash flow problems. Disadvantages – High interest rates charged on a daily basis so it is only suitable for a very short period of time.
29 of 35
What is a government grant?
The government is keen to help businesses start up and develop because they provide employment and pay taxes.
30 of 35
What are the advantages of a government grant?
it does not need to be repaid
31 of 35
What are the disadvantages of a government grant?
Often they request the owner matches the sum of money given as a grant. Not guaranteed to be accepted, many grants are only offered in high unemployment areas and are subject to many conditions.
32 of 35
What is trade credit?
An agreed credit period is an agreement between a supplier and customer on the length of time to be taken between receipt of goods / services and the time when payment is made.
33 of 35
What are the advantages of trade credit?
The business can earn money selling the goods before having to pay for them. The business can continue to earn interest on the money prior to payment.
34 of 35
What are the disadvantages of trade credit?
No guarantee that a supplier will offer trade credit. If a supplier goes into liquidation the receivers will request payment immediately.
35 of 35

Other cards in this set

Card 2

Front

What are some examples of inflows?

Back

cash from owner, loans, sales of products

Card 3

Front

What is outflow?

Back

Preview of the front of card 3

Card 4

Front

What are some examples of outflows?

Back

Preview of the front of card 4

Card 5

Front

What are the Total Receipts?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Unit 4 resources »