Unit 5: Finance and accounting

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BUSINESS FINANCE
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1 of 59
Start-up capital
the capital needed by an entrepreneur to set up a business
2 of 59
Working capital
the capital needed to pay for raw materials, day to day running costs and credit offered to customers. Working capital= current assets - current liabilities
3 of 59
Capital expenditure
the purchase of assets that are expected to last for more than 1 yr, eg: machinery
4 of 59
Revenue expenditure
spending on all costs and assets other than fixed assets and includes wages/salaries and materials bought for stock
5 of 59
Liquidity
the ability of a firm to be able to pay its short-term debts
6 of 59
Liquidation
when a firm ceases trading and its assets are sold for cash to pay suppliers and other creditors
7 of 59
Overdraft
bank agrees to a business borrowing up to an agreed limit as and when required
8 of 59
Factoring
selling of claims over trade receivables to a debt factor in exchange for immediate liquidity- only a proportion of the value of the debts will be received as cash
9 of 59
Hire purchase
an asset is sold to a company that agrees to pay fixed repayments over an agreed time period- the assets belongs to the company
10 of 59
Leasing
obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period. this avoids the nee for the business to raise long-term capital to buy the asset, ownership remains with the leasing company
11 of 59
Equity finance
permanent finance raised by companies through the sale of shares
12 of 59
Long-term loans
loans that do not have to be repaid for at least 1 yr
13 of 59
Long-term bonds or debentures
bonds issued by companies to raise debt finance, often with a fixed rate of interest
14 of 59
Rights issue
existing shareholders are given the right to buy additional shares at a discounted price
15 of 59
Venture capital
rise capital invested in business start-ups or expanding small businesses that have a good profit potential but do not find it easy to gain finance from other sources
16 of 59
Microfinance
providing financial services for poor and low-income customers who do not have access to banking services such as loans or overdrafts
17 of 59
Crowd funding
the use of small amounts of capital from a large number of individuals to finance a new business venture
18 of 59
Business plan
a detailed document giving evidence about a new or existing business that aims to convince external lenders and investors to extend finance to the business
19 of 59
COSTS
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20 of 59
Direct costs
costs can be clearly identified with each unit of production and can be allocated to a cost centre
21 of 59
Indirect costs
costs that cannot be identified with each unit of production or allocated accurately to a cost centre
22 of 59
Fixed costs
costs that do not vary with output in the short run
23 of 59
Variable costs
costs that don't vary with output
24 of 59
Marginal costs
the extra cost of producing one more unit of output
25 of 59
Break even point of production
the level of output at which total costs equal total revenue, neither profit or loss is made
26 of 59
Margin of safety
the amount by which the sales level exceeds the break-even level of output
27 of 59
Contribution per unit
selling price - variable cost per unit
28 of 59
Break even level of output
fixed cost / contribution per unit
29 of 59
ACCOUNTING FUNDAMENTALS
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30 of 59
Income statement
records the revenue, costs and profit (or loss) or a business over a given period of time
31 of 59
Gross profit
sales revenue - costs of sales
32 of 59
Revenue (sales turnover)
the total value of sales made during the trading period. Formula= selling price X quantity sold
33 of 59
Cost of sales
the direct cost of the goods that were sold during the financial year
34 of 59
Operating profit (net profit)
gross profit - overhead expenses
35 of 59
Profit for the year (profit after tax)
operating profit - interest costs + corporation tax
36 of 59
Dividends
the share of the profits paid to shareholders as a return for investing in the company
37 of 59
Retained earnings (retained profit)
the profit left after all deductions, including dividends, have been made, this is "ploughed back" into the company as an internal source of finance
38 of 59
Low quality profit
one off profit that cannot easily be repeated or sustained
39 of 59
High quality profit
profit that can be repeated and sustained
40 of 59
Statement of financial position (balance sheet)
an accounting statement that records the values of a business's assets, liabilities and shareholder's equity at one point in time
41 of 59
Shareholder's equity
total value of assets - total value of liabilities
42 of 59
Asset
an item of monetary value that is owned by a business
43 of 59
Liability
a financial obligation of a business that it's required to pay in the future
44 of 59
Share capital
the total value of capital raised from shareholders by the issue of shares
45 of 59
Non-current assets
assets to be kept and used by the business for more than 1 yr. AKA fixed assets
46 of 59
Intangible assets
items of value that do not have a physical presence such as patents, trademarks and current assets
47 of 59
Current assets
assets that are likely to be turned into cash before the next balance-sheet date
48 of 59
Inventories
stocks held by the business in the form of materials, work in progress and finished goods
49 of 59
Trade receivables (debtors)
the value of payments to be received from customers who have bought goods on credit
50 of 59
Current liabilities
debts of the business that will usually have to be paid within 1 yr
51 of 59
Accounts payables (creditors)
value of debts for goods bought on credit payable to suppliers. AKA trade payables
52 of 59
Non-current liabilities
value of debts of the business that will be payable after more than 1 yr
53 of 59
Intellectual capital or property
the amount by which the market value of a firm exceeds its tangible assets - liabilities , an intangible asset
54 of 59
Goodwill
arises when a business is valued at or sold for more than the balance-sheet value of its assets
55 of 59
Credit control
monitoring of debts to ensure that credit periods are not exceeded
56 of 59
Bad debts
unpaid customer's bills that are now very unlikely to ever be paid
57 of 59
Overtrading
expanding a business rapidly without obtaining all of the necessary finance so that a cash-flow shortage develops
58 of 59
Creditors
suppliers who have agreed to supply products on credit and who have not yet been paid
59 of 59

Other cards in this set

Card 2

Front

the capital needed by an entrepreneur to set up a business

Back

Start-up capital

Card 3

Front

the capital needed to pay for raw materials, day to day running costs and credit offered to customers. Working capital= current assets - current liabilities

Back

Preview of the back of card 3

Card 4

Front

the purchase of assets that are expected to last for more than 1 yr, eg: machinery

Back

Preview of the back of card 4

Card 5

Front

spending on all costs and assets other than fixed assets and includes wages/salaries and materials bought for stock

Back

Preview of the back of card 5
View more cards

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