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💚13 Finance Flashcards

1
Q

Whats budgeting

A

Managing money properly to ensure you have enough cash abailavle to pay bills

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2
Q

Define cash flow forecast

A

Written plan in which a business sets out its expected future receipts and payments over a period.

Helps it to estimate if itll have surplus or deficit in future

Can then plan out actions to deal with the estimate

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3
Q

Name some ways a Business can Receive cash

A

Selling goods to customers

Cash received from customers sold to on credit

Income earned on investments (interest etc)

Rent from tenants

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4
Q

Name some ways a Business can Spend Cash

A

Buy stock
Paying suppliers on credit
Buy fixed assets
Paid out in dividends
Pay expenses (wages ins electricity)
Paid to revenue (tax)

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5
Q

How to deal with an expected future business deficit

A

Increase Cash Receipts
-credit control methods, discount if they
pay quicker
-sell some investments
-have a sale,encourage spending

Reduce Cash Payments
-spread big payments out (HP)
-make cutbacks (wage cuts,cheaper
services)
-reduce amnt paid out in dividends, offer
free shares in business instead

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6
Q

Why does a business prepare a Cash Flow Forecast??

A

Avoid Cash Deficits
-Gives time to plan and make changes

Improve Financial Control
-Compare predictions and actual
receipts and payments, see if on track

Raise Finance
-Show investors it wont run out of cash,
wont go bankrupt, convinces investors
to provide w money.

Increase Profits
-Know when theyll have excess cash and can plan to invest it and earn interest

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7
Q

What is a HOUSEHOLD BUDGET

A

Written plan in which a family sets out its expected future cash receipts and payments over a period.

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8
Q

What categories can household expenditure fall under

A

Fixed-Monthly bills,amnt stays the same

Irregular-Bills but amnt changes

Discretionary-Optional spending

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9
Q

Ways household can receive money

A

Wages/Jobseekers allowance

Child Benefit

Interest on savings

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10
Q

Ways household can spend money

A

Household Expenses-food, mortgage etc

Buy Fixed Assets-Tv, car, fridge

Paying Local Authority-Bin charges, motor tax etc.

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11
Q

How does a Household deal with a predicted deficit

A

Increase Receipts
-Overtime, extra part time job
-Rent out a spare room

Reduce Payments
-Spread out payments, hire purchase
-Make cutbacks

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12
Q

Why does a household prepare a budget??

A

Avoid Cash Deficits
-Can plan to make changes

Manage Money Better
-Highlights areas of overspending

Raise Finance
-Show bank to convince for a loan

Maximise Investments
-Can plan to invest any cash surplus

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13
Q

What is a spreadsheet

A

Computer software that is used to do basic maths calculations.
Can be used to draft CFF

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14
Q

Advantages of a spreadsheet

A

Performs basic maths calculations accurately and quickly saving time and money

Allows for “what if?” analysis, can know how vulnerable they are to changes

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15
Q

Name HOUSEHOLD SHORT TERM sources of finance

A

Bank Overdraft
Accrued Expenses
Credit Card

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16
Q

Name BUSINESS SHORT TERM sources of finance

A

Bank Overdraft
Accrued Expenses
Credit Card
Trade Credit
Factoring

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17
Q

Name HOUSEHOLD MEDIUM TERM FINANCE

A

Hire purchase
Leasing
Personal loan

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18
Q

Name BuSineSs MEDIUM TERM FINANCE

A

Hire purchase
Leasing
Medium term loan

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19
Q

Name HOUSEHOLD LONG TERM finnance

A

Mortgage
Savings

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20
Q

NameBuSiNeSs LONG TERM finnance

A

Debentures
Retained Earnings
Grants
Equity Capital
Tracker Mortgage

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21
Q

How long is considered short term

A

Under a year

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22
Q

How long is considered medium term

A

1-5 years

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23
Q

How long is considered Long term

A

5+ years

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24
Q

What is a bank overdraft??

A

ST H+B
Source of finance where the bank allows u to pay for things even tho you don’t have enough money in your current acc.

Pay back sometime during the year with interest

Stock,groceries

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25
What are the advantages of a Bank overdraft (ST H+B)
Interest is only paid in the amount overdrawn not on the full limit No security needed B:Tax deductible
26
What are the disadvantages of a bank overdraft (ST H+B)
Interest rate is high Bank can ask u to pay back immediatley Bank imposed extra charges if u go over limit Must be overdraft free at least 30days yearly
27
What is accrued expenses
ST H+B Supplier allows u to use its services now without immediate payment. Supplier sends bill at end of month and a deadline Electic,phone,gas etc
28
What are the advantages of Accrued Expenses (ST H+B)
No interest charged No security needed
29
What are the disadvantages of Accrued Expenses (ST H+B)
Cut off if u take to long to pay bill, then may have to pay reconnection fee Only suitable for certain purchases such as utility services
30
What is a Credit Card
ST H+B Pay for g+s with a cc, the cc company pays and u pay them back at a later daye Good for small value item or short term items
31
Advantages of a Cc (ST H+B)
No interest charged if u pay in full on time Safer than cash cuz u can cancel a cc if its stolen
32
Disadvantages of a Cc (ST H+B)
If not paid on time interest is charged at a v high rate Must pay a govt tax for each cc u own
33
What is factoring
ST B-Only Raise money by selling debtors to a bank for cash who then pressure debtors for money Factoring With Recourse:business must reimburse bank if debtors sold dont pay bank Factoring Without Recourse:business doesnt have to reimburse bank if debtors dont pay it
34
What are the advantages of Factoring (ST B-ONLY)
No security needed Entrepreneurs ownership not affected
35
What are the disadvantages of Factoring (ST B-ONLY)
Expensive as bank charges high fee for the service Can only be used by businesses that sell a lot on credit (have a lot of debtors)
36
What is Trade Credit
ST B-ONLY Supplier allows the business to buy stock from it now without having to pay for it now Bill sent to buyer at end of month and a date is set out to repay
37
Whatre the advantages of Trade Credit (ST B-ONLY)
Free source of finance, no interest if paid ontime Tax deductible No security needed Entrepreneurs ownership not affected
38
Whatre the disadvantages of Trade Credit (ST B-ONLY)
If deliberately keeps suppliers waiting all the time (LEANING ON THE TRADE) the business will lose its credit rsting If bill paid late it loses out on any cash discounts offered by supplier for early payment
39
What is LEANING ON THE TRADE
When a business deliberately keeps its suppliers waiting for their money, all the time The business will lose its credit rating and find it very hard to get credits in the future 
40
What is Hire Purchase
MT (H+B) Buying an asset and taking delivery of it now but paying for it in instalments Eventually own it Once uve paid 1/3 the HP company can only repossess with permission of judge U can end a HP if uve paid 1/2 Used to buy relatively ecpensive stuff used up within 5 years (cars,machinery)
41
What are the advantages of Hire Purchase (MT H+B)
No security neefed B-ONLY: Tax deductions B-ONLY:Entrepreneurs ownership not affected (dont have to give shares etc)
42
What are the disadvantages of Hire Purchase (MT H+B)
Expensive as interest is high If u cant repay asset will be repossessed U pay interest on initial sum borrowed, no reduction for instalments paid
43
What is Leasing
MT H+B Rent the asset up to 5 yrs. Pay monnthly lease for use Never own it Hand back asset at end of lease Cars,furniture,equipment
44
What are the advantages of Leasing (MT H+B)
No security needed Can always have up to date equipment B: Tax deductible B:Ownership not affected
45
What are the disadvantages of Leasing (MT H+B)
If u cant afford the payments asset is repossesed If u rent it for a long time it might have been cheaper to just buy the item
46
What is a personal loan?
MT H-ONLY borrow money from bank/CU pay back in regular instalments over 5 yrs Fixed rate-Interest doesnt change Variable Rate-Interest changes in accordance with ECB rates Tvs, Cars
47
What are the advantages of a personal loan? (MT H-ONLY)
Interest rate cheaper than HP No security needed
48
What are the disadvantages of a personal loan? (MT H-ONLY)
Pay interest on initial sum borrowed. No reduction for instalments paid
49
What is a medium term loan
MT B-ONLY Borrow money from bank pay back over 5 yrs in instalments plus interest Fixed rate:Interest doesnt change Variable rate:Interest change in accordance with ECB Cars machines equipment
50
What are the advantages of a medium term loan (MT B-ONLY)
Interest cheaper than HP Interest paid os tax deductible Entrepreneurs control not affected
51
What are the disadvantages of a medium term loan (MT B-ONLY)
Security required, assets may be repossessed if business cant repay If ECB raises interest rates and the loan is variable the monthly repayments increase
52
What is a mortgage
LT H-ONLY Loan used to buy a house. Paid back in 20-35 yrs If u cant repay house will b repossed Monthly repayments Fixed or variable rates Buy house or extension
53
What are the advantages of a mortgage (LT H-ONLY)
Interest rate on mortgage is cheapest rate on ANY loan
54
What are the disadvantages of a mortgage (LT H-ONLY)
If family cant afford repayments, house repossed
55
What is SAVINGS
LT H-ONLY Amnt of income family hasnt spent but has set aside for future use. Used to buy relatively expensive items thatll last longer than five yrs
56
What are the advantages of Savings (LT H-ONLY)
No interest to repay as money isnt borrowed No security needed^
57
What are the disadvantages of Savings (LT H-ONLY)
May take years to build up
58
What are retained earnings
LT B-ONLY Also called reserves Profits that business has saved up over the years to reinvest in the business Used for premises or business expansion
59
What are the advantages of Retained Earnings (LT B-ONLY)
No interest to repay No security needed Ownership not affected
60
What are the disadvantages of Retained Earnings (LT B-ONLY)
Not available to new businesses as theyve to be built up over years Businesses that save a lot of their profits may have bad relationships with shareholders
61
What are grants
LT B-ONLY Sum of money the govt gives a business to help it pay for things it needs. Businesses create employment Permanent source of finance doesnt have to be repaid if u obey all conditions Premises or business expansioon
62
What are the advantages of Grants, (LT B-ONLY)
No interest to repay No security needed Ownership not affected
63
What are the disadvantages of Grants, (LT B-ONLY)
Strict conditions Only given a % of the money u need
64
What are debentures
LT B-ONLY Lt loan used on a company. Loan is secured on the companys assets If u cant repay the bank will repossess its building or other valuable assets Company pays interest every year but pays back the loan in a lump sum Interesr rate fixed Major extensions last longer rhan 5yrs
65
What are the advantages of Debentures (LT B-ONLY)
Interest is tax deductible Ownership not affected
66
What are the disadvantages of Debentures (LT B-ONLY)
Security required Increase the company’s debt/equity ratio. This increases company’s annual interest payments and chances of going bankrupt
67
What is equity capital
LT B-ONLY Getting finance by selling some shares to investors for money Investors (shareholders) get dividends every year (part of the profits) and get a vote in the company for every share they have
68
What are the advantages of Equity Capital (LT B-ONLY)
No interest to repay, dividends only have to be paid at directors discretion No security needed Money raised is permanent source of finance
69
What are the disadvantages of Equity Capital (LT B-ONLY)
Reduced % ownership Any dividends the business pays out arent tax deductible Organising the sale of shares is expensive. Advertisements stockbrokers and lawyers
70
What are the things judged when applying for a loan??
**Character** -Honest+reputable -Job/business details **Capacity** -If it has sufficient income to repay -P60 -Audited copy of business P&L account to see if profits are sufficient **Collateral** -Valuable assets as security -Household details -Business balance sheet so assets can be examined **Credit Rating** -Good history taking out loans+repaying -Ever gone bankrupt/defaulted on any loans, credit check
71
Factors to consider when choosing a source of finance
**1.Cost** -Shop around cheapest APRs, no documentation fees etc. **2.Purpose of Loan** -Match source of finance to the item, no point taking out a loan longer than life of asset -ST, MT, LT **3.Security** -Weigh up advantage of finance source with risk of losing their valuable assets **4.Tax Implications** -See if u get a tax deduction on the source of finance **5.Control B-ONLY** -Involves giving away shares? This will reduce ownership and control
72
what is a APR
Annual Percentage rate -Total cost of borrowing expressed as a % of the anount borrowed -Includes interest charged and any other charges (documentation fees)
73
What is a current account
Bank account that businesses and households can use for handling money that comes in and goes out all the time 
74
what services does a current account to provide?
Cheque Standing order Direct debit Paypath ATM cards, Debit cards, Bank statements
75
Whats a cheque (current acc services)
Written document that the current account holder fills in. Bank deducts sum of money written on cheque out of her account and pays it to person named on cheque
76
Whats a standing order (Current acc services)
current account holder instructs her bank to take the same amount of money out of her account every period and pay to the account she has named Used to pay regular bills. Same amount each month satellite TV insurance premiums, debenture interest
77
Whats a Direct Debit (Current acc services)
current account holder, instruct her bank to take whatever sum of money is told to buy a person she names and pay it into their account every period Amount changes each time Pay bills where bill is different amount every month, telephone electricity 
78
Whats a Paypath (Current acc services)
employees net wages are paid directly into her bank account, transferred electronically from her employers account into hers Safer than being paid in cash for both 
79
Whats a ATM (Current acc services)
Automated Teller Machine allows current account holder to withdraw money 24 hours a day needs a PIN Also check balance or buy phone credit 
80
Whats a Debit Card (Current acc services)
Account holder pay for things without inconvenience or cost of writing a cheque Bank automatically takes money from your account and deposits it into the shops account within a few days. 
81
Whats a Bank Statement (Current acc services)
document u receive from bank, stating all transactions that took place on the account over a period of time together with balance left in the account 
82
Household and Business Management 1.BUDGETING
both plan out all the cash they will expect to receive and spend in the future Can then take appropriate steps to deal with the deficit or surplus 
83
Household and Business Management 2.SOURCES OF FINANCE
both raise finance and fill in forms to apply for loans both will choose source of finance with lowest APR to save money 
84
Household and Business Management 3.CONTROLLING
Both use stock control to make sure they don’t run out of products/food
85
Household and Business Management 4.COMMUNICATIONS
both use internal and external communications internal: instructing children/employees, external: communication with banks and government
86
Household and Business Activities 1Taxation
Business managers workout tax the business owes households do not have to work at their own tax
87
Household and Business Activities 2.SIZE
businesses are much larger and hire, a professional managers households manage themselves
88
Household and Business Activities 3MISSION
businesses main aim is producing and selling for profit household main aim is a social unit for love and support.
89
Household and Business Activities 4MANPOWER PLANNING
businesses, engage in manpower planning to make sure they have the right number of employees to do all the jobs households don’t 
90
What are the business finance sources that are TAX DEDUCTIBLE
Bank overdraft (ST) Trade Credit (ST) Hire Purchase (MT) -interest only Leasing (MT) MT loan (MT)- interest only Debentures (LT)-interest only

📈Business (15 decks)

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