Financial documents and statements Flashcards
Financial documents, Payment methods, Revenue and costs, Financial statements, Profitability and liquidity
Why do businesses need finance (money)?
- For starting up
- For everyday bill payments
- To take over another business
- To replace machinery / equipment
- To expand
Where can businesses get money from if they need it?
- The bank
- Personal savings
- Friends/family
- Selling items
What is tax?
An amount of money you are required to pay to the Government depending on income or value of property
Who are taxes collected by?
Taxes are collected by the HMRC (Her Majesty’s Revenue and Customers)
Why is it crucial that the business keeps accurate financial records?
As these will be used to determine how much tax they are required to pay
What are the reasons for enterprises to keep financial documents?
- Managers and owners are able to calculate
finances - They have records of all customers and
suppliers for future business and marketing - Faulty goods can be tracked, and mistakes put
right/refunds sent to customers
Name the types of financial documents (8)
- Purchase Order
- Delivery Note
- Goods Received Note
- Invoice
- Receipt
- Credit Note
- Remittance Advice Slips
- Statement of Account
When is a Purchase Order used?
When a buyer orders goods or services from a seller
Why is a Purchase Order used?
- Lists types, quantities and agreed prices
- Forms a legal offer/request to buy goods or
services
When is a Delivery Note used?
When goods are delivered to the buyer
Why are Delivery Note’s used?
- Lists details about the order
- Explains the contents of the package (e.g.
items might be missing as out of stock) - Customer can tick off items to ensure they
received what they ordered
When is a Goods Received Note used?
When goods are received
Why are Goods Received Note used?
- Confirms all goods have been received
- Can be compared against the purchase order
before payment is made
When is a Credit Note used?
If a customer returns goods to the seller
Why are Credit Note’s used?
- Acts as a record that items have been returned
and the customer has received a refund - Can possibly be used as a ‘voucher’ later
When is an Invoice used?
Shows money owed, usually after goods have been received
What do invoices show?
- Details the amount owed
- Gives the date the money must be paid by
- Explains how to pay
When are Receipts used?
To acknowledge and provide proof of purchase
Why are Receipts used?
- Proof of purchase in case of an issue
- Provides details of the item, price paid and
date of purchase
When are Statement of Account’s used?
When needing to provide a summary of recent transactions between a business and customer including any outstanding amounts
Why are Statement of Account’s used?
To provide clarity to customers who make repeat purchases with a business
When are Remittance Advice Slip’s used?
Sent by the customer to the business with details of the payment they have made
Why are Remittance Advice Slip’s used?
- The seller (business) can check that payment
was received - Clearer communication between customer and
business
Give examples of Payment methods. (5)
- Cash
- Credit cards
- Debit cards
- Direct debits
- A range of payment technologies
What does ‘cash’ involve?
The most traditional method of payment .
Involves the use of notes and/or coins to make a payment for a good/service
What problems might there be with cash?
- Money being lost or stolen
- Mistakes being made during transactions (e.g.
wrong change being given)
What are the advantages of using ‘cash’?
- Consumers and enterprises are confident
using it. - Widely accepted by enterprises.
- Small denominations are available so can pay
for small items e.g. a drink at 30p. - Consumers and enterprises know how much
they have and can only spend that amount.
Therefore, it is easy to control expenditure. - Can be used to save.
What are the disadvantages of using ‘cash’?
- Risk of loss or theft both for customers and
enterprises. - Can only be used for physical transactions.
- Generally inappropriate for large items of
expenditure e.g. buying a new car. - Banks can charge enterprise for making cash
deposits. - Need to have change.
What does using ‘Credit Cards’ involve?
This is where a customer can buy something and defer the payment (put off until later)
The card acts as a credit agreement with the customer and they make monthly payments to pay off the amount borrowed
What problems might there be with credit cards?
- Customers have to pay interest (extra money
on top of what they have borrowed) - Businesses have to pay a ‘surcharge’; an extra
cost for using this method
What are the advantages of ‘Credit Cards’?
- Allows the customer to delay payment and
spread it out over a period of time. - Widely accepted (but not 100%).
- Can be used online or in store.
- Can encourage a customer to make purchases
when they don’t have cash hence, increasing
sales for enterprises.
What are the disadvantages of ‘Credit Cards’?
- Interest is charged on the outstanding balance
making it a more expensive option for the
customer. - Can encourage over spending.
- Enterprises normally have to pay the bank a
fee for each transaction taken on a credit card.
What does using ‘Debit Cards’ involve?
Works in a similar way to credit cards, but this card is directly linked to the customer’s bank account.
When the card is used a message is sent to the customer’s bank and money is transferred into the account of the business.
What are the advantages of using ‘Debit Cards’?
- Secure method of payment e.g. need to know
the PIN to use it. - Widely accepted both online and in stores.
- Can withdraw cash from various places e.g.
ATM or at a cash desk in a store (cash back).
What are the disadvantages of using ‘Debit Cards’?
- Need to monitor spending and bank balance,
if a customer overspends this can be costly. - Contactless has increased the risk of
fraudulent use.
What does ‘Direct Debit’ involve?
This is where an agreement is in place with one bank and another to transfer funds between them (usually on an agreed date).
These are commonly used to pay frequent bills such as electricity.
What are the advantages of ‘Direct Debit’?
- Ensures regular payments are not missed.
- Ensures correct amount is paid as the amount
can vary. - Appear on bank statements as a record.
What are the disadvantages of ‘Direct Debit’?
- Amount taken will vary making budgeting
difficult. - Need to be re set up if bank details change
which may mean payments are missed if you
forget to do this. - Taken automatically whether the money is
there or not – may mean bank charges if the
account goes overdrawn.
What is Revenue?
The income an enterprise receives through various activities, such as selling products and services
Give the formula for Revenue.
Revenue = number of sales x price per unit
Give other sources of revenue (4)
- Interest from money in a bank account
- Investment income
- Leasing or rental income from renting out
property/machinery to others - Selling assets
What are the 4 types of Costs a business needs to pay?
- Start-up
- Running
- Variable
- Fixed
What is ‘Start-up costs’?
Things the business will need to buy before it starts trading, for example a restaurant needing an oven
