BUSINESS Flashcards
(144 cards)
0
Q
FINANCIAL NEEDS
Give the 5 life stages and the financial needs to that stage
A
Childhood - limited needs
Adolescence - want to be more independent
Young Adult - looking to be more independent. Uni/car/going out etc
Middle age - support family, wedding, mortgage
Old age - less dependents, may want to downsize home
1
Q
CREDIT UNIONS
What do the members of the credit union have?
A
The members have the right to vote
2
Q
CREDIT UNIONS
define what a credit union is
A
a credit union is a financial institution that is charity based. They store money for the members
3
Q
CREDIT UNIONS
give advantages and disadvantages of credit unions
A
Advantage - secure place to store the money
you’re a member not just customer
lower fees
better customer service
they are non-profit financial institutions
Disadvantage - savings only protected up to £85,000 anything over isn’t protected.
Lacks business drive of commercial banks.
must become a member to join
4
Q
CREDIT UNIONS
give advantages and disadvantages of credit unions
A
Advantage - secure place to store the money
you’re a member not just customer
lower fees
better customer service
they are non-profit financial institutions
Disadvantage - savings only protected up to £85,000 anything over isn’t protected.
Lacks business drive of commercial banks.
must become a member to join
there are less ATM’s
5
Q
FUNCTIONS OF MONEY
there are 4 functions of money, name these
A
unit of account
legal tender
store of value
means of exchange
6
Q
FUNCTIONS OF MONEY
define unit of account
A
place a monetary value on goods/services
shows how much something is worth
7
Q
FUNCTIONS OF MONEY
define legal tender
A
the recognized legal form of payment
coins and notes etc
8
Q
FUNCTIONS OF MONEY
define means of exchange
A
money allows us to trade
9
Q
FUNCTIONS OF MONEY
define store of value
A
allows us to use it in the future as money keeps its value
10
Q
PLANNING EXPENDITURE
define what planning expenditure is
A
expenditure is money that is paid out
11
Q
ROLE OF MONEY
what are the 6 factors to attitudes of money
PLCLEI
A
personal attitudes life stages culture life events external influences interest rates
12
Q
DEFINE CREDIT RATING
A
credit rating is the score given to individuals on how likely they are to repay debts
13
Q
DEFINE INTEREST RATES
A
the cost of borrowing money or the reward for saving money
14
Q
DEFINE BANKRUPT
A
when individual or organisation legally states its inability to repay debts
15
Q
DEFINE SOLVENT
A
the ability to meet day-today expenditure and repay any debts
17
Q
METHODS OF PAYING
give 14 methods of paying and a brief explanation of each method
A
cash - notes and coins
debit card - card issued by banks to pay with, money is deducted from current account
credit card - allowing customers to delay payments
cheque - written order transferring money from one account to another
electronic transfer - payment transferred directly
direct debit - third party withdrawing money on set date
standing order - agreement with bank to transfer a sum of money on a set date
pre-paid card - money uploaded to a card and can be spent, the sum will be deducted
contactless card - cards with antennae allowing money to be transferred when it reaches a terminal
charge card - issued by financial institutions, customers can delay payment but must be paid in full
store card - retail outlet for customers so they can delay payments
mobile banking - carry out transactions using mobile devices
Bankers Automated Clearing Service (BACs. Faster Payment) - system allowing transfers from one account to another
Clearing House Automated Payment systems (CHAPS) - allows transfer of payments directly from one account to another
17
Q
INTERACTING WITH CUSTOMERS
give the five ways of banks interacting with customers
A
branch, telephone, online, postal, mobile
18
Q
METHODS OF PAYING
give an advantage and disadvantage to these methods of paying:
cash, debit card, credit card, cheque, electronic transfer, direct debit, standing order, pre-paid card, contactless card, charge card, store card. mobile banking, BACS and CHAPS.
A
cash - most wide form of paying but can be lost and stolen
debit card - no need to carry cash, used online but not accepted for small transactions
credit card - suitable for online transactions but interest is charged if not paid back in time
cheque - low risk form of payment but it is viewed as old fashioned
electronic transfer - no additional cost for transferring money but risk of loss of money if it’s set up wrong
direct debit - quick and easy to set up but payer determines how much is transferred making it hard for payee to budget
standing order - easy to set up and cancel but payments are continued to be paid unless cancelled
pre-paid card - can set a budget and no protection if its lost
contactless card - secure method to pay but still not widely accepted
charge card - reduces risk of debt but there is an annual fee
store card - short period of credit that’s interest free but only accepted in certain store
mobile banking - secure method but features are limited
BACS - no additional costs but limit is set on amount that can be transferred in one transaction
CHAPS - no limit on amount that can be transferred in single transaction but there’s a fixed charge
19
Q
INTERACTING WITH CUSTOMERS
give an advantage of each method of banks interacting with customers
A
branch - additional services and advice telephone - no additional charges online - available 24/7, convenient postal - no technology is needed mobile - available 24/7, no additional charges
20
Q
INTERACTING WITH CUSTOMERS
give a disadvantage of each method of banks interacting with customers
A
branch - restricted to opening times telephone - risk of fraud and theft online - risk of hacking and cyber crime, facilities limited postal - slow due to postal system mobile - risk of theft, hacking
21
Q
CITIZENS ADVICE
What is the citizens advice?
A
an organisation ran by charity to help the community with a wide range of things
22
Q
CITIZENS ADVICE
what do the citizens advice give advice on?
A
financial and non-financial issues
e.g. tax, benefits, court etc
23
Q
CITIZENS ADVICE
Give an advantage of the citizens advice
A
its free
face-to-face, online, telephone, wide range of areas covered
24
CITIZENS ADVICE
give a disadvantage of the citizens advice
they are just volunteers, not professionals so their knowledge is limited
25
CURRENT ACCOUNTS
what are the four types of current accounts?
standard
packaged, premium
basic
student
26
CURRENT ACCOUNTS
give an advantage of each current account type
standard - no charges on credit balances. convenient for receiving regular payments
packaged, premium - no charges on credit balances. convenient for reviewing regular payments
basic - available to customers with low credit rating. easy first step for post bankrupt people
student - offers bonuses. student loans handled easily
27
CURRENT ACCOUNTS
give a disadvantage of each type of current account
standard - high charges on use of overdraft.
packaged, premium - monthly charge for having the account
basic - limited faculties (no card, no overdraft)
student - overdraft facilities could encourage overspending
28
CURRENT ACCOUNTS
define current account
account with bank or building society for frequent use
29
CURRENT ACCOUNTS
define overdraft
ability to withdraw money that you do not have from current account
30
TYPES OF BORROWING
give 6 types of borrowing
```
overdraft
personal loans
hire purchase
mortgages
credit cards
payday loans
```
31
CURRENT ACCOUNTS
give some features of a current account
- rate of interest paid on positive balances
- rate of interest charged of negative balances
- overdraft limit
- charges on unauthorised overdrafts
- additional incentives
32
TYPES OF BORROWING
give an advantage and disadvantage of overdrafts
can be paid off without penalties
| not the cheapest type of borrowing
33
TYPES OF BORROWING
give an advantage and disadvantage of personal loans
regular pre-agreed payments make planning easy
| not suitable for short term loans
34
TYPES OF BORROWING
give an advantage and disadvantage of hire purchase
spreads cost of expensive item over a period of time
| interest charges higher than traditional loans
35
TYPES OF BORROWING
give an advantage and disadvantage of mortgages
allows customer to spread cost of expensive items over period of time. e.g. house
penalties applied to early repayment
36
TYPES OF BORROWING
give an advantage and disadvantage of credit cards
provides some protection on purchases
| can encourage overspending
37
TYPES OF BORROWING
give an advantage and disadvantage of payday loans
help solve short term cash flow problems
| interest rates are high
38
SAVING AND INVESTING
what are the 6 types of saving / investing
```
individual savings account (ISA's)
deposit and savings accounts
premium bonds
bonds and gifts
shares
pensions
```
39
SAVING
give the risks and rewards for saving
risks: low or zero risk. money saved is guaranteed for the future.
inflation can reduce spending power
rewards: interest payments. financial security
40
INVESTING
what are the risks and rewards for investing?
risks: investments can go wrong. no guarantee of a return
rewards: if successful there is potential for high financial return. can be exciting
41
CREDIT UNIONS
since credit unions are owned by their members, what is an advantage for them?
the costs can be kept down, allowing for higher interest rates
42
ROLE OF MONEY
personal attitudes...how can personal attitudes affect the role of money?
Individuals will vary in attitude to risk. Some people are willing to take more risks and even enjoy taking more risks. Some people may rather save. Family's attitude to money may effect you. E.g. They may say saving is good so you think saving is good.
43
ROLE OF MONEY
Life stages...how can life stages affect attitudes to money?
From childhood to adulthood your financial needs change, childhood you have limited financial needs. Adulthood you have financial needs, a mortgage, wedding, family etc
44
ROLE OF MONEY
If interest rates are high, what will people be more likely to do?
They will be more likely to save money
45
ROLE OF MONEY
If interest rates are low, what will people be more likely to do?
They will be more likely to borrow money
46
METHODS OF PAYING
There are 7 more ways to pay, these are less popular. Name this and give a brief explanation of each.
Pre-paid card - money loaded onto card, transactions can be made reducing amount on card
Contactless card - cards with antennae allowing money to be transferred when card touches terminal
Charge card - issued by financial institutions allowing customers to delay payments, must pay when statement is issued
Mobile banking - carry out financial transactions using mobile devices
BACS Faster payment - allows payments to be transferred directly from one bank to another
CHAPS - allows transfer of payments directly from one bank to another
47
METHODS OF PAYING
Give a advantages and disadvantages of pre-paid cards
Can set a budget. If its lost or stolen, the loss is limited to whats on the card. Effective way of controlling spending.
No protection if its lost. Requires initial fee sometimes to set up.
48
METHODS OF PAYING
Give advantages and disadvantages of contactless cards
Gaining in popularity. Secure method.
Often accepted in small amounts. Not widely accepted.
49
METHODS OF PAYING
Give advantages and disadvantages of charge cards
Reduces risk of debts. Allows short period of credit. Avoids needs to carry cash.
Must be paid in full each method. Annual fixed fee.
50
METHODS OF PAYING
Give advantages and disadvantages of store cards
Allows short period of credit that's interest free. Loyalty schemes.
Only accepted in issuing store. Can encourage overspending. Interest paid on outstanding balances.
51
METHODS OF PAYING
Give advantages and disadvantages of mobile banking
Convenient. Secure.
Features still limited.
52
METHODS OF PAYING
Give advantages and disadvantages of BACS
Faster payment allows instant transfers. No additional costs. Can be accessed in different ways.
Not offered by all banks. Limit set on amount that can be transferred in one time.
53
METHODS OF PAYING
Give advantages and disadvantages of CHAPS
Transfers can be made the same day. No limit on amount that can be transferred in one transaction.
Fixed charge per transaction.
54
INSURANCE
Define what insurance is.
An agreement with third party to provide compensation against financial loss in line with policy.
55
INSURANCE
Define what premiums are
Regular payments made by someone to insurance company to provide protection.
56
INSURANCE
What is car insurance? What are the features?
Legal requirement to insure a car that goes on a road.
The degree of the cover will vary depending if the third party is fully comprehensive or not.
Protects driver, passengers and other road users.
57
INSURANCE
What is life assurance / insurance?
Life assurance is a policy to pay a lump sum upon death. Life insurance is for a set period of time to pay a lump sum if you die within that period.
If mortgage lender dies with this the next a kin will get mortgage paid off.
58
INSURANCE
What is home and contents insurance?
Covers the physical building.
Contents insurance covers physical items in the house.
Items can be insured when a person is using them away from home as well as inside the house.
59
INSURANCE
give an advantage and disadvantage of car insurance
protects self against theft and damage, protects damage caused to 3rd party but premiums can be high depending on level of risk (younger drivers is more expensive)
60
INSURANCE
give an advantage and disadvantage of home and contents insurance
contents are protected both when inside and outside the house and some items cannot be replaced such as expensive paintings.
61
INSURANCE
give an advantage and disadvantage of life assurance and insurance
provides peace of mind to family following bereavement of homeowner but if the policy holder does not die within period of life insurance no payment is made
62
INSURANCE
give an advantage and disadvantage of travel insurance
provides protection against cancellation and delays but there is an additional cost when traveling abroad
63
INSURANCE
give an advantage and disadvantage of pet insurance
avoids expensive vet fees, but it is an additional cost to protect against the unexpected
64
INSURANCE
give an advantage and disadvantage of health insurance
if used to fund private health care, sometimes quicker treatment and better facilities but it will not cover pre-known conditions
65
FINANCIAL INSTITUTIONS
What are the 9 types of financial institutions?
```
Bank of England
Banks
Building societies
Credit unions
National savings and investments
Insurance companies
pension companies
Pawnbrokers
Payday loans
```
66
FINANCIAL INSTITUTIONS
| Give some advantages and disadvantages of the Bank of England
The Bank of England lends to banks, it sets interest rates. But it is not a bank for members of the public
67
FINANCIAL INSTITUTIONS
Give some advantages and disadvantages of banks
They offer a range of services and account types
Provide a secure place to store money
But savings are only protected up to £85,000, so if the bank goes bankrupt then anything saved over this is lost
68
FINANCIAL INSTITUTIONS
Give some advantages and disadvantages of building societies
They offer a range of services and account types and provide a secure place to store money but savings are only protected up to £85,000 so if the building society goes bankrupt then anything over is lost
69
FINANCIAL INSTITUTIONS
Give advantages and disadvantages of credit unions
Offers a range of services and account types and a secure place to store money
But savings are only protected up to £85,000 so anything over is lost and may lack the business drive of a commercial bank
70
FINANCIAL INSTITUTIONS
Give advantages and disadvantages of insurance companies
They protect against the unexpected, they are easy regular monthly payments making planning easy. But premiums are assessed on the estimate degree of risk
71
FINANCIAL INSTITUTIONS
Give advantages and disadvantages of national savings and investments
They are backed by the government so there is 100% security. Offers additional services and methods of paying
But the rates are variable and it is not as easy to access due to lack of presence
72
FINANCIAL INSTITUTIONS
Give an advantage and disadvantage of pension companies
Provides a structure to help plan for financial security after retirement and poor investment decisions by the pension company at result in a disappointing return
73
FINANCIAL INSTITUTIONS
Give an advantage and disadvantage of pawnbrokers
Quick way of acquiring money needed for short period of time and interest is not charged
But the amount given for the asset is fine substantially lower than its actual worth
74
FINANCIAL INSTITUTIONS
Give advantages and disadvantages of payday loans
A quick way of acquiring money for a short period of time but interest charges are usually very high
75
CONSUMER PROTECTION
What does the financial conduct authority (FCA) do?
The FCA is an independent organisation with remit to regulate the actions of providers of financial services
It's funded by membership fees charged to financial service providers
76
CONSUMER PROTECTION
What does the FCA concentrate on?
It concentrates on 3 things: authorisation - permitting financial service providers to trade
Supervision - ensuring procedures and practices are in the interest of the consumer
Enforcement - using powers to ensure standards are maintained
77
CONSUMER PROTECTION
The financial ombudsmen service (FOS, what is it?
The FOS is an organisation appointed by the government to represent the interests of the consumer in disputes with financial service providers
Funded by compulsory fees charged to all regulated financial institutions and additional fees when actions are taken against an institution
The FOS becomes involved in disputes only if they cannot be satisfactory sorted between the consumer and the finance institution prior to involving the FOS
78
PERSONAL FINANCE
what are the features of financial institutions?
they offer financial services to businesses and individuals. You can withdraw money and deposit money. you can make investments and have credit.
79
PERSONAL FINANCE
Name the different organisations of financial institutions?
bank of England, banks, building societies, credit unions, national savings and investments, insurance companies, pension companies, pawnbrokers, payday loans,
80
PERSONAL FINANCE
Give 2 advantages and 2 disadvantages of the Bank of England
They are responsible for protecting financial stability of the economy. They set the interest rates to have a stable economy.
This is not a bank for members of the public in general. Can raise interest rates, means borrowing will be expensive.
81
PERSONAL FINANCE
Give 2 advantages and 1 disadvantage of Banks
they offer a range of services and account types, it is a secure place to store money
Savings are only protected up to £85,000, if the bank goes bankrupt, anything over will be lost.
82
PERSONAL FINANCE
Give 2 advantages and 2 disadvantages of Building Societies
they offer a range of services and types of accounts,secure place to store money.
Savings are only protected up to £85,000, if the Building Society goes bankrupt, anything over will be lost. may lack business drive of commercial bank
83
PERSONAL FINANCE
Give 2 advantages and 2 disadvantages of Credit unions
offer range of services and account types, secure place to store money.
Savings are only protected up to £85,000, if the Credit Union goes bankrupt, anything over will be lost. may lack business drive of commercial bank
84
FINANCIAL INSTITUTIONS
What are the features of the Bank of England?
the UK's central bank that maintains healthy level of financial stability for the UK
85
FINANCIAL INSTITUTIONS
What are the features of banks
an organisation that handles financial transactions and stores money for its customers
86
FINANCIAL INSTITUTIONS
What are the features of building societies
organisations that handle financial transactions on behalf of its customers
87
FINANCIAL INSTITUTIONS
What are the features of credit unions
Not-for-profit organisations that handle financial transactions and store money for their members
88
FINANCIAL INSTITUTIONS
What are the features of national savings and investments
government-backed organisation that offers a secure saving option
89
FINANCIAL INSTITUTIONS
What are the features of insurance companies
businesses that protect against the risk of loss in return for a premium
90
FINANCIAL INSTITUTIONS
What are the features of pension companies
businesses that sell policies to individuals, either privately or through employers, this allows them to save now to fund retirement in the future
91
FINANCIAL INSTITUTIONS
What are the features of pawnbrokers
businesses or individuals that loan money against the security of a personal asset, e.g an item of jewelry
92
FINANCIAL INSTITUTIONS
What are the features of payday loans
these organisations offer short-term sources of finance used to bridge a gap between now and the next payday
93
FINANCIAL INSTITUTIONS
Give 2 advantages and 2 disadvantages of National savings and investments
government backed, so there is security on savings, there are other additional services and methods to save
the interest rates are variable, and they are not easy to access as they are not popular on the high street
94
FINANCIAL INSTITUTIONS
Give 2 advantages and 2 disadvantages of insurance companies
they protect against losses and financial expenses, you pay monthly in payments which makes it easy to plan and budget
the premiums are assessed on the estimated degree of risk, so it penalizes some members of society, they are profit-making so the premiums can be expensive
95
FINANCIAL INSTITUTIONS
Give 2 advantages and 2 disadvantages of pension companies
it provides a structure to help plan for financial security after retirement, experts are employed o make investments decisions.
poor investment decisions by pension company can result in disappointing return, money already invested in pension company cannot be released prior to dates agreed in the policy
96
FINANCIAL INSTITUTIONS
Give 2 advantages and 2 disadvantages of pawnbrokers
a quick way of acquiring cash needed for short period of time, there is no interest charged.
the amount given to the asset if often lower than its worth, if the money is not repaid within the agreed period of time the asset will be sold on
97
FINANCIAL INSTITUTIONS
Give 1 advantage and 1 disadvantage of payday loans
quick way of aqcuiring cash for short amount of time.
| interest charges are very high
98
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What is the "Financial Conduct Authority (FCA)". Give the features of the FCA
it is a independent organisation with a remit to regular the actions of providers to financial services.
Funded by membership charges to financial service providers
99
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What does the FCA stand for
Financial conduct authority
100
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What is the 3 key things the FCA organisation work focuses on?
Authorisation - permitting financial service providers to trade
Supervision - ensuring procedures and practices are in the interest of the consumer
Enforcement - using powers to ensure standards are maintained
101
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What does the FOS stand for?
Financial ombudsmen service
102
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What is the "Financial Ombudsmen Service (FOS)"
the FOS is an organisation appointed by the government to represent the interests of the consumer in disputes with financial service providers #
funded by compulsory fees charged to all regulated financial institution and additional fees when actions are taken against the institution
The FOS becomes involved in disputes only if they cannot be sorted between consumer and finial institution prior to involving the FOS
103
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What is the "Financial services compensation scheme (FSCS)"
The FSCS is the organisation in the UK that will pay compensation to a consumer of financial services if the service provider is unable to
They protect all savers in banks and building societies up to £85,000
104
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What is the " Office of Fair trading (OFT)"
OFt is a government organisation that was established to regulate all markets, including financial markets
Their aim was to encourage fair practice, healthy competition between financial institutions
Since 2014 the responsibility of the OFT has been handed to the FCA
105
CUSTOMER PROTECTION IN RELATION TO PERSONAL FINANCE
What is the "Legislation: consumer credit"
They are laws passed by the government in the UK, they enforce all regulation of any firm offering credit to consumers
Any firm offering credit must be registered with the FCA
106
ADVICE AND GUIDANCE
name the places where you can go to get advice and guidance on personal finance, some are private and some are government ran
```
The citizens advice
independent financial advisor (IFA)
price comparison websites
money advice services
debt counsellors
individual voluntary arrangements (IVA's)
```
107
ADVICE AND GUIDANCE
Give an advantage and disadvantage of the Citizens advice
it is a free service
| they are trained volunteers, so they are not professionals and knowledge may be limited
108
ADVICE AND GUIDANCE
Give an advantage and disadvantage of the Independent financial advisor (IFA) bankruptcy
The advice is offered by professionals in the field
| The services have a charge
109
ADVICE AND GUIDANCE
Give an advantage and disadvantage of the price comparison websites
easy to access 24/7
| Advice is only available online or over the phone so no physical presence
110
ADVICE AND GUIDANCE
Give an advantage and disadvantage of the debt counsellors
Advice is offered by professionals who specialise in debt management
The services have a charge
111
ADVICE AND GUIDANCE
Give an advantage and disadvantage of the Individual Voluntary Arrangements (IVA's) bankruptcy
they help manage debt repayment with regular payments, making planning easier
There is a setup and handling fee
112
PURPOSE OF ACCOUNTING
Define Financial transactions
actions by a business that involve money either going into or out of a business
113
PURPOSE OF ACCOUNTING
Define HM Revenue and Customs (HMRC)
It is a british government department responsible for collection of taxes
114
PURPOSE OF ACCOUNTING
What is record transactions? How does it work?
Record transactions is a record of transactions made by the business, this is money coming in and money coming out (revenue and expenditure).
There is a bookkeeper that keeps the log of transactions made in the business
115
PURPOSE OF ACCOUNTING
Why are recording transactions important?
If records of transactions are not made, then the business will not run smoothly, they will end up chasing payments, forgetting to pay bills and taxes. If this happens HMRC will be in contact
116
PURPOSE OF ACCOUNTING
What is the management of the business?
there is a manager in the business, they are in control of planning, monitoring and controlling resources.
117
PURPOSE OF ACCOUNTING
what is one of the responsibilities for the manager?
They must ensure that there is sufficient funds to pay wages, bills, buy new stock and other expenses
118
PURPOSE OF ACCOUNTING
Compliance, businesses must comply with the law, how do they do this?
financial reports are governed by the laws. this ensures that the records give a fair and true picture of how the business is doing. businesses must comply with these laws because they have to make sure investors and stakeholders are always informed
119
PURPOSE OF ACCOUNTING
Why must businesses comply with the laws of giving financial records?
Businesses must comply with the laws to ensure that investors and stakeholders are always informed
120
PURPOSE OF ACCOUNTING
Complying with the law cab also help to prevent something else from happening to the business or person, what is this?
This lessens the risk against fraud
121
PURPOSE OF ACCOUNTING
Define fraud
fraud is when an individual acquires money from a company for personal gain, through illegal actions
122
PURPOSE OF ACCOUNTING
Measuring performance, what is this in a business?
measuring performance is when records are made of the business so that someone can measure how well the business is performing
123
PURPOSE OF ACCOUNTING
Measuring performance, how can this be done? What indicates how well a business is doing?
Gross profit - the amount of money left after the cost of producing the good or service is deducted from the amount of sales revenue
Net profit - this is the smaller amount of profit made after all the other expenses are deducted from gross profit
Value owed to the business - the amount of money owed to the business for goods or services that have not yet been paid for
Value owed by the business - money the business owes to others for goods and services purchased but not yet paid for
124
PURPOSE OF ACCOUNTING
Define profit
surplus achieved when total revenue from sales is higher than the total costs of the business
125
PURPOSE OF ACCOUNTING
Define loss
shortfall suffered when total revenue from sales is lower than the total costs of the business
126
PURPOSE OF ACCOUNTING
Define gross profit
sales revenue minus cost of goods sold (the costs of actual materials used to produce the quantity of goods sold)
127
PURPOSE OF ACCOUNTING
Define sales revenue
quantity sold multiplied with the selling price
128
PURPOSE OF ACCOUNTING
Define net profit
gross profit minus other expenses, e.g rent and advetising
129
PURPOSE OF ACCOUNTING
Control, what is this?
accounting will control the flow of money in and out of the business, if any unusual activity is seen then this can be dealt with easily.
130
PURPOSE OF ACCOUNTING
what can be tracked when accounting control is done?
The accountant can track the amount of money the business is owed, trade receivables, from sales and the amount the business owes, trade payables. This helps the business ensure it can pay day-to-day expenses
131
PURPOSE OF ACCOUNTING
Define Trade Recieveables
money that is owed to the business from sales but is not yet paid for
132
PURPOSE OF ACCOUNTING
Define Trade payables
money that the business owes from supplies but has not yet been paid for
133
TYPES OF INCOME
What are the two categories of income?
Capital income
| Revenue income
134
TYPES OF INCOME
Capital income, what is it?
Capital income is money that is invested by owners or other investors to set up a business or buy equipment
135
TYPES OF INCOME
Capital income, what is it used for?
it is usually used to buy things that will stay in the business for a medium to long time, such as equipment, vehicles or land these are called fixed assets
136
TYPES OF INCOME
Define fixed assets
items of value owned by a business that are likely to stay in the business for more than a year, e.g. machinery
137
TYPES OF INCOME
Capital income, loans, what is a loan?
a loan is money that is lent to a business owner, from a bank or another financial institution, it has to be paid back in a certain period of time
138
TYPES OF INCOME
Capital income, what is a disadvantage of using loans?
there is a monthly interest charge on top of the money owed
139
TYPES OF INCOME
Capital income, loans from banks. Can a bank say no to someone asking for a loan?
Yes, banks can say no to lending out money. They ask how the money will be spent by the business and will assess how able the business is to repay the sum. Loans usually come being secured against an asset
140
TYPES OF INCOME
Capital income, loans. what can happen if a business owner is not able to repay the loan to the bank?
The banks loan is secured against an asset, so they can take the business owners asset off them if they cannot repay the sum, this is usually a house, or cars etc
141
TYPES OF INCOME
Define asset
an item of value owned by an individual or firm
142
TYPES OF INCOME
Capital income, mortgages, what is a mortgage?
a mortgage is similar to a bank loan, however it is for more money and the time to repay it is longer. Mortgages are secured against an asset, usually property
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TYPES OF INCOME
Capital income, shares, what are shares?
shares are when the businesses share money to its shareholders.
