finance defintions

Question 1

Bank loan

Answer 1

A loan is borrowing a fixed amount of money for a fixed. for example three to five years

Question 2

Overdraft

Answer 2

An overdraft is the facility with to withdraw more from an account than is in the bank account resulting in a negative balance

Question 3

Trade credit

Answer 3

Businesses buy items such as fuel and raw material and pay them at a later date

Question 4

Factoring

Answer 4

Factoring is a method of turning invoices into cash

Question 5

Leasing

Answer 5

The company gains use of productive assets without ever owning it

Question 6

Hire purchase

Answer 6

Method of gaining the use of capital goods whilst paying a monthly fee

Question 7

Commercial mortgages

Answer 7

The propertyThe property is used as security against the loan and the loan can be as much as 60 per cent or 70% of the value of the property

Question 8

Sales and leaseback

Answer 8

This involves business selling assets such as buildings and machinery to finance company and then leasing the asset back

Question 9

Share capital

Answer 9

A long termmethod of providing funds for growth is to sell shares

Question 10

Venture capitalist

Answer 10

Professional investors who can invest a large amount of money into small and medium sized businesses

Question 11

Government grants

Answer 11

Both local and central government may offer finance to business startup schemes

Question 12

Budgeting

Answer 12

Financial plans for the future over a given. That describes the expected levels of expenditure and revenue

Question 13

Zero budget

Answer 13

Involved managers starting with a clean sheet they have to justify all expenditure made

Question 14

Cash flow forecast

Answer 14

A prediction / estimate of the movement of cash into and out of a business over a period of time

Question 15

Profit and loss account

Answer 15

An accounting statement showing an organisation sells revenue over a trading period All the relevant costs incurred in earning that revenue ,income+expenditure

Question 16

Cost of sales*

Answer 16

All costs of production used when manufacturing. Direct costs such as raw materials, wages used in the production process

Question 17

Gross profit*

Answer 17

The difference between the revenue from selling the product and the Direct cost of making it

Question 18

Net profit*

Answer 18

It is the prophet that belongs to the sole trader following the reduction of all expenses from the gross profit. Trader has to pay income tax on this profit

Question 19

Profitability ratios

Answer 19

Measures a businesses Total profit against Reese Source says used in making that profit.

Question 20

Gross profit

Answer 20

measures the proportion of money left over from its revenues after accounting for the cost of goods sold

Question 21

Net profit

Answer 21

Measures how much out of every pound of sales a company actually keeps in Earnings

Question 22

trading account

Answer 22

Shows the sales revenue, the costs of producing the good which has been sold

Question 23

The profit and loss account

Answer 23

Shows the expenses of running the business such as rent or salaries

Question 24

Appropriations account

Answer 24

How firms use net profits such as payments of taxes dividends or reinvestments

Question 25

Retained profit

Answer 25

refers to the portion of a company’s net income or profit that is kept within the business rather than distributed to shareholders as dividends

Question 26

Working capital

Answer 26

working capital is the amount of money a company has available to cover its immediate expenses and continue its business activities.
This can be obtained by selling off stock to release finance or reducing trade credit. And collecting debts more efficiently

Question 27

saleof assets

Answer 27

Selling off assets that are no longer required such as buildings and machinery