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Question 1

what does a business mean when it has long cash flow cycle?

Answer 1

needs more cash
to make money they need non current assets

Question 2

what is overtrading?

Answer 2

when business expands they need to avoid overtrading. This is producing so much that business does not have money to pay its suppliers until it gets paid by its customers.

Question 3

what is fixed capital ( capital expenditure) money used for?

on balance sheet what is capital expenditure the same as?

Answer 3

• used to buy non current assets
• business need to set aside money to prevent non current assets wearing out
• capital expenditure and non current assets are the same on BALANCE SHEET

Question 4

what is net realisable value?

what is decipraction?

what 3 ways can assets lose it value?

Answer 4

amount of money a business can get from selling its stock ( raw materials) right now in its current state

• may be lower than cost of value or higher than the original price if the demand increases

deprecation = drop in value of business assets over time

assets lose their value for 3 main reasons
1. wear and tear
2.break down
3. become old fashioned

• although some time they deciprate they might work the other way and and increase in value for e.g property

business will need to calculate depricate value every year to make sure asset value on balance sheet is true reflection of what a business would get from selling it

building deprecation into account every year avoids fall in value all at once and allows business to make comparisons

• amount loss through deprecation is recorded on income statement as expenses.

Question 5

what does balance sheets show?

what are suppliers interested in ?+ why

what is liquidity?

what can short term info help a business with? (2)

what does an increase in non current assets suggest?

what does increase in reserve suggest?

Answer 5

short term financial status of the company

suppliers are interested in the business working capital and liquidity. the more liquid the assets are the better the firm will be at paying bills

liquidity = how easy assets is turn into cash and spend it

short term info can help a business asses internal strengths and weakness for e.g if have large working capital this means they can invest money in new equipment or pay of its loans.

• comparing this years balance sheet with previous year balance sheet help identify trends and evaluate financial performance

increase in non current assets suggest that invested in property and machinery and this means company is investing in growth strategy

increase in reserve- suggest increase in profits good news for shareholders.