Nat 5 Revision > Finance > Flashcards

Finance Flashcards

(87 cards)

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1
Q

Why is finance important

A

Manages money so a business can pay costs and continue operating successfully

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2
Q

Fixed costs

A

Costs that do not change with output, e.g. rent.

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3
Q

Variable costs

A

Costs that change with output, e.g. materials

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4
Q

Total cost

A

Fixed + variable costs

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5
Q

Revenue

A

Money earned from sales over a period

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6
Q

Profit

A

Revenue minus total costs, showing performance.

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7
Q

Break-even

A

Where total revenue = total costs (no profit or loss).

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8
Q

Break-even formula

A

fixed costs ÷ (selling price - variable costs)

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9
Q

Revenue expenditure

A

money spent on running the business from day to day (wages and electricity bills)

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10
Q

Capital expenditure

A

Spending on long-term assets like machinery

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11
Q

weaknesses of using break-even

A

Assumes costs and prices stay the same, which is unrealistic as they can change

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12
Q

Break-even on graph

A

Where total cost line meets revenue line.

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13
Q

budget

A

A plan that a business prepares for thr weeks,moths and years ahead.

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14
Q

Benefit of cash budget

A

Identifies cash problems before they happen

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15
Q

a way to improve cash flow 1

A

Increase sales to bring in more cash.

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16
Q

a way to improve cash flow 2

A

Ask customers to pay earlier (tighter credit control) so cash is received quicker.

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17
Q

a way to improve cash flow 3

A

Sell unused assets to bring in immediate cash.

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18
Q

Income statement

A

Shows revenue, costs and profit over a period

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19
Q

Gross profit

A

Sales − cost of sales

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20
Q

Profit for year

A

Gross profit − expenses.

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21
Q

Cost of sales

A

Opening inventory + purchases − closing inventory.

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22
Q

Role of technology

A

Improves accuracy and speeds up financial calculations.

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23
Q

How can a business reduce electricity costs

A

Use energy-efficient equipment or turn off unused machines to reduce energy usage and bills.

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24
Q

How can wage costs be reduced

A

Reduce staff or overtime so the business pays less in salaries

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25
How can rent costs be reduced
Move to cheaper premises to lower fixed costs.
26
How can material costs be reduced
Buy cheaper suppliers or bulk buy to lower cost per unit.
27
How can advertising costs be reduced
Use cheaper methods (e.g. social media) to lower spending.
28
How can transport costs be reduced
Plan routes efficiently or use fuel-efficient vehicles to cut fuel costs.
29
How can repairs and maintenance costs be reduced
Delay non-essential repairs to reduce short-term spending.
30
How can production costs be reduced
Improve efficiency so fewer resources are used per unit.
31
How can technology reduce costs
Use automation/spreadsheets to reduce labour and errors.
32
How can overall costs be reduced
Cut unnecessary spending to increase profit.
33
How does a business maximise profits
Try earn as much revenue as possible while keeping costs as low as possible
34
Examples of variable costs
Raw materials, wages, power for machinery
35
Fixed costs examples
Rent, rate, insurance, intreast on loans
36
Does fixed costs remain the same
Yes
37
What is short-term finance (up to 1 year)
Finance used to solve immediate cash flow problems
38
Types of short term sources of finance
Bank overdraft Trade credit Debt factoring
39
Bank overdraft
Spend more than balance to cover short-term shortages.
40
Trade credit
Delay paying suppliers to keep cash longer.
41
Debt factoring
Sell debts for quick cash but receive less money
42
What is medium-term finance (1-5 years)
Finance used to buy assets like machinery
43
Bank loan
Borrow money repaid in instalments with interest
44
Hire purchase
Pay in instalments; own asset after final payment
45
What is long-term finance (5+ years)
Finance used for major investment like buildings
46
Venture capital
Investment in return for ownership share
47
Mortgage
Long-term loan to buy property.
48
leasing
Rent assets instead of buying them.
49
Capital (shares/owner investment)
Money invested by owners or shareholders.
50
Types of medium source finance
Bank loan hire purchase
51
What is the Loan Guarantee Scheme
Government guarantees part of a loan, helping businesses get finance, but may involve higher interest.
52
How much of the loan does the government guarantee
The government guarantees up to 70% of the loan, reducing the risk of the business not repaying it
53
Types of long term source of finance
Mortgage leasing venture capital capital
54
Sales Budget
Shows how many units you expect to sale in the future
55
Production Budget
Shows how many units you expect to produce in the future
56
Cash budget
a plan thay shows how much money a business expects to spend and receive in the future
57
what is the purpose of a cash budget
shown what money came in during the period shows what money went out during the period is used to help make decisions alerts the business to any cash flow problems
58
What is the opening balance
Money in the business at the start of the month
59
What are total receipts
Money coming into the business (e.g. sales)
60
What does opening balance + receipts give
Total cash available
61
What are total payments
Money going out of the business (costs)
62
What happens to payments in a cash budget
They are subtracted from total cash available
63
What is the closing balance
Money left at the end of the month
64
How do you calculate closing balance
Opening balance + receipts − payments
65
What happens to the closing balance?
It becomes next month’s opening balance
66
How do you explain a cash budget
Explain these steps Opening balance total receipts total payments closing balance
67
What can a cash budget help a business answer
Do I need to arrange a loan Do I have enough money to buy a new peice of equipment
68
what is a cash flow problem
When a business doesn’t have enough cash to pay its bills
69
Causes of cash flow problems
Late payments → no cash coming in → can’t pay bills High costs → too much money going out → cash shortage Too much stock → money tied up → less cash available
70
Effects of cash flow problems
Can’t pay wages/suppliers May go bankrupt Reputation damaged
71
Strategies to cash flow problems (cash flow strategy)
Offer discounts → customers pay faster → improves cash inflow Delay payments → cash stays longer → avoids shortages Overdraft → access to extra cash → can pay bills on time
72
cash flow strategy
Actions a business takes to improve its cash position
73
Trading account
Shows the gross profit or loss for a business
74
How to calculate gross profit
Sales revenue - cost of the goods
75
what is opening stock
The value of stock a business has at the start of a period (e.g. start of the month or year
76
Where does opening stock come from
its last period’s closing stock
77
Net profit
gross profit minus all expenses and overheads
78
role of technology in finance
Speed → faster calculations → saves time Accuracy → fewer mistakes → reliable data Monitoring → track cash flow → better decisions
79
disadvantages of technology in finance
Cost → expensive to buy/maintain → reduces profits Security risks → hacking/data breaches → loss of sensitive information Training → staff need training → takes time and money System failure → crashes/technical issues → loss of data or delays
80
What is the purpose of the finance department
To control spending, prepare financial statements and to monitor budgets.
81
what is a favourable variance
when actual figures are better than the budget ( higher income or lower costs(
82
what us an adverse variance
when actual figures are worse than the budget (lower income or higher costs)
83
What does gross profit percentage show
how much profit is made from buying and selling goods
84
what does the profit for the year percentage show
how much overall profits the business keeps after all expenses
85
what is the purpose of the statement of financial position
to show what the business owns (assets) and owes (liabilities) at a point in time
86
What lines appear on a break even chart
Fixed costs line, total costs line, revenue line
87
whay are the profit and loss areas on a break even chart
above break even= profit area below break even= loss area
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