5.1 Business Finance
Any item owned by a business that can generate an income for the enterprise.
What are assets?
Period of time offered by suppliers of goods and services before payment is to be made.
What is trade credit?
A business’ most liquid asset – it is notes and coins as well as funds held in the business’ bank accounts.
What is cash?
The income a business receives from selling its goods or services
What is revenue?
A process where budget figures are minor changes from the preceding period’s budgeted or actual data.
What is incremental budgeting?
The money invested into a business either by its owners or by organisations such as banks.
What is capital?
Amount of money provided to a business for a stated purpose in return for a payment in the form of interest charges.
What is a bank loan?
A document that records a business’ anticipated inflows and outflows of cash over some future period, frequently one year.
What is a cash flow forecast?
Costs related to the production of a particular product and vary directly with the level of output.
What are direct costs?
A budget that is designed to change along with the sales volume or production levels.
What is a flexible budget?
Assets that a business expects to hold for one year or more. Examples include property and vehicles.
What are non current assets?
Funds (in the form of a mix of share and loan capital) that is advanced to businesses which are thought to be relatively high-risk.
What is venture capital?
Expenses that a business has to pay to engage in its trading activities.
What are costs?
The total cost of production divided by the number of units produced.
What are average costs?
Person responsible for the use and management of a particular budget.
Who is a budget holder?
Finance needed for a limited period of time, normally less than one year.
What is short term finance?
Takes place when banks provide up to 80 per cent of the value of a business’ debts immediately to provide an instant inflow of cash.
What is debt factoring?
The income a business receives from selling its goods or services
What is revenue?
The extra cost resulting from producing one additional unit of output. In most situations the marginal cost of an additional unit of a product is the variable cost of its production.
What are marginal costs?
Exist when budgets are automatically set at zero and budget holders have to argue their case to receive any funds.
What are zero budgets?
Exists when a business’ debts (or liabilities) exceed the assets available to pay them.
What is insolvency?
The provision of financial services for poor and low-income clients.
What is microfinance?
Costs related to the production of a particular product and vary directly with the level of output.
What are direct costs?
The process of establishing the price of a product by calculating its cost of production and then adding an amount which is profit
What is cost plus pricing?
Occurs when an individual, a sole trader or a partnership is judged unable to pay its debts by a court of law.
What is bankruptcy?
Source of finance that entails collecting relatively small amounts of money from a large number of supporters (the ‘crowd’).
What is crowdfunding?
Overheads that cannot be allocated to the production of a particular product and relate to the business as a whole.
What are indirect costs?
When any price set that is higher than the variable cost of producing a product is making a payment towards fixed costs.
What is contribution pricing?
The dissolution of a company by selling its assets to settle its liabilities.
What is liquidation?
A sum of money given to entrepreneurs or businesses for a specific purpose.
What is a government grant?
Allocates all the costs of production for the whole business. Therefore, these costs are absorbed into each output unit. This is also known as absorption costing.
What is full costing?
The quantity by which a firm’s current level of sales exceeds the level of output necessary to break even.
What is the margin of safety?
The money owed by a business to individuals, suppliers, banks and others.
What are liabilities?
Long-term loans granted by financial institutions solely for the purchase of land and buildings.
What are mortgages?
The difference between sales revenue and variable costs of production.
What is contribution?
Finance are those that are needed over a longer period of time, usually over a year.
What is long term finance?
The level of production or output at which a business’ sales or total revenue is exactly equal to its total costs of production.
What is the break even point?
The amount owed by a business’ customers for products that have been supplied but for which payment has not yet been made
What are trade receivables?
Measures the quantity by which a firm’s current level of sales exceeds the level of output necessary to break even.
What is the margin of safety?