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  1. what is a cash flow forecast?
    used to predict how much money a business will have in the future
  2. name cash receipts for a business
    • 1. selling goods
    • 2. cash received from credit
    • 3. income on investments (interest_
    • 4. rent from tennants
  3. cash payments for a business
    • 1. buy stock
    • 2. pay bills
    • 3. buy fixed assets
    • 4. pay dividends
    • 5. pay expenses (wages)
    • 6. taxes
  4. how to deal with an expected future deficit
    • 1. increase cash receipts
    • 2. reduce cash payments
  5. how can you increase cash receipts?
    • 1. better credit control methods
    • 2. sell investments
    • 3. have a sale
  6. how to reduce cash payments
    • 1. make cutbacks
    • 2. offer shares instead of dividends
    • 3. lease or hire purchase instead of buying
  7. why does a business prepare a cash flow forecast?
    • 1. shows all inflows and outflows
    • 2. to show to bank manager when applying for a loan
    • 3. lets business know when there's going to be a deficit
    • 4. lets business know when there's going to be a surplus
    • 5. control cash flow (compare receipts with forecast)
  8. how do you increase house receipts
    • `1. overtime, extra job
    • 2. rent spare room to a student
  9. how do you reduce a house payments?
    • 1. hire purchase
    • 2. cutbacks
  10. why does a household prepare a budget?
    • 1. highlights areas of overspending
    • 2. when applying for loan
    • 3. ensures they can pay bills on time
    • 4. lets them know when there going to be surplus
  11. what is a spreadsheet?
    computer software that is used for basic accounting
  12. advantages of spreadsheets?
    • 1. saves time and money
    • 2. allows for what if analysis
  13. short term sources of finance for business
    • >bank overdraft
    • >accrued expenses
    • >trade credit
    • >factoring
  14. medium-term source of finance for business
    • >hire purchase
    • >leasing
    • >term loan
  15. long-term source of finance for business
    • >debentures
    • >retained earnings
    • >grants
    • >equity capital
  16. what is a bank overdraft?
    permission is granted by the bank to allow the account holder to over draw from their account by a specific amount.. payed back later with interest
  17. advantages of bank o/d
    • >interest only paid on amount o/d
    • >no security needed
  18. disadvantages of bank o/d
    • >rate of interest is expensive
    • >must be o/d free for at least 30 days in the year
    • >bank can ask for it to be paid back immediately
    • >extra charges if you go over o/d limit
  19. what does accrued expenses mean
    get services now and pay for them later e.g. phone, electricity
  20. advantages of accured expenses
    • >no interest
    • >no security needed
  21. disadvantages of accured expenses
    • >take too long to pay bill.. then cut off.. may have to pay reconnection fee
    • >only suitable financing for certain purchases such as utility charges
  22. what is factoring?
    business raises mone by selling its debtors to a bank for cash
  23. advantages of factoring
    • >get cash immediately
    • >no security needed
    • >control of business not affected
  24. disadvantages of factoring
    • >expensive
    • >can only be used if you sell a lot of goods on credit
  25. what is trade credit?
    when a business buys stock now and pays for it later
  26. advantages of trade credit
    • >no interest
    • >no security
    • >control not affected
  27. disadvantages of trade credit
    • >pays late.. loses out on cash discounts
    • >could lose credit rating
  28. what is hire purchase
    buying an asset and getting use of it straight away but paying for it in installments.. only owns product when last installment paid
  29. advantages of hire purchase
    • >gets asset immediately
    • >does not have to provide any collateral
    • >tax deductable
  30. disadvantages of hire purchase
    • >expensive.. high interest
    • >if you cant pay instalements.. repossessed
    • >pay interest om the inital sum borrowed
  31. what is leasing?
    renting an asset from a finance company for a fixed period and pay regular installements
  32. advantages of leasing
    • >get asset immediately
    • >does not have to provide collateral
    • >can always have up-to-date equiptment
    • >tax deductable
  33. disadvantges of leasing
    • >cannot make payment.. repossessed
    • >if rents for a long while.. may have been cheaper to buy it
  34. what is a term loan?
    whe the business borrows money from a bank and pays it back in regular installments over five years with interest
  35. advantages in term loans
    • >rate of interest cheaper than hire purchase
    • >tax-deducatable
    • >control not affected
  36. disadvantages of term loan
    • >security needed
    • >interest rates can be increased by european central bank
  37. what are retained earnings
    reserves.. profits that the business has saved up over the years
  38. advantages of retained earnings
    • >no interest
    • >no security
    • >no worry of bankruptcy
  39. disadvantages of retained earnings
    • >not available to new businesses
    • >if save alot of profits.. low dividends.. bad relationship with shareholders
  40. what are grants
    sum of money the government gives a business to help it pay the things it needs such as building, machinery.. does not have to be repaid
  41. advantages of grants
    • >no interest
    • >no security
    • >does not have to be repaid
  42. disadvantages of grants
    • >strict conditions
    • >only a percentage of money the business needs
  43. what is a debenture
    loan secured on the company's assets
  44. advantages of debenture
    • >tax deducable
    • >control of business not affected
  45. disadvantages of debentures
    • >security needed
    • >increases chance of going bankrupt
    • >harder to get more loans
  46. what is equity capital
    investors who buy shares
  47. advantages of equity capital
    • >no interest
    • >no security needed
    • >does not have to be repaid until closes down
    • >no worry over bankruptcy
  48. disadvantages of equity capital
    • >reduces control over business
    • >not tax deductible
    • >selling shares is expensive
  49. qualifying for loan
    • >character
    • >capacity
    • >collateral
    • >credit rating
  50. choosing a source of finance
    • >cost
    • >purpose
    • >security
    • >tax implications
    • >control
  51. why is purpose of loan so important?
    the life of the loan should never be longer than the life of the asset bought
  52. what is a current account
    bank a/c that businesses and households use for handling money that comes in and goes out all the time
  53. what does a current a/c provide
    • >cheque
    • >standing order
    • >direct debit
    • >paypath
    • >atm cards
    • >laser cards
    • >bank statements
  54. what is a standing order
    deduct a fixed amount of money from a/c at regular intervals
  55. what is direct debit
    similar to s.o but amount changes
  56. what is paypath
    way ees are paid
  57. common activities between households and businesses
    • >both engage in cash flow forecasting
    • >both engage in the management activity of controlling
    • >both use external and internal communications
    • >both raise finace
  58. differences between household and business
    • >business works out own taxes.. household doesnt
    • >businesses engage in manpower planning.. households dont
    • >businesses larger than households.. businesses run by managers.. households run by themselves
    • >business produces and markets products.. household doesnt
Card Set
chapter 13
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