What are sources of finance for a business?
Ways money comes into a business.
What is retained profit?
Profit kept in the business instead of being distributed.
What is venture capital?
Investment in a business by investors who may also provide advice and monitoring.
What is trade credit?
A short-term source of finance that lets a business obtain goods or services now and pay suppliers later.
What is a cash flow forecast?
An educated prediction of a business's future cash flow.
How is net cash flow calculated?
How is a closing balance calculated?
What promotion-related approach can increase a business’s cash by raising sales?
Offer promotions or discounts.
What pricing change can improve a business’s net profit?
Increase selling prices.
What does a statement of financial position show about a business?
What it owns, what it owes, and its capital or equity.
What are assets in a business?
Resources the business has.
What are liabilities in a business?
Amounts the business owes.
What does an income statement show?
Whether the business made a profit or loss during a particular period.
How is cost of sales calculated?
How is gross profit calculated?
How is net profit calculated?
What is depreciation?
The reduction in a non-current asset’s value over time due to wear, age, or obsolescence.
How is annual straight-line depreciation calculated?
What does the reducing-balance method apply a fixed percentage to each year?
The asset’s net book value.
What does a cheque instruct a bank to do?
Pay a specified amount from one account to another.
What does an electronic transfer move between bank accounts?
A payment directly from one account to another.
How does each prepaid-card transaction affect its balance?
It reduces the balance.
Is a bank account required to use a prepaid card?
No.
When must a charge-card balance be paid in full?
Each month when the statement is issued.
What does a direct debit authorize a company to do?
Take money from a bank account on an agreed date for regular goods or services.
How can a direct debit’s payment amount change?
It can vary.
What does a standing order instruct a bank to pay?
A fixed amount to another person’s account regularly on set dates.
What does liquidity measure in a business?
A business’s ability to have enough assets to cover its liabilities.
How is the liquid capital ratio calculated?
How is gross profit margin calculated as a percentage of revenue?
How is mark-up calculated as a percentage of cost of sales?
How is inventory turnover in days calculated?
How is the trade receivables collection period in days calculated?
How is the trade payables payment period in days calculated?
How should an eight-mark discussion answer structure its two paragraphs?
Discuss an advantage first and a disadvantage second, without giving a judgement.
What should each developed point in an eight-mark answer include?
A point, supporting evidence, and analysis of its effect on the business.
What is one financial benefit of retained profit?
It requires no interest.
What is crowdfunding?
Investment attracted from many speculative investors, often contributing small amounts.
What is one possible drawback of venture capital?
The business may lose partial control.
What is a mortgage?
A long-term loan secured against a specific asset.
What is a cash inflow?
Money coming into a business.
What is a cash outflow?
Money going out of a business.
How does a month's opening balance relate to the previous month's closing balance?
It equals the previous month's closing balance.
What is one use of cash flow forecasts?
They help businesses avoid cash shortages.
What is one limitation of cash flow forecasts?
They may be inaccurate.
What can sales discounts do to profit margins?
Reduce them.
What supplier-related action can help a business reduce expenses?
Negotiate better prices with suppliers.
What can cost-cutting affect besides expenses?
The quality of goods and services.
How much does net profit increase when expenses fall from £13,000 to £10,000, all else equal?
£3,000.
What purchasing strategy can reduce a business’s cost of sales?
Buying in bulk.
What future drawback can arise from selling unused business assets?
They may be difficult to replace later.
When are non-current assets expected to be kept?
For more than one year.
What annual amount does the straight-line method charge?
The same amount of depreciation each year.
How is depreciation calculated using the reducing-balance formula?
Who can cash a cheque written for a named payee?
Only the named payee.
What can cause a cheque to be returned?
Insufficient funds.
Where is a store card accepted?
Only at the issuing store or a linked association.
What does BACS transfer between banks?
Payments directly from one bank to another.
What does CHAPS transfer between bank accounts?
Payments directly from one bank account to another.
What are CHAPS’s timing, amount-limit, and fee features?
Same-day transfers have no single-transaction amount limit but normally incur a fixed fee.
What is the current ratio with £85,000 in current assets and £30,000 in current liabilities?
Approximately 2.83:1.
What is the liquid capital ratio with £85,000 in current assets, £40,000 in inventory, and £30,000 in current liabilities?
1.5:1.
With revenue of £350,000, cost of sales of £200,000, and expenses of £85,000, what is gross profit?
£150,000.
With revenue of £350,000, cost of sales of £200,000, and expenses of £85,000, what is the gross profit margin?
Approximately 42.9%.
In the example with revenue of £350,000, cost of sales of £200,000, and expenses of £85,000, what is net profit?
£15,000.
In the example with revenue of £350,000, cost of sales of £200,000, and expenses of £85,000, what is the profit margin?
Approximately 4.3%.
How is average inventory calculated?
What is inventory turnover when average inventory is £15,000 and cost of sales is £150,000?
36.5 days.
What is the receivables collection period for £45,000 receivables and £300,000 credit sales?
55 days.
What is the payables period for £25,000 payables and £100,000 credit purchases?
91 days.
What does probability measure?
The chance of something happening.
What does efficiency mean?
Doing something well without wasting time, money, or resources.
How should an eight-mark solution-and-drawback answer be structured?
Explain a solution with evidence and analysis, then explain its drawback.
How quickly do Faster Payments normally arrive?
Within 2 hours.
Answer 32 questions on Business Finance and Accounting.
1. What does the term “sources of finance” describe for a business?
2. A company earns a profit and keeps it in the business rather than distributing it. What is this source of finance called?
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