Revenues and costs + Sources of Finance

• What is the primary function of the Accounts/Finance Department?

  Keeps financial records/accounts
• What types of financial tables does the Accounts/Finance Department draw up?

  Profit and loss account, balance sheet, cash flow, budgets
• What does the Accounts/Finance Department deal with regarding wages?

  Deals with wages
• What is the role of the Accounts/Finance Department in settling bills?

  Settles bills and pays creditors
• What does the Accounts/Finance Department do with debts?

  Collects and chases up debt
• How does the Accounts/Finance Department organize loans?

  Liaises with banks to organize loans
• What is turnover in a business context?

  Value of sales or income of a business
• How is turnover calculated?

  Selling Price x Quantity Sold
• What is one way to improve turnover?

  Increase price to make more revenue
• How can reducing price affect turnover?

  May create demand and sell more goods
• What is a method to improve turnover through promotion?

  Increase promotion to attract more customers
• What are total costs in a business?

  Full amount spent when producing goods
• How are total costs calculated?

  Fixed Costs + Variable Costs
• What is profit in a business context?

  Difference between total revenue and total costs
• How is profit calculated?

  Total Revenue – Total Costs
• What does break-even mean for a business?

  Total revenue equals total costs
• How is break-even calculated?

  Fixed Costs divided by Contribution per unit
• What is contribution in a business context?

  Amount towards fixed costs from selling goods
• How is contribution per unit calculated?

  Selling Price – Variable Costs
• What are fixed costs?

  Costs that do not change with production levels
• Give an example of a fixed cost.

  Rent for the shop
• What are variable costs?

  Costs that change with production levels
• Give an example of a variable cost.

  Raw materials
• What factors should a business consider when raising extra finance?

  • Availability of finance
  • Interest charged
  • Time for repayment
  • Amount of money needed
  • Effect on business ownership
  • Administration charges
• What is personal savings in the context of internal sources of finance?

  Money put into a business by its owner
• What is an advantage of using personal savings as finance?

  No interest or repayments required
• What is a disadvantage of using personal savings?

  May not have enough for expansion plans
• What are retained profits?

  Profits kept in the business instead of paid out
• What is an advantage of retained profits?

  Cheaper than taking out a loan
• What is a disadvantage of retained profits?

  Once used, the money is gone
• What is the sale of assets?

  Items sold to raise funds for the business
• What is an advantage of selling assets?

  Can raise large sums if no longer needed
• What is a disadvantage of selling assets?

  Assets may be essential and not replaceable
• What is an overdraft?

  Short-term loan from banks for cash-flow
• What is an advantage of an overdraft?

  Allows more withdrawal than account balance
• What is a disadvantage of an overdraft?

  Interest is paid on the overdrawn amount
• What is trade credit?

  Stock received with payment at a later date
• What is an advantage of trade credit?

  No interest charged if paid on time
• What is a disadvantage of trade credit?

  Counts as a current liability to be paid
• What is hire purchase?

  Renting goods that are eventually owned