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Business unit 2
Finance
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Rhiannon Witts
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Cards (20)
Budgeting
Financial plans for the future over a given
period
of time
Budgets
Describe the expected
revenue
and
costs
Sales revenue budgets
Planned
revenue
from
selling
products
Expenditure budgets
A business's
planned expenditure
on labour,
raw materials
and other items essential for production
Purpose of a budget
Helps a business meet its
financial
objectives
To
plan
for the future
To
motivate
staff (bonuses)
To control business
expenditure
Variances
Unplanned
changes from the
budgeted
figure
Favourable variances
The difference between actual and
budgeted
figures results in the business enjoying
higher
profits than expected
Favourable
variances
Less expenditure than expected
Higher
revenues than expected
Adverse
variances
The difference between actual and
budgeted
figures results in the business profits being
lower
than planned
Adverse
variances
Higher expenditure
than expected
Lower revenue
than expected
Reasons
for changes in variances
Economy
is in a
recession
A
competitor
brought out a new
product
Raw
material costs may have
fallen
New
/
cheaper
suppliers may have been found
Employees may be better
trained
/
motivated
Sources
of
finance
Ways a business can obtain
money
to fund its operations and
investments
Gross Profit
revenue -
cost
of
sales
Net
Profit
Gross profit
-
expenses
Gross Profit
Margin
gross profit
/ sales revenue x100
Net Profit
Margin
net profit / sales revenue x100
Cash flow formulas
Net cash flow = total
inflows
- total
outflows
Closing balance = net cash flow +
opening
balance
Closing balance is next month's
opening
balance
Net
cash flow = total inflows - total
outflows
Closing
balance =
net cash flow
+ opening balance
Closing
balance is next month's
opening
balance