Key information

• Functions of money


  • Unit of account
  • Means of exchange
  • Store of value
  • Legal tender
• Role of money


  Affected and influenced by a number of factors
• Factors affecting role of money

  • Personal attitudes towards risk, reward, borrowing, spending & saving
  • Life stages (childhood, adolescence, young adult, middle age, old age), key features of each stage, financial needs and implications at each stage
  • Culture, including religious and ethical beliefs
  • Life events can vary the personal life cycle from individual to individual
  • External influences/trends and the financial-related effects
  • Interest rate, cost of borrowing versus reward of saving
• Common principles to be considered in planning personal finances

  • To avoid getting into debt
  • To control costs
  • Avoid legal action and/or repossession
  • Remain solvent
  • Maintain a good credit rating
  • Avoid bankruptcy
  • To manage money to fund purchases
  • Generate income and savings
  • Set financial targets and goals
  • Provide insurance against loss or illness
  • Counter the effects of inflation
• Payment methods


  • Cash
  • Debit card
  • Credit card
  • Cheque
  • Electronic transfer
  • Direct debit
  • Standing order
  • Pre-paid cards
  • Contactless cards
  • Charge cards
  • Store cards
  • Mobile banking
  • Banker's Automated Clearing Services (BACS) Faster Payment Service (FPS)
  • Clearing House Automated Payment System (CHAPS)
• Types of current accounts

  • Standard
  • Packaged, premium
  • Basic
  • Student
• Types of borrowing


  • Overdraft
  • Personal loans
  • Hire purchase
  • Mortgages
  • Credit cards
  • Payday loans
• Types of saving and investment

  • Individual savings accounts (ISAs)
  • Deposit and savings accounts
  • Premium bonds
  • Bonds and gilts
  • Shares
  • Pensions
• Types of insurance products

  • Car
  • Home and contents
  • Life assurance and insurance
  • Travel
  • Pet
  • Health
• Types of financial institutions

  • Bank of England
  • Banks
  • Building societies
  • Credit unions
  • National savings and investments
  • Insurance companies
  • Pension companies
  • Pawnbrokers
  • Payday loans
• Methods of interacting with customers

  • Branch
  • Online banking
  • Telephone banking
  • Mobile banking
  • Postal banking
• Consumer protection organisations


  • Financial Conduct Authority (FCA)
  • Financial Ombudsmen Service (FOS)
  • Financial Services Compensation Scheme (FSCS)
  • Office of Fair Trading (OFT)
• Information, guidance and advice

  • Citizens Advice
  • Independent financial advisor (IFA)
  • Price comparison websites
  • Money advice service
  • Debt counsellors
  • Individual Voluntary Arrangements (IVAs)
  • Bankruptcy
• Types of income


  • Capital income: Loan, Mortgages, Shares, Owner's capital, Debentures
  • Revenue income: Cash sales, Credit sales, Rent received, Commission received, Interest received, Discount received
• Types of expenditure


  • Capital expenditure: Non-current assets – tangible (land, buildings and premises, machinery and equipment, vehicles, fixtures and fittings), Intangible (goodwill, patents, trademarks, brand names)
  • Revenue expenditure: Inventory, Rent, Rates, Heating and lighting, Water, Insurance, Administration, Telephone, Postage, Stationery, Salaries, Wages, Marketing, Bank charges, Interest paid, Straight-line depreciation, Reducing balance depreciation, Discount allowed
• Sources of finance


  • Internal: Retained profit, Net current assets, Sale of assets
  • External: Owner's capital, Loans, Crowdfunding, Mortgages, Venture capital, Debt factoring, Hire purchase, Leasing, Trade credit, Grants, Donations, Peer-to-peer lending, Invoice discounting
• Cash flow forecast


  Inflows/receipts: Cash sales, Credit sales, Loans, Capital introduced, Sale of assets, Bank interest received

  Outflows/payments: Cash purchases, Credit purchases, Rent, Rates, Salaries, Wages, Utilities, Purchase of assets, Value Added Tax (VAT), Bank interest paid
• Break-even analysis


  Costs: Variable, Semi-variable, Fixed, Total

  Sales: Total revenue, Total sales, Selling price per unit, Sales in value and/or units
• Statement of comprehensive income

  Purpose and use, Completion, calculation and amendment to include gross profit (revenue, opening inventories, purchases, closing inventories, cost of goods sold), calculation of profit/loss for the year (expenses, other income), Adjustments for depreciation (straight-line and reducing balance method), Adjustments for prepayments, accruals, Interpretation, analysis and evaluation of statements
• Statement of financial position


  Purpose and use, Completion, calculation and amendment of statement using vertical presentation to include: Non-current assets (tangible and intangible, cost, depreciation and amortisation, net book value), Current assets (inventories, trade receivables, prepayments, bank, cash), Current liabilities (bank overdraft, accruals, trade payables), Net current assets/liabilities, Non-current liabilities (bank loan and mortgage), Net assets, Capital (opening capital, transfer of profit or loss, drawings, closing capital), Adjustments for straight line (cost x%), depreciation, reducing balance (cost – depreciation to date x%), Adjustments for prepayments and accruals, Interpretation, analysis and evaluation of statements
• Profitability ratios


  • Gross profit margin, Mark-up, Profit margin, Return on capital employed (ROCE)

  
• Liquidity ratios


  • Current ratio, Liquid capital ratio
• Efficiency ratios


  • Trade receivable days, Trade payable days, Inventory turnover
• Limitations of ratios when assessing business performance
• Pet insurance


  Protects the owners of pets against some or all of the expenses associated with treating an injured or sick animal e.g. vet fees
• Health insurance


  Covers individuals, families or employees against medical expenses including assessments, treatments and loss of earnings. In the UK, this can pay for private treatment or payment plans for routine visits e.g. to the dentist
• Bank of England


  • The UK's central bank with responsibility for maintaining a healthy level of financial stability for the UK as a whole
• Banks


  An organisation that handles financial transactions and stores money on behalf of its customers
• Building societies


  Organisations that handle financial transactions and store money on behalf of their members. Members (account holders) are part-owners of the building society and have a right to vote and receive information on the running of the society
• Credit unions


  Not-for-profit organisations that handle financial transactions and store money on behalf of their members
• National Savings and Investment

  A government-backed organisation that offers a secure savings option
• Insurance companies


  Businesses that protect against the risk of loss in return for a premium. They are profit making organisations
• Pension companies


  Businesses that sell policies to individuals, whether privately or through employers, to allow them to save now to fund retirement in the future
• Pawnbrokers


  Businesses or individuals who loan money against the security of a personal asset e.g. an item of jewellery
• Payday Loans


  Organisations that offer a short-term source of finance to bridge a gap between now and next receiving a wage
• Unit of account

  Money can be used to place a value on goods and services. You exchange-money-for an equivalent value in goods and services this is the price. In the UK, the unit of account is shown in pounds and pence.
• Branch

  A physical place where the customer will visit to carry out transactions