What is owner's capital ?

Owner's capital is the personal savings invested in the business by the owner.

Define the term retained profit .

Retained profit is the surplus generated in previous years that is not distributed to owners, but reinvested back into the business.

True or False? Internal finance is often free.

True . Internal finance is often free (it does not involve the payment of interest or charges ).

What is the opportunity cost of using internal finance?

The main opportunity cost of using internal finance (retained profit) is that it is not available for other purposes.

Define the term sale of assets .

The sale of assets refers to the selling of business assets that are no longer required, such as machinery, land or buildings, to generate a source of finance.

True or False? A firm's working capital situation can be improved by incentivising customers to pay more promptly for credit purchases.

True . A firm's working capital situation can be improved by incentivising customers to pay more promptly for credit purchases.

What is a sale and leaseback arrangement?

A sale and leaseback arrangement is when a business sells an asset, such as a building, for which it receives cash. It then rents the assets from the new owners.

What is meant by the term working capital ?

Working capital is money used in the day-to-day operations of a business.

What is meant by the term capital expenditure ?

Capital expenditure is spending on non-current assets such as equipment, buildings, IT equipment and vehicles.

True or False? Businesses that own many non-current assets often struggle to raise internal finance.

False . Businesses that own few non-current assets most often struggle to raise internal finance.

What is an overdraft ?

An overdraft is an arrangement for a business current account holder to spend more money than it has in its account .

Define the term business angel .

A business angel is an individual who specialises in making investments in start-up or expanding businesses.

True or False? Crowdfunding allows businesses to access finance provided by a large number of small investors on online platforms.

True . Crowdfunding allows businesses to access finance provided by a large number of small investors on online platforms such as Kickstarter.

Define the term interest ?

Interest is a percentage charged on money borrowed from a bank or other financial provider, or a percentage awarded on savings and investments.

Define the term venture capital .

Venture capital are funds provided by specialist investors to businesses that have significant potential for growth .

What is a secured bank loan ?

A secured bank loan is borrowing backed by collateral such as a home or other financial asset.

What is a joint venture ?

A joint venture is a contractual agreement between two or more firms to combine their financial resources and expertise to achieve a particular goal.

Leasing is when an asset is used by the business in return for regular payments, e.g. a piece of machinery or a vehicle . The business does not own the asset.

Define trade credit .

Trade credit is an agreement made with suppliers to buy raw materials, components and stock which are paid for at a later date , typically 30 to 90 days later.

True or False? Grants need to be repaid.

False . Grants do not need to be repaid.

What is meant by the term unlimited liability ?

Unlimited liability occurs when business owners are fully responsible for all debts owed by the business. They are also liable for any unlawful acts committed by those connected to the business.

True or False? Sole traders have unlimited liability.

True . Sole traders have unlimited liability.

Define the term limited liability .

Limited liability is when owners (shareholders) of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails.

True or False? With unlimited liability, owners may have to use their personal assets to pay business debts.

True . With unlimited liability, owners may have to use their own personal assets, such as their homes or savings, to pay debts or legal fees if their business fails.

True or False? With limited liability there is no legal distinction between a business and its owners.

False . With limited liability, there is a legal distinction between a business and its owners.

True or False? Unlimited liability businesses often struggle to raise finance.

True . Unlimited liability businesses often struggle to raise finance as they are seen as risky by lenders.

What is the meaning of revenue expenditure ?

Revenue expenditure is spending on current assets such as raw materials and components, or on day-to-day expenses such as wages or utilities.

What is the legal status of a limited company?

The legal status of a limited company is that it is incorporated , and owners are considered a separate legal entity from the business.

True or False? The owners of partnership businesses are known as shareholders.

False . The owners of partnership businesses are known as partners. Shareholders are owners of companies.

What is meant by the term incorporated ?

Incorporated means that a business has been registered as a company to become a separate legal entity from its owners.

What is a business plan ?

A business plan is a detailed document that sets out the objectives of a business, its planned strategy and tactics, and its expected cash flows, revenue and profits .

Define the term cash flow forecast .

A cash flow forecast is a prediction of the anticipated cash inflows and cash outflows , typically for a six- to twelve-month period.

True or False? A cash flow forecast helps identify where a business may experience cash shortfalls or surpluses.

True . A cash flow forecast can help identify where the business may experience cash shortfalls or cash surpluses, so that plans can be made to manage these periods.

Define opening balance .

The opening balance is the previous month's closing balance carried forward.

True or False? A cash flow forecast identifies the amount of profit generated by a business over the previous year.

False . A cash flow forecast forecasts the predicted cash inflows and outflows over a future period of time, usually six- or twelve months.

What is the meaning of the term net cash flow .

Net cash flow is total cash inflows minus total cash outflows.

What is the main purpose of producing a business plan for a new enterprise?

The main aim of producing a business plan is to reduce the risk associated with starting a new business.

What is the closing balance ?

The closing balance is calculated by adding the net cash flow to the opening balance.

True or False? Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately.

True . Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately.

A LevelBusinessEdexcelFlashcards

2.1 Raising Finance (Edexcel A Level Business)

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Cards in this collection (40)

What is owner's capital?
Owner's capital is the personal savings invested in the business by the owner.
Define the term retained profit.
Retained profit is the surplus generated in previous years that is not distributed to owners, but reinvested back into the business.
True or False?
Internal finance is often free.
True.
Internal finance is often free (it does not involve the payment of interest or charges).
What is the opportunity cost of using internal finance?
The main opportunity cost of using internal finance (retained profit) is that it is not available for other purposes.
Define the term sale of assets.
The sale of assets refers to the selling of business assets that are no longer required, such as machinery, land or buildings, to generate a source of finance.
True or False?
A firm's working capital situation can be improved by incentivising customers to pay more promptly for credit purchases.
True.
A firm's working capital situation can be improved by incentivising customers to pay more promptly for credit purchases.
What is a sale and leaseback arrangement?
A sale and leaseback arrangement is when a business sells an asset, such as a building, for which it receives cash. It then rents the assets from the new owners.
What is meant by the term working capital?
Working capital is money used in the day-to-day operations of a business.
What is meant by the term capital expenditure?
Capital expenditure is spending on non-current assets such as equipment, buildings, IT equipment and vehicles.
True or False?
Businesses that own many non-current assets often struggle to raise internal finance.
False.
Businesses that own few non-current assets most often struggle to raise internal finance.
What is an overdraft?
An overdraft is an arrangement for a business current account holder to spend more money than it has in its account.
Define the term business angel.
A business angel is an individual who specialises in making investments in start-up or expanding businesses.
True or False?
Crowdfunding allows businesses to access finance provided by a large number of small investors on online platforms.
True.
Crowdfunding allows businesses to access finance provided by a large number of small investors on online platforms such as Kickstarter.
Define the term interest?
Interest is a percentage charged on money borrowed from a bank or other financial provider, or a percentage awarded on savings and investments.
Define the term venture capital.
Venture capital are funds provided by specialist investors to businesses that have significant potential for growth.
What is a secured bank loan?
A secured bank loan is borrowing backed by collateral such as a home or other financial asset.
What is a joint venture?
A joint venture is a contractual agreement between two or more firms to combine their financial resources and expertise to achieve a particular goal.
What is leasing?
Leasing is when an asset is used by the business in return for regular payments, e.g. a piece of machinery or a vehicle . The business does not own the asset.
Define trade credit.
Trade credit is an agreement made with suppliers to buy raw materials, components and stock which are paid for at a later date, typically 30 to 90 days later.
True or False?
Grants need to be repaid.
False.
Grants do not need to be repaid.
What is meant by the term unlimited liability?
Unlimited liability occurs when business owners are fully responsible for all debts owed by the business. They are also liable for any unlawful acts committed by those connected to the business.
True or False?
Sole traders have unlimited liability.
True.
Sole traders have unlimited liability.
Define the term limited liability.
Limited liability is when owners (shareholders) of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails.
True or False?
With unlimited liability, owners may have to use their personal assets to pay business debts.
True.
With unlimited liability, owners may have to use their own personal assets, such as their homes or savings, to pay debts or legal fees if their business fails.
True or False?
With limited liability there is no legal distinction between a business and its owners.
False.
With limited liability, there is a legal distinction between a business and its owners.
True or False?
Unlimited liability businesses often struggle to raise finance.
True.
Unlimited liability businesses often struggle to raise finance as they are seen as risky by lenders.
What is the meaning of revenue expenditure?
Revenue expenditure is spending on current assets such as raw materials and components, or on day-to-day expenses such as wages or utilities.
What is the legal status of a limited company?
The legal status of a limited company is that it is incorporated, and owners are considered a separate legal entity from the business.
True or False?
The owners of partnership businesses are known as shareholders.
False.
The owners of partnership businesses are known as partners. Shareholders are owners of companies.
What is meant by the term incorporated?
Incorporated means that a business has been registered as a company to become a separate legal entity from its owners.
What is a business plan?
A business plan is a detailed document that sets out the objectives of a business, its planned strategy and tactics, and its expected cash flows, revenue and profits.
Define the term cash flow forecast.
A cash flow forecast is a prediction of the anticipated cash inflows and cash outflows, typically for a six- to twelve-month period.
True or False?
A cash flow forecast helps identify where a business may experience cash shortfalls or surpluses.
True.
A cash flow forecast can help identify where the business may experience cash shortfalls or cash surpluses, so that plans can be made to manage these periods.
Define opening balance.
The opening balance is the previous month's closing balance carried forward.
True or False?
A cash flow forecast identifies the amount of profit generated by a business over the previous year.
False.
A cash flow forecast forecasts the predicted cash inflows and outflows over a future period of time, usually six- or twelve months.
What is the meaning of the term net cash flow.
Net cash flow is total cash inflows minus total cash outflows.
What is the main purpose of producing a business plan for a new enterprise?
The main aim of producing a business plan is to reduce the risk associated with starting a new business.
What is the closing balance?
The closing balance is calculated by adding the net cash flow to the opening balance.
True or False?
Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately.
True.
Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately.
State the formula used to calculate the closing balance.
Formula.
$Closing balance = Opening balance + Net cash flow$