Question Answer
Budgeting Is a plan of future income and expenditure
Household income Wages, overtime, bonus, child benefit
Household expenditure mortgage, groceries, holidays
Cash Flow Forecast Is an estimate of future movements of cash into and out of a business as a result from customers and payments to suppliers
Business Receipts Cash sales Receipts from debtors Interest Grants Share capital
Business Payments Purchase of assets Purchase of goods Payments to creditors Payment of expenses
Factors to be considered when choosing a source of Finance Cost, Purpose/Correct match, Amount, Control
Short Term Sources of Finance Trade creditors, Bank overdraft, Accrued expenses, Factoring debts
Trade creditors means receiving goods from suppliers now but paying for them later. The business uses this money to pay for more urgent bills
Bank overdraft giving a current account holder permission to take out more money than is in their current account. This must be agreed with the bank manager
Accrued expenses expense which has been incurred but not yet paid.
Factoring debts meaning selling the right to collect payment from your debtors to a factoring (debt collecting) firm
Medium Term Sources of Finance Hire purchase, Leasing, Term loan
Hire Purchase allows a business to buy an asset by paying for it in instalments over a period of time. The asset can be used immediately but full ownership only passes to the purchaser when it is fully paid for
Leasing means renting an item for an agreed number of years. When the lease is up, the item is returned to the leaseholder.
Term loan is a medium term loan from a financial institutions (e.g. bank, credit union) repaid in monthly instalments over a number of years
Long Term Sources of Finance Mortgage, Savings and retained earnings, Owner’s capital/Equity State grants, Debentures/long term, Sales and leaseback
Mortgages loans used to finance the purchase of a house or other property. They are available from banks and building societies.
Retained earnings Profits generated by a company that are not distributed to stockholders (shareholders) as dividends but are either reinvested in the business or kept as a reserve to pay off a debt or purchase a capital asset.
Owner’s capital/Equity is finance brought into a business by the owners
State Grants is a free gift of money provided to a business to be used for a specific purpose. There are no interest or cash repayments involved. Conditions are usually attached such as what the money can be used for and the need to keep proof of expenditure
Current Account It is an account in the bank that allows customers to lodge and withdraw money on a regular basis.
Sale and Leaseback a contract to raise cash by selling a piece of property and simultaneously leasing it back on a long term lease.