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BM Finance

TermDefinition
Activities carried out by finance function Calculate employee wages/salaries prepare financial info to aid decision making monitor/control finances and expenses prepare organisations final accounts maintain accurate financial records pay accounts due/bills recieved analyse finacial info
Role of the Finance Department control costs-help be more profitable monitor cash flow-corrective action if problems ensure liquidity plan 4 future-analysing past/future trends dept. make decisions-improve efficiency monitor performace-use final accounts analyse - problems-fix
Role of finance dept. in meeting needs of HMRC profits calculated accurately corporation tax accurate PAYE calculated 4 all employees VAT returned regularly + calculated accurately good record keeping
Trading account summary of the money that has come in (revenue) and gone out (costa) of organisation over particular period - can be done monthly and yearly
Sales or turnover revenue from selling goods and/or services to customers
cost of sales costs associated directly w the production/ purchase of goods from a cash and carry/ other supplier
gross profit/ loss difference between sales revenue and cost of goods sols. money arisen directly from trading activities of organisation - buying low + selling high
profit and loss account shows net profit or loss over specified period of time + takes into account all expenses
expenses all additional expenses incurred by organisation eg. administration, distribution, selling expenses listed here
net profit amount of money organisation has left once all expences deducted from sales revenue recieved. reward 4 being successful in business
appropriation account shows what been done w total funds available 2 company. shows division of total funds between tax payments, investment, external loans, retention
Balance sheet statement shows assets of organisation ( what it owns) and its liabilities ( what it owes to others ) at a particular point in time
fixed assets items owned by organ. - will generate low income - such as property, equipment, furniture, vehicles. without these organ. unable to function
current assets items owned by organ. used up, sold or converted into cash within 12 months. iclude stocks, debetors, bank balances + cash
current liabilities debts owed 2 outside organs. that must be repaid in short term - less than 12 months.
net current assets amount by which total value of current assets exceeds total value of current liabilities
net assets shows net value of firm once short-term debts repaid
issued share capital money put in organ. by the owners or shareholders. in return 4 investment recieve dividend payments
reserves from profit and loss account profits retained by organ. after payment of dividends to shareholders + after provision made for all current liablities`
shareholders interest all issued share value, all reserves, retained profits
long term liabilities dependatures (large loans/ mortgages - debt repayment due over next 12 months
Value of financial accounts to competitors check to ensure making similar % profit look @ costs eg. expenses see if ripe 4 takeover to measure other organs. market share aid decision making
poor cash flow problems £ tied up in stock too much time customers 2 pay debt not enough £ from sales too short credit period by suppliers 2 high spending on machinery 2 high level of drawing taken out by owners of business
Solve cash flow probs JIT - £ not tied up in stock - stock only purchased when required discounts 2 customers if pay early - encourage = £ advertising + promo = awareness= ££ sell assets - instant cash -not required - no disruption to operations
cash budget forecast of money expect to recieve (Receipts) + money expect 2 pay out ( payments) over period of time in future
uses of info gained from cash budget monitro prgress/performance of organ.as whole/ individual depts.assist planning+decision making assess/dem validity of business plam - help secure required finance part of business plan/expansion tool for comparison
benefits of preparing cash budget identify deflict may occur - action indentify surplus- invest machinery eg motivate stqaff- targets managers control expenditure
employees see if payed fair wage compared 2 profits understand decisions eg. redundancies assure organ. makes profit - job security
inland revenues (HMRC) ensure corrct amount taxation being paid
shareholders decide whether 2 purchase additional shares are payed a fair dividend based on profits made
lenders eg. bank see if bank loan / overdraft should be issued based on profitability / liquidity
limitations of financial info Not take into account : external factors eg. recession. abilities/skills/experience of staff. staff morale/motivation. new products launched. how succesful in eliminatig comp. life cycle of products
why take over business with poor profits valuable assets strong brand name loyal customer base
Why managers use ratio analysis compare current performance w prev. year compare organ. w similar organ. identify why differences occurs + improve use info use info 4 forecasting/ budgeting assist decision making
Bank loan sum money given 2 business paid back @ later date. +regular payments +large sums requested -may not b given if bank :/ bout financial position of bus
overdraft bank agrees to business takin more out than available +easy 2 arrange -charges can b expensive -only short term
mortgage loan given to buy premises 4 business +long period 25 years or longer - repossesion of property if not repayed
Grant +niot need repaid -only once -not huge
share issue limited companies issue extra shares. plcs issue on stock market. +large amounts of capital obtained -organisations limited to no. of shares
leasing rent. equipmetn +saves on purching -equipment not owned
hire purchase remains property of seller till all payments made +item organisations after all payments -repossesed
Venture capitalists large loans to companies that bank deny +large loans obtained - part ownership requested - expensive
Created by: studypoo on 2014-03-11



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