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Finance
short term, medium and long term sources of finance
| Term | Definition |
|---|---|
| Current expenditure | spending on-going or repetitive costs of running a business e.g. spending on wages, stock an delivery costs |
| Capital expenditure | spending on fixed assets, divided into medium-term expenditure and long-term expenditure |
| Fixed asset | anything that is owned by the business whose value is not directly changed by normal daily transactions of the business |
| medium-term expenditure | spending on assets that will have to be replaced within 3-5 years e.g. computers, vehicles and furniture |
| long-term expenditure | spending on assets that the business does not tend to replace in the foreseeable future e.g. land, buildings and machinery |
| Short term finance | finance that must be repaid within a year, e.g. trade credit, overdraft, debt factoring, accruals |
| Trade Credit | buying goods on credit i.e. buy now and pay at a later date |
| Overdraft | permission from your bank to take out more money tha is actually in the business current account |
| Accruals | expenses due, delay in paying bills and use the money for something else |
| Debt factoring | selling off value of debtors at a discount for cash |
| Debtor | person or company who owes you money |
| Medium term finance | finance that must be repaid within 5 years e.g. term loan, hire purchase and leasing |
| Term Loan | loan from bank or financial institution which is paid back with interest |
| Hire Purchase | repaying in instalments but able to use asset straight away but company does not own asset until last payment is made |
| Leasing | renting an asset for a period of time |
| Long term finance | finance which is repaid over 5 years or more, it includes issuing shares, retained earnings, debentures, sale and leaseback, long terms loan |
| Issuing Shares | company sells shares in the business to raise money |
| Retained Earnings | reinvesting some of the profit made by the company back in to the business |
| Debentures | is a certificate acknowledging the existence of a debt, it is used in cases of large debt and is secured on an asset of the firm |
| Sale and Leaseback | firm sells an asset to another firm then leases it back over a longer term |
| Grant | non-repayable money given by the government or the EU to set up or expand a business e,g, Fáilte Ireland grants to businesses in tourism sector |
| Matching | the source of finance must be matched to the use to which it is put |
Created by:
MsBradyJCBSTU
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