Finance

Finance

Role of the Department
1. Record & maintain financial records
  1. cash budgets
  2. profit statements
2. Pay bills
  1. electricity
  2. insurance
3. Pay wages and salaries
Sources of Finance
1. Short Term
  1. Overdraft
  2. Trade Credit
  3. Hire Purchase
  4. loan
2. Long Term
  1. Mortgage
  2. Capital
  3. Debenture
  4. Loan
Cash Budgeting
1. Generating cash
  1. selling fixed assets
  2. taking additional partners
  3. borrowing money
  4. selling products at 'knock-down' prices
2. spending cash
  1. wages/salaries
  2. raw materials
  3. training courses
Cash Flow
1. statements identify periods of shortages/excesses of cash
2. Must be enough cash or face liquidation
3. Problems
  1. too many customers purchase on credit and don't pay within the agreed credit terms.
  2. tying up cash in stock
  3. owners taking too much drawings
  4. low sales
  5. purchase of capital items
4. Problems Resolved
  1. discounts/promotions to increase sales
  2. sell fixed assets
  3. buy cheaper products
  4. arrange credit with suppliers
Budgets
1. Why use them
  1. show it it will have a surplus/defecit
  2. focus activity on set targets
  3. help managers co-ordinate activities
  4. highlight problem areas
  5. motivate staff
Break-Even Analysis
1. Sales Revenue - Total Expenditure = Profit
2. (Break-even) Total Costs (expenses) = Total Revenue
3. break-even worked out to find number of units of a product they have to sell before making a profit.
4. the business isn't making a profit or loss
Trading Accounts
1. calculates difference between amount of goods sold and those brought in.
2. Shows profit or loss before any expenses.
Profit & Loss Accounts
1. Show the Net Profit or Loss after expenses have been taken from the Gross profit
Annual Accounts
1. Must be provided by law
2. Include trading, profit & loss accounts
3. And balance sheets
4. Good guide to profitability, liquidity & efficiency
Technology
1. spreadsheets can be used to:
  1. record cost info and calculate break-even
  2. calculate profit
  3. prepare cash budgets
  4. make graphs to show income/expenditure
2. Role of technology in finance
  1. Spreadsheets reduce calculating errors
  2. accounting software so info is quickly processeed
  3. tracking figures on daily/weekly/monthly basis
  4. email to send info to the right people
  5. spreadsheets to make charts etc
Glossary
1. Creditors
  1. People who we buy things from on credit or others owed money. Shown as current liability in the balance sheet.
2. Debtors
  1. When things are sold to someone on credit. Shown as current assets on the balance sheet.
3. Expenses
  1. must be paid in the running of the business (rent,wages)
4. Fixed costs
  1. do not change with output (factory rent, insurance)
5. Gross profit (loss)
  1. difference between cost of goods sold & sales revenue
6. Hire purchase
  1. spreading the payments over a period of time.
7. Net profit (loss)
  1. expenses are less than gross profit = net profit. expenses greater than gross profit = net loss
8. Overheads
  1. expenses that aren't materials/labour
9. Profit & loss account
  1. after gross profit calculated any additional gains are added and then expenses deducted to find net profit/loss
10. Trading account
  1. calculates the cost of goods sold & gross profit. Sales figures greater than cost of good sold = gross profit Sales figures less than cost of good sold = gross loss
11. Variable costs
  1. change with output (raw materials)

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	Created by shona.doyle10 about 10 years ago