Enterprise Unit 3

Why is managing personal finance important?

Avoid debt

Plan for future

Handles emergencies

Improves quality of life

What are types of income?

Gross income: before tax

Net income: after tax

Disposable income: after essentials

Discretionary income: after wants

Types of expenditure?

Fixed = rent

Variable = food

Discretionary = luxuries

Types of borrowing?

Loans

Credit cards

Overdrafts

Risks of borrowing?

Interest

Debt spiral

Poor credit score

What affects credit score?

Repayment history

Amount of debt

Length of credit history

Types of financial providers?

Banks

Building societies

Credit unions

Insurance companies

Who protects consumers?

Financial Conduct Authority (FCA)

Financial Ombudsman Service (FOS)

Why do businesses keep accounts?

Track performance

Make decisions

Legal requirement

Attract investors

What are key accounting concepts?

Accruals = match income & expenses

Consistency = same methods used

Prudence = don’t overestimate profit

Going concern = business will continue

Internal sources of finance?

Retained profit

Sales of assets

External sources of finance?

Bank loans

Share capital

Venture capital

Crowdfunding

Break-even formula

Break even= fixed costs / selling price - variable costs

Contribution formula

Selling price - variable cost

Net flow

Inflow - outflow

Causes of cash flow problems?

Late payments

High expenses

Seasonal demand

What is statement of comprehensive income?

Shows profit overtime

What does statement of financial position show?

Assets

Liabilities

Equity at a point in time

Type of assets?

Current (cash, stock)

Non-current (loans)

Types of liabilities?

Current (short-term debts)

Non-current (loans)

GPM formula?

(Gross profit / Revenue) times 100

NPM formula

(Net profit / Revenue) times 100

Current ratio formula?

Current assets / current liabilities

Examples of efficiency ratios?

Stock turnover

Debtor days