AS Bus Unit 5 Finance and accounting

Money required for more than one year.

Long-term Finance

The ability of a business to pay its short-term debts.

Liquidity

The legal procedure for liquidating a business (or property owned by a sole trader) which cannot fully pay its debts out of its current assets.

Bankruptcy

Assets that either are cash or likely to be turned into cash within 12 months (inventory and trade receivables or debtors).

Current Asset

Raising finance from sources outside the business, for example banks.

External Sources

A company purchases an asset and agrees to pay fixed repayments over and agreed time period. The asset belongs to the purchasing company once the final payment has been made.

Hire Purchase

Permanent finance raised by companies through the sale of shares.

Share (or Equity) Capital

The sum of cash payments to a business less the sum of cash payments from the business.

Cash Flow

Monitoring of debts to ensure that credit periods are not exceeded.

Credit Control

Budgets for which junior managers have been given some authority for setting and achieving.

Delegated Budgets

A change from the budget that leads to higher than planned profit.

Favourable Variance

Cost budgets for each expense are allowed to vary if sales or output vary from budgeted levels.

Flexible Budgeting

A change from the budget that leads to lower than planned profit.

Adverse Variance

The capital needed by an entrepreneur to set up a business.

Start-up Capital

The capital needed to pay for raw materials, day-to-day running costs and credit offered to customers.

Working Capital

Money required for short periods of time of up to one year.

Short-term Finance

The value of goods sold (revenue) less costs.

Profit

When administrators manage a business that is unable to pay its debt with the intention of selling it as a going concern.

Administration

When a business ceases trading and its assets are sold for cash to pay suppliers and other creditors.

Liquidation

Debts that usually have to be paid within one year.

Current Liability

The purchase of non-current assets that are expected to last for more than one year, such as buildings and machinery.

Capital Expenditure

Spending on all costs and assets other than non-current assets, which includes wages, salaries and inventory of materials.

Revenue Expenditure

Profit after tax retained in a company rather than paid out to shareholders as dividends.

Retained Earnings

Raising finance from the business's own assets or from profits left in the business (retained earnings).

Internal Sources

Assets kept and used by the business for more than one year.

Non-current Assets

A credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required.

Overdraft

Selling of claims over trade receivables (debtors) to a specialist organisation (debt factor) in exchange for immediate liquidity.

Factoring (Debt)

Obtaining the use of an asset and paying a leasing charge over a fixed period, avoiding the need to raise long-term capital to buy the asset. The asset is owned by the leasing company.

Leasing

Loans that do not have to be repaid for at least one year.

Long-term Loans

Long-term bonds issued by companies to raise debt finance, often with a fixed rate of interest.

Debentures

Long-term loans to companies purchasing a property for business premises, with the property acting as collateral security on the loan.

Business Mortgages

Risk capital invested in business start-ups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources.

Venture Capital

An asset which a business pledges to a lender and which must be sold off to pay a debt if the loan is not repaid.

Collateral Security

Existing shareholders are given the right to buy additional shares at a discounted price.

Rights Issue

Providing financial services for poor and low-income customers who do not have access to the banking services, such as loans and overdrafts, offered by traditional commercial banks.

Microfinance

The use of small amounts of capital from a large number of individuals to finance a new business venture.

Crowd Funding

When a business cannot meet its short-term debts.

Insolvent

An estimate for the future cash inflows and outflows for a business.

Cash Flow Forecast

Cash payments into a business.

Cash Inflow

Cash payments out of a business.

Cash Outflow

Estimated difference between ash inflows and cash outflows for the period (for example one month).

Net Cash Flow

Cash held by the business at the start of the month.

Opening Cash Balance

Cash held by the business at the end of the month, which becomes next month's opening balance.

Closing Cash Balance

Unpaid customers' bills that are now very unlikely to ever be paid.

Bad Debt

Expanding the business rapidly without obtaining all of the necessary finance, resulting in a cash flow shortage.

Overtrading

The level of output at which total costs equal total revenue, when neither a profit nor a loss is made.

Break-even Point

The section of a business, such as a department or a product, that incurs the costs.

Cost Centre

These costs can be clearly identified with each unit of production and can be allocated to a cost centre.

Direct Costs

Costs that cannot be identified with a unit of production or allocated accurately to a cost centre.

Indirect Costs

Costs that do not vary with output in the short run.

Fixed Costs

Costs that vary with output.

Variable Costs

Variable costs plus fixed costs.

Total Costs

A section of a business to which both costs and revenues can be allocated, so profit can be calculated.

Profit Centre

Total cost divided by the number of units produced.

Average Cost

A method of costing in which all indirect and direct costs are allocated to the products, services or divisions of a business.

Full Costing

Costing method that allocates only direct costs to cost centres and profit centres, not overhead costs.

Contribution Costing

The additional cost of producing one more unit of output.

Marginal Cost

Uses cost and revenue data to determine the break-even point of production.

Break-even Analysis

The amount by which the current output level exceeds the break-even level of output.

Margin of Safety

The price of a product less the direct (variable) costs of producing it.

Contribution Per Unit

Planning future activities by establishing performance targets, especially financial ones.

Budgeting

The individual responsible for the initial setting and achievement of a budget.

Budget Holder

Calculation of the differences between budgets and actual figures, and analysis of the reasons for such differences.

Variance Analysis

Uses last year's budget as a basis, and an adjustment is made for the coming year.

Incremental Budgeting

Sets budgets to zero each year and budget holders have to argue their case for target levels and to receive any finance.

Zero Budgeting