Sources of Finance, Costs, and Revenues Flashcards

Vocabulary practice flashcards covering sources of finance, costs, revenues, and profit formulas based on the lecture notes.

Capital expenditure

Money spent to acquire items in a business that will last for more than a year and may be used over and over again, such as fixed assets.

Fixed assets

Items like machinery, land, buildings, vehicles, and equipment used for generating income; due to high initial cost, they may be used as collateral.

Revenue expenditure

Money spent on day-to-day running of a business, including payments for rent, wages, raw materials, insurance, and fuel.

Personal funds

An internal source of finance comprising savings, family, and friends.

Retained earnings

Income remaining after taxation and dividends have been paid.

Sale of assets

An internal source of finance involving the selling of dormant or non-performing assets, also referred to as liquidation.

Short term finance

External sources of finance intended for a period of $0-12$ months.

Medium term finance

External sources of finance intended for a period of $1-5$ years.

Long term finance

External sources of finance intended for a period greater than $5$ years.

Government grants

A source of finance that is not repaid; they are difficult to apply for as governments seek economic benefits from the spent cash.

Venture Capitalists

Individuals who invest large amounts of money in startups for shares and maintain some control over the business to guarantee return of investment for profit.

Business angels

Individuals who invest large amounts of money in startups for shares for altruism; they are generally not involved in decision-making processes.

Crowdfunding

Soliciting funds from the general public, where funders may receive incentives or choose to contribute small amounts of money.

Gearing

The relationship between share capital and loan capital.

Cost

The total expenditure incurred by a business in order to run its operation.

Revenue

A measure of the money generated from the sale of goods and services.

Profit

Calculated by finding the difference between revenues and costs ($Profit = TR - TC$).

Fixed costs

Costs that do not increase or decrease based on the quantity of goods produced or production capacity, such as rent, insurance, and salaries.

Variable costs

Costs that increase as more products are produced or capacity increases, such as raw material costs and sales commissions.

Semi-variable costs

Costs containing both fixed and variable elements, such as salaries for regular hours (fixed) and overtime hours (variable).

Direct costs

Costs that can be directly attributed to the production of a good or service in a specific department, such as the salary of a cook or cost of raw chicken.

Indirect costs (Overhead)

Costs not directly part of the product or process being sold, including advertisements, franchise fees, security, and warehouse costs.

Total Revenue (TR)

The amount of money a firm receives from sales, calculated as $TR = P \times Q$, where $P$ is price per unit and $Q$ is quantity sold.

Loss

Occurs when total costs are greater than total revenue ($TC > TR$).

Total costs (TC)

The sum of variable and fixed costs ($TC = FC + VC$).