Personal Finance (business key terms)

Exploring a Business topic

functions of money

• unit of account

• means of exchange

• store of value

• legal tender

expenditure

the action of spending funds → needed to cover all expenses e.g bills

interest rate

the cost of borrowing money/the reward for saving money

debt

money owed

credit rating

a score given to individuals on how likely they are to repay debts based upon their previous actions

bankrupt

when an organisation or individual legally states its inability to repay debts

solvent

the ability to meet day-to-day expenditure and repay debts

different methods of payment

• cash

• debit card

• cheque

• electronic transfer

• direct debit

• standing order

• pre-paid card

• contactless card

• charge card

• store card

• mobile banking

• BACS (Banker’s Automates Clearing Service Faster Payment)

• CHAPS (Clearing House Automated Payment System)

overdraft

the ability to withdraw money that you don’t have from a current account

current account

an account with a bank or building society designed for frequent use, e.g regular deposits and withdrawals

features of a current account

• rate of interest paid on an positive balance

• rate of interest charged on a negative balance

• overdraft limit

• changes on unauthorised overdrafts

  • additional incentives

types of current accounts

• standard

• packaged, premium

• basic

• student

types of borrowing

• overdraft

• personal loans

• hire purchase

• mortgages

• credit cards

• payday loans

types of savings and investment

• ISA (Individuals Savings Account)

• deposits and savings account

• premium bonds

• bonds and gilts

• shares

• pensions

shareholder

someone who has invested in a company in return for equity i.e a share of the business

savings

placing money in a secure place so that it grows in value and be used in the future

risks of saving

• low or zero risk as money saved is guaranteed to be available in the future

• inflations can reduce the spending power of money saved

rewards of saving

• interest payments

• financial security/peace of mind

investment

speculative commitment to a business venture in the hope that it generates a financial reward

risks of investment

• can go wrong and all or some of the value may be lost

• no guarantee of a return

rewards of investment

• if successful, there is potential for a high financial return (significantly higher than could be earned in interest)

• can be exciting, some people will invest in shares, antiques art or foreign currencies, for e.g in the hope of high returns

insurance

an agreement with a third party to provide compensation against financial loss in line with the conditions laid down in the policy agreement

types of insurance

• car

• health

• home and contents

• pet

• travel

• life assurance and insurance

financial insitutions

organisations that offer financial services to individuals and'/or businesses e.g services like deposit/withdraw money, obtain credit, make investments etc.

types of institutions/organisations

• Bank of England

• Banks

• Building Societies

• Credit Unions

• National Savings and Investment

• Insurance companies

• Pension companies

• Pawn brokers

• Payday loans

methods of interacting with customers

• branch

• online banking

• telephone banking

• mobile banking

• postal banking

organisations + laws concerned with protecting consumer rights

• FCA (Financial Conduct Authority)

• FOS (Financial Ombudsman Service)

• FSCS (Financial Services Compensation Scheme)

• OFT (Office of Fair Trading

• legislation : consumer credit

government funded/independent organisations offering guidance and advice to individuals on personal finance

• citizens advice

• Independent Financial Advisor (IFA)

• price comparison websites

• money advice services

• debt counsellors

• Individual Voluntary Arrangements (IVAs) Bankruptcy

financial transactions

actions by a business that involve money going into or out of a business e.g making a sale or paying a bill

fraud

when an individual acquires money from a company for personal gain through illegal actions

how can a business measure its financial performance?

• profit

• loss

• gross profit

• operating profit

• net profit

formula for the three types of profit mentioned

• gross profit = sales - cost of goods

• operating profit = gross profit - expenses

• net profit = gross profit - expenses + revenue income

assets

item of value owned by a business that are likely to stay in a business for more than a year

fixed assets

any item of value owned by an individual or firm

trade receivables

money owed to the business from sales made but not yet paid for

trade payable

money the business owes from supplies purchased but not yet paid for

opening inventory

the value of inventory (stock) at the start of the financial year

closing inventory

the value of inventory (stock) at the end of the financial year

types of income + definition

• capital income → the money invested by the owners or other investors that is used to set up a business or buy additional equipment

• revenue income → the money that comes into the business from performing its day to day function — selling goods or providing a service

loan

amount of money lent to a business or business owner from a bank or other financial insitutions

mortgages

similar to a loan but tends to be for a larger sum of money and over a longer period of time (typically 25 years)

shares

units of stock issued by a corporation that represents ownership

owners capital

money invested in a business from the owners own personal savings

debentures

a medium to-long term sources of capital income

commission

a fee paid to a salesperson in exchange for services in facilitating or completing a sales transaction. commission could be a flat fee or a percentage of the revenue, gross margin or profit generates by the sale. it could also be charged by brokers to assist in the sale of security e.g properties

capital items

assets bought from capital expenditure such as machinery and vehicles that will stay in the business for more than a year

intangible assets

something owned by the business that cannot be touched but adds value to the business e.g goodwill, patents, trademarks, brand name

depreciation

a paper exercise to match the costs of an asset against time it is used within a business

internal sources of finance

money available to fund expenditure from within the business e.g retained profit, net current assets, sales of assets