UNIT 5 BUSINESS

Capital Expenditure

Spending on fixed assets like land, buildings, and machinery that provide long-term benefits.

Revenue Expenditure

Short-term operational costs like salaries, rent, and raw materials.

Start-up Costs

Finance required to set up operations, purchase equipment, and cover marketing expenses.

Day-to-Day Expenses

Funds needed to maintain liquidity for salaries, inventory, and utilities.

Expansion

Finance needed to fund growth through new premises, machinery, or market entry.

Retained Profit

Profits reinvested into the business without interest or repayments.

Sale of Assets

Selling unused assets like equipment to generate immediate cash.

Overdraft

A short-term finance option allowing businesses to withdraw more than their bank balance.

Trade Credit

The practice of buying goods on credit and paying later.

Factoring

Selling invoices to a factoring company for immediate cash.

Bank Loans

Borrowing a fixed sum with interest over a specified term.

Leasing

Renting equipment or property instead of purchasing it outright.

Share Capital

Selling shares to investors in exchange for ownership stakes in the business.

Debentures

Long-term loans with fixed interest issued to the public.

Venture Capital

Investment from firms or individuals for equity in high-growth businesses.

Grants

Government funding for businesses that meet specific criteria.

Cash Flow

The movement of money into and out of a business.

Cash Flow Forecast

An estimate of future cash inflows and outflows to predict cash availability.

Net Cash Flow

The difference between cash inflows and cash outflows.

Closing Balance

The cash remaining at the end of a period after accounting for net cash flow.

Liquidity Problems

Cash shortages due to factors such as seasonal demand or unexpected expenses.

Debt Factoring

Selling unpaid invoices to access immediate cash.

Fixed Costs

Costs that do not change with output levels, such as rent and salaries.

Variable Costs

Costs that change with output levels, such as raw materials and hourly wages.

Total Costs Formula

Total Costs = Fixed Costs + Variable Costs.

Average Costs Formula

Average Costs = Total Costs / Output.

Marginal Costs

The additional cost of producing one more unit.

Economies of Scale

Cost reductions achieved from increased production.

Diseconomies of Scale

Cost increases that result from overexpansion.

Break-Even Point (BEP)

The minimum sales required to cover costs.

Contribution per Unit

Selling price per unit minus variable cost per unit.

Income Budget

Forecasts expected sales revenue for a specific period.

Expenditure Budget

Estimates total fixed and variable costs a business will incur.

Profit Budget Formula

Profit Budget = Income Budget - Expenditure Budget.

Cash Flow Budget

Predicts cash inflows and outflows to ensure liquidity.

Master Budget

A consolidated budget combining all departmental budgets.

Variance Analysis

Monitoring actual performance against budgeted figures.

Favorable Variance

When actual revenue is higher or actual costs are lower than budgeted.

Adverse Variance

When actual revenue is lower or actual costs are higher than budgeted.

Incremental Budgeting

Budgeting based on past budgets with small adjustments.

Zero-Based Budgeting (ZBB)

Each department starts from zero and justifies every expense.

Budgetary Control

Methodology used to track performance, control costs, and improve financial planning.

Cash Flow Management

Ensuring a business has enough cash to meet short-term obligations.

Cost Management

Controlling expenses to remain competitive and profitable.

Performance Evaluation

Comparing actual performance against budgeted figures to identify variances.

Decision-Making

The process of using budget information to inform strategic business decisions.