Business Btec personal finance

Functions and role of money

Money flowing in and out- it comes in your account and money comes out your account

store of value

It allows us to use it in the future as it keeps its value

Legal tender

It is legally recognized form of payment- old £1 getting rid of

Role of money

is affected by a wide number of factors. individuals may change their attitude to money based on their situation they find themselves in

Personal attitudes

individuals that will vary in their attitudes to risk and reward as well as savings and borrowing.

Life stages

As you grow up from childhood to adulthood, your financial needs change, each stage of your life has different implication that will affect not just your needs but also your attitude to money.

Culture

affected by tradition, religion and ethical beliefs, will have different attitudes to money. The older generation of Chinese people, for example have a culture a saving.

Life events

Events throughout your life will impact on your attitude to money. These events may be within your control, for example going to university, travelling abroad, getting married or starting a family or any be outside your control, example illness, financial gains and losses

External influences

Factors outside your control, including the state of the economy. For example the state of the economy will impact on wages, availability of jobs and the prices of goods and services. Decisions by the government will affect the amount of the tax you pay or the amount you receive in benefits. These all directly affect your ability to spend and save

Interest rates

cost of borrowing money or the reward for saving money

If interest rates are low maybe more willing to borrowing money or spend on credit, when interest rates are high there is more of an incentive to save

Debt

money that you owe

credit rating

a score given to individual of how likely they are from previously debt based on your previous action

solvent

the ability to meet day by day expenditure

inflation

Inflation is a general risk in prices. This leads to the value of money falling, that is, £10 today was worth less that £10 a year ago. Expenditure now can help counter the effect of inflation

cash

money in coins and notes

credit cards

It's a card that has your money and you can borrow funds

Debit card

It's a card that has your own money on it

Cheque

Its a printed form used instead of cash to make payments from your bank account

electronic payment

a way to pay for goods and services

direct debit

An arrangement set up with the bank that enable a third party to transfer money from a person's account on agreed dates, usually used to pay bills

prepaid card

the opposite of a credit card because instead of buying something with borrowed funds

standing order

Is when you pay a bill monthly

contactless card

its payment system where they use radio-frequency identification to pay for items

charged cards

a credit card for use with an account which must be paid in full when a statement is issued

store cards

a credit card that can be used only in one store chain of stores

BACS (Bankers Automated clearing service)

Is the organisation with responsibility for the schemes behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct credit, as well as the provisional of managed services for third parties

CHAPS (Clearing House Automated Payment System)

In the fast - moving business world, your organization must be able to make and receive fast and efficient payment

Current account

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

Overdraft

the ability to withdrawal money that you do not have from a current account

Packaged premium

This account offers additional features to a standard account, for example car and home insurance and cash back on certain transactions the bank may have an additional charges for these accounts. it is important that you check whether you are being offered a good deal or not.

student account

This account is designed specifically to meet the needs of learning. Common features including:

An agreed overdraft

Incentives to join the bank - free rail card or cash

Basic account

This account offers only limit features designed for those customers who may otherwise find difficult to open a bank account due to poor credit rating. A basic account will not offer a overdraft and will not pay interest on positive balances.

Savings

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

investment

speculative commitment to a business venture in the hope that it generate a financial reward in the future.

expenditure

the amount of money you need to cover all your expenses/ outgoings e.g. your mortgage and bills

Shareholders

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

Premium bonds

A government scheme that allows individuals to save up to set amount by buying bonds. The bonds holder does not receive interest on their savings but each bond is placed into regular draw for cash prizes.

Bonds and gifts

These are fixed term security where the lender (the individual) lends money to companies and governments is returning for investment payments . the money is invested for a specified period of time.

Shares

involves investment in a business in return for equity i.e the shareholder becomes a part of the business. The shareholders will receive dividends from the company's profits and will also want the value of the share share increase

Pension

These are long- term savings plans where individuals make regular contributions, called premium payment, throughout their working life. This is then repaid as either a lump sum, regular payment or a contribution of the two upon retirement. Pensions can be state, company private.

Individual savings account (ISA)

This is a type of savings account where the holder is not charged income tax on interest received

Financial conduct authority (FCA)

is the Conduct regulator for 56,000 financial services firms and the financial market in the united kingdom. They are also the prudential regulator for more than 18,000 of the businesses.

Financial ombudsman service (FOS)

is the UK office expert in sorting out problems with financial services, the settle with the dispute with the consumers and financial institutes (banking, insurance) only get involved if the consumer and the bank cannot solve there problem out

Financial service compensation scheme (FSCS)

the united kingdom compensation fund for customers of authorized financial services firms.

Office of fair trade (OFT)

non profit government department which enforce both consumers protection and also competition/businesses law

Legislation- consumer credit

is an act in 1974 of the parliament in the united kingdom that improved the law relating to consumer credit within the UK

Financial transactions

an agreement which is carried between buyer and a seller to exchange asset of payment. (it involves a change in the status of the financial of two or more businesses or individuals

(HMRC) Her Majesty's Revenue and Customs

is a non-ministerial department of the UK government responsible for the collection of tax

Fraud

Is a criminal deception intended to result in financial or personal gain

Profit

Is a financial gain, the difference between the amount earned and the amount spent

Loss

Is the amount of money lost in a business or organization

Gross profit

a company's total revenue minus the total revenue.

Sales Revenue

Is the income from sales from goods and services, minus the cost associated with things returned and undelivered merchandise.

Net profit

Is the actual profit after the working expenses not included in the calculation of gross profit have been paid

Trade payables

Is the amount billed to the company by the suppliers for the goods delivered

Trade receivables

Is the amounts billed by a business to its customers when it's delivered goods or service to them

Capital income

the money invested by the owners or other investors that is used to set up a business or buy additional equipment. It tends to be used to buy things that will stay in the business for the medium-to-long period of time.

Fixed assets

Items of value owned by a business that are really likely to stay in business for more than one year. For example machinery. Also known as non-current assets.

Revenue income

the money that comes into the business from performing its day-to-day function selling goods and services goods or providing a service. The nature of the revenue income depends on the activities that the business does to bring in money.

expenditure

money spent by the business

Capital expenditure

Purchase of assets

Items last for more than a year

Revenue expenditure

Is spending day by day or regular basis.

These are the expenses incurred by a business

Capital items

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

Statement of financial situation

a financial document that shows the net worth of a business by balancing its assets against its liabilities. It is often called a balance sheet

Trademarks

is a symbol or word that represent a company

Goodwill

it's represents the business

patents

t's a license that you can sell your products for a certain number of years

Brand name

is name given by the marker for the product

capital expenditure

Is used to buy capital items which are long term asset.

inventory

a list of items such as property, goods in stock.

Discount allowed

when the seller grants discount to buyers

rent

regular payment to a landlord

Administration

the activity of running the company

depreciation

the value of the asset reduces

Cash inflows/receipts

-The money coming into the business

-Money flows into the business when income is received.

Cash outflows/payments

-The money going the business

-Money flows out of a business when payments are made.

Cash purchase

paid for it straight away

Credit purchase

paid for the products however it takes time for it to be paid for

Valid annual tax

business that are VAT registered must pay VAT to HM revenue and customs. This should be shown in the cash flow forecast

Cash flow forecast

a prediction of the expected cash balance at the end of each month in the future

Opening balance

the amount of cash the business has the start of the month

Total cash inflow

the total cash the business expect to receive during the month

Total cash outflow

the amount of cash the business expects to spend during the month

Inflow-outflow

the difference between the cash coming in and out of the business

Closing balance

the opening balance plus the difference between the cash coming in and the cash coming out.

Sale of assets

sale of asset is where the seller gains ownership of some form of money and buyer gains ownership of the asset

Retained profit

is the profit kept in the company rather than being paid out by shareholders as a dividend

Net current assets

this amount of how much capital is being generated and used by day by day activities

Mortgages

is a legal agreement that is made by you and the bank/building society to lend money at interest in order to buy a house

Owner's capital

is where the owner puts his/hers own money to invest into the business

Loans

is money that is borrowed, especially a sum of money that is expected to be paid.

Hire purchase

way a buying goods gradually. You make regular payment until you have paid the full price and the goods belong to you

Crowdfunding

practice funding a project or venture by raising money from a large number of people who contributes a relatively small amount

Debt factoring

sale of business invoices to a 3rd party is charged with processing the invoices and the business lending is able to receive loans based on expected payments and invoices

Peer to peer lending-

matches up people who are looking for to invest their money who want to borrowing it, paying higher interest to savers to savers and lower rates for borrowers. Find out how it works

Invoice discounting

a way for businesses to borrow money based on amount due for customers

Leasing

its a contract on paper that states that you own the property

Grants

is an amount of money given by the government to a person or organization for a special purpose

Straight line depreciation

Formula= asset purchase price-estimated salvage value/ Estimated useful life of asset

Most commonly used due to its simplicity and consists of allocating depreciation evenly over the useful life of the asset

reducing -balance depreciation