AF - Accounting And Finance Objectives & Sources of Finance (Accounting And Finance) Flashcards Preview

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Flashcards in AF - Accounting And Finance Objectives & Sources of Finance (Accounting And Finance) Deck (37)
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1
Q

What is a financial objective for a new business?

A
  • Survive

- Sufficient funds to stay in business and produce goods

2
Q

What is vital in a business?

A

Ensuring it is sufficient Working Capital and enough cash to keep the business operating

3
Q

What is the reason for having accounting and financial objectives?

A

Is a fundamental way of measuring the performance of business

4
Q

The level of profit or loss is an obvious indicator of what?

A

Of the businesses success or failure

5
Q

What do the reports from an income statement and balance sheet show?

A
  • Allows the business to see where the main problems may be

- Business can prioritise it’s strategies to improve its situation

6
Q

Who are the financial objectives used by?

A

Various stakeholders

7
Q

Why do stakeholders use financial accounts?

A
  • Measure the performance of the business

- Help judge the progress of the business in terms of meeting its targets in a given period of time.

8
Q

What do the business objectives allow stakeholders to do?

A

Allows stakeholders to judge its performance when compared to others in the same market (Benchmarking)

9
Q

Why is Benchmarking important for potential investors?

A
  • Potential investors will wants to see how the business is performing prior to investing
  • Potential Creditors will want to judge wether the business is performing sufficiently well in order to pay back any borrowing.
10
Q

How does comparing financial results effect management?

A

Management may have to alter its financial strategy in order to put the business on a better course if it wasn’t already.

11
Q

Problems with making financial comparisons?

A
  • Could be prone to bias or misinterpretation

- Assets May be valued in a different manner

12
Q

What is meant by Benchmarking?

A

Comparing yourself to the best in the industry.

13
Q

What should you look for when look at a financial data case study?

A

External factors affecting the numbers

14
Q

What is it important to remember when setting financial objectives?

A
  • Legal statues and size of the business
  • Other objectives of the business
  • State of the Economy
  • The Level of Competition within the market
  • Government impacts
  • Monetary Policy Committee and Interest Rates
15
Q

What is a vital part of a business?

A

The financial informations and the financial objectives of that business.

16
Q

What information can a stakeholder ascertain from the financial objectives and data?

A
  • Members of the board of direction or managers will use this information to make decisions on the future of the business
  • Potential Shareholders/Investors will looks at these accounts before deciding to invest in the business
  • Banks will look at the accounts to see if the business can afford its repayments
  • Potential our existing suppliers will use this data to assess wether it is safe to trade with the business
17
Q

Why is it essential that financial information is accurate?

A

Because of the large amount of interest and uses the information has

18
Q

What does setting clear financial objectives allow the business or stakeholders to do?

A
  • Have Targets to aim for
  • Assess the progress of the business in meeting there objectives
  • Have access to Information showing the financial status of the firm
  • Assess the business in terms of liquidity
19
Q

Why is this financial data important for all business departments?

A
  • so departments know the available funds, pay rises to employees and resources
20
Q

Why may accounts be inaccurate?

A
  • To present the business in a favourable light to stakeholders
  • Encourage shareholders to hold or buy shares
  • Suggest the business is able to borrow money is able to pay off loans
  • Prevent employees being concerned about the security of employment
21
Q

What is Short-term Finance?

A

The finance needed for the day-to-day running of the business (Working Capital)

22
Q

What is Working Capital?

A

Short term finance required for the day to day running of the business.

23
Q

Is short term finance the same as Working Capital?

A

Yeah

24
Q

What do we classify as short term?

A

Up to 3 years

25
Q

When may short term finance be used?

A

When cash flow is poor

26
Q

What is good cash flow?

A

When there is a sufficient inflow of cash (Revenue) to meet cash outflows

27
Q

What is Cashflow?

A

A business need sufficient inflows of cash to finance is day to day outgoing, if cash receipts are insufficient the business is said to have a cash flow problem.

28
Q

Sources of short term finance?

A

Banks

29
Q

What kind of bank account does a business need in order to create overdrafts?

A

A current account

30
Q

What are the interest rates of current accounts?

A

Nothing or very little interest

31
Q

What can a firm do if it has a current account?

A

Funds can be taken out whenever necessary

32
Q

Do business and an unlimited overdraft?

A

No the bank permits a certain level of overdraft

33
Q

Interest is only charge on the amount of money that is [………]

A

Overdrawn

34
Q

An overdraft is a [……………] for a business

A

Safety net

35
Q

What should and overdraft not be used to purchase?

A

Capital items

36
Q

Where do Loans and Overdrafts come from ?

A

The bank

37
Q

What are short term loads used for?

A

Used to buy specific pieces of equipment or buy certain raw materials in order to fulfil a contract