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Unit 8- Finance 1

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Business Studies
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Unit 8- Finance 1
  1. Why does a growing business need finance?
    1. More storage
      1. New premises, vehicles, factory
      2. More stock
        1. Training more staff to make products
        2. Diversification
          1. Spreads risk of the business failing into different sectors
          2. Advertising
            1. Easier for a growing business to obtain finance as they have a credit history
            2. Sources of finance for a growing business
              1. Debtors (external)
                1. Selling unwanted assets (internal)
                  1. Using retained profits (internal)
                    1. Selling more shares (external)
                      1. Loan or mortgage (external)
                      2. Profit and Loss Accounts
                        1. Purpose
                          1. Calculates retained profit
                            1. Legal requirement
                              1. Public Limited Companies accounts have to be public (so potential shareholders can view previous accounts)
                              2. 3 parts
                                1. Trading Account
                                  1. Calculates: Gross Profit= Revenue- Cost of sales
                                  2. Profit and Loss Account
                                    1. Calculates: Net Profit= Gross profit- Operating costs
                                    2. Appropriation Account
                                      1. Calculates: Net Profit before tax= Net Profit- Interest
                                        1. Calculates: Retained Profit= Net Profit before tax- taxation and dividends
                                    3. Balance Sheets
                                      1. Shows where the money has gone
                                        1. Assets must equal liabilities
                                          1. Assets= Something the company owns
                                            1. Fixed Assets= Hard to turn into cash easily i.e. properties and vehicles
                                              1. Current Assets= Easier to turn into cash i.e. cash in hand and stock
                                              2. Liabilities= Something the business owes
                                                1. Long term= Mortgage
                                                  1. Short term= Trade Creditors, Tax on profits, bank loans

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