Edexcel Business A Level Revision

Debtors - is a person or business that owes money to a creditor. Unlimited liability should mean that credit is easier to obtain as suppliers have a greater chance of getting their money back if things go wrong. 1) Credit control Policies on how much credit to give and repayment terms and conditions Measures to control doubtful debtors Credit checking 2) Selling off debts to debt factors 3) Cash discounts for prompt payments 4) Improved record keeping - e.g. accurate and timely invoicing. 5) DEBT FACTORING ( the selling of debtors to a third party) This generates cash It guarantees the firm a percentage of money owed to it but will reduce income and profit margin made on sales. COSTS INVOLVED IN FACTORING CAN BE HIGH 6) Credit control Establishing credit limits for new customers, credit checking new and existing customers, setting realistic credit limits, monitoring the age of debts and chasing up and chasing up bad debts, determine appropriate terms and condition...

Working capital - provides a strong indication of a business' ability to pay is debts. By adding together the totals for current assets and current liabilities in the balance sheet, a very important figure can be calculated – working capital. Working capital = current assets - current liabilities   Every business needs to be able to maintain day-to-day cash flow. It needs enough to pay staff wages when they are due, and to pay suppliers when invoice payment terms are reached. Maintaining adequate working capital is important both in the short-term (day-to-day) and the long-term. The challenge is to maintain sufficient liquidity in the business to ensure the business can survive and grow in the long-term. The current liabilities show the amounts that need to be paid in the next twelve months. Current assets show the cash and other assets that are available to settle those current liabilities. Of course the balance sheet is just a snapshot...

Working capital - is the cash needed to pay for the day to day trading of the business. Working capital "oils the wheels" of business. Businesses use cash to finance stocks through the production process It facilitates the smooth flow of production and the supply of goods to customers. In financing debtors, it enables the business to offer credit to customers. The amount of working capital needed depends on... The planned production volumes Forecast cost per unit The length of the production cycle Credit terms allowed to customers Credit terms received from suppliers. A lack of working capital means... Harder to buy in bulk and benefit from discounts Difficulties in offering credit to customer with the danger of losing sales Loss of reputation with suppliers if there are difficulties in settling debts Harder to respond to opportunities Increased danger of overtrading Dealing with working capital shortages... Discount prices Reduce purchases Negotiat...

Cash flow forecast - is a statement of the expected cash inflow coming from the sales revenue and expected cash outflow needed to cover production costs. The difference between the inflow and the outflow is the net cash flow , a crucial indicator of the ability of a business to cover its day-to-day running costs. Cash flow is important to a business as it needs it to ensure a positive cash balance in order to meet day to day expenses. It roughly estimates cash flow for up to about two years into the future. The forecast will help potential lenders (including banks) to see what the likely financial needs of the business will amount to.  CALCULATING CASH FLOW Opening Balance = what is in the bank on the first day of the month Total cash inflow = all cash entering the business in that month Total cash outflow = all cash leaving the business in that month Net cash flow = Total cash inflow - Total cash outflow Closing balance = Opening balance + Net cash flow FIGUR...

Liability - is a company's financial debt or obligations that arise during the course of its business Limited liability - An investor's liability/financial commitment is limited to the total amount invested or promised in share capital. An investor's personal belongings beyond this venture are protected. Unlimited liability - The owners of a business are responsible for the total amount of debt of the business. The owner may lose their personal belongings, e.g. home and cars, if the value of these is needed to cover the debts of the business. UNLIMITED LIABILITY IS SEEN AS A HIGH RISK Incorporated - An incorporated business (also called a corporation) is a type of business that offers many benefits over being a sole proprietor or partnership, including liability protection and additional tax deductions. Forming a corporation also allows you raise capital through sale of shares of your company . Creditors - is owed money, either by a business or an individual f...