Year 11 [Unit 1-2] VCE Accounting -
Sac 2
Two small business characteristics - answer- Independently owned and operated
- The principle decision making is made by owner/manager
Why own a small business? - answer- Profit motive
- Unemployment
- A desire for greater freedom/independence - to be our own boss
Advantages and disadvantages of: Sole Proprietorship - answer Ad:
- The owner has full control over decision-making within the business
- It is easy and cheap to set up
Dis:
- Unlimited liabilities
- Limited life
Advantages and disadvantages of: Partnership - answerAd:
- Relatively easy and cheap to set up
- Relatively simple to wind up and reclaim an individuals investment in the business
Dis:
- Unlimited liabilities
- Control over decision-making is shared among the partners
Advantages and disadvantages of: Proprietary Company [Pty Ltd] - answerAd:
- Limited liabilities
- Greater ability to attract capital if there's limited liability
Dis:
- Establishment costs are high
- Possible difficulty attracting additional capital, because a proprietary company cannot
publicly advertise funds.
Reasons for success: - answer- A high demand for product or service
- A location visible and easily accessible for customers
Reasons for failure: - answer- Competition from other small and large businesses
- A low demand for product and service
- A poor location that isn't visible and easily accessible for customers
Internal sources of finance [and advantages, disadvantages]: - answer1. Owners
contribution
2. Retained earnings
, Ad:
- No set repayment date
- No interest charges
Dis:
- Limited to the resources of the owner and previous profits [which may not exist]
External sources of finance [and advantages, disadvantages]: - answer1. Trade credit
Ad:
- Immediate access to goods/services
Dis:
- Interest charges and late fees may be incurred for late payment [if stated in credit
contract]
2. Bank overdraft
Ad:
- Flexible - can be used for a variety of purposes
Dis:
- High interest charges
3. Term loan
Ad:
- Flexible - can be used for a variety of purposes
Dis:
- Interest charges
4. Leasing
Ad:
- Makes it possible to obtain technologically advanced assets
Dis:
- No ownership of asset
Guidelines for seeking external finance: - answerShorter term:
Trade credit and bank overdraft
Longer term:
Term loan and leasing
- The term of the finance should match the life of the asset. For example stock can be
purchased with a trade credit or by using a bank overdraft as it will be sold quickly, and
the funds it generates can be used to repay the dept.
- The cost of interest must be considered
- The conditions of the loan should be tailored to suit the borrower
- Consider the impact on the Dept Ratio and the firm's ability to borrow further
Sac 2
Two small business characteristics - answer- Independently owned and operated
- The principle decision making is made by owner/manager
Why own a small business? - answer- Profit motive
- Unemployment
- A desire for greater freedom/independence - to be our own boss
Advantages and disadvantages of: Sole Proprietorship - answer Ad:
- The owner has full control over decision-making within the business
- It is easy and cheap to set up
Dis:
- Unlimited liabilities
- Limited life
Advantages and disadvantages of: Partnership - answerAd:
- Relatively easy and cheap to set up
- Relatively simple to wind up and reclaim an individuals investment in the business
Dis:
- Unlimited liabilities
- Control over decision-making is shared among the partners
Advantages and disadvantages of: Proprietary Company [Pty Ltd] - answerAd:
- Limited liabilities
- Greater ability to attract capital if there's limited liability
Dis:
- Establishment costs are high
- Possible difficulty attracting additional capital, because a proprietary company cannot
publicly advertise funds.
Reasons for success: - answer- A high demand for product or service
- A location visible and easily accessible for customers
Reasons for failure: - answer- Competition from other small and large businesses
- A low demand for product and service
- A poor location that isn't visible and easily accessible for customers
Internal sources of finance [and advantages, disadvantages]: - answer1. Owners
contribution
2. Retained earnings
, Ad:
- No set repayment date
- No interest charges
Dis:
- Limited to the resources of the owner and previous profits [which may not exist]
External sources of finance [and advantages, disadvantages]: - answer1. Trade credit
Ad:
- Immediate access to goods/services
Dis:
- Interest charges and late fees may be incurred for late payment [if stated in credit
contract]
2. Bank overdraft
Ad:
- Flexible - can be used for a variety of purposes
Dis:
- High interest charges
3. Term loan
Ad:
- Flexible - can be used for a variety of purposes
Dis:
- Interest charges
4. Leasing
Ad:
- Makes it possible to obtain technologically advanced assets
Dis:
- No ownership of asset
Guidelines for seeking external finance: - answerShorter term:
Trade credit and bank overdraft
Longer term:
Term loan and leasing
- The term of the finance should match the life of the asset. For example stock can be
purchased with a trade credit or by using a bank overdraft as it will be sold quickly, and
the funds it generates can be used to repay the dept.
- The cost of interest must be considered
- The conditions of the loan should be tailored to suit the borrower
- Consider the impact on the Dept Ratio and the firm's ability to borrow further
