Edexcel Business A Level Paper 2 (Theme 2 & 3)
Retained profits - (correct Answer) - profits that the owners have reinvested into the business after
paying costs and taxes
Owners' funds - (correct Answer) - money put in by the owners themselves
Sale of assets - (correct Answer) - a one-off way to raise money, generally used during financial struggles
Benefits of owners funds - (correct Answer) - Avoids interest on loans
Owners keep complete control
Disadvantages of owners funds - (correct Answer) - If it fails after remortgaging, they could lose their
house
Limit to amount raised
Short term finance examples - (correct Answer) - overdrafts for daily expenses
Medium term finance examples - (correct Answer) - loans, hire purchase, trade credit, debt factoring
used to pay for repairs, paid back after 1-5 years
Long term finance examples - (correct Answer) - issuing shares, debentures, mortgages, grants used to
pay for major expenditure, paid back over many years
Selling assets - (correct Answer) - Can sell machines, buildings, land
Limited buyers
Advertising costs
Sold cheaply
Loans - (correct Answer) - High interest rates
Usually requires security in the form of assets which will be taken away if they don't make the
repayments
Needs regular updates
Grants - (correct Answer) - No repayment
May be recalled if conditions aren't met
May not cover full amount
Hire purchase / leasing - (correct Answer) - Must pay deposit and monthly
Own assets at the end
,Leasing does not lead to ownership
Must pay interest
Will be re-claimed if not paid for
Issuing shares - (correct Answer) - Only for a limited company (ltd, plc)
No risk but must pay yearly dividends
Shareholders at risk as shares fluctuate
Shareholders have influence
Venture capital - (correct Answer) - Large businesses lend to smaller (not plc) businesses
Lender becomes shareholder
Aim to grow business so share price increases
Lenders play active role
Revenues - (correct Answer) - the amount of product that a customer actually buys
Total revenue equation - (correct Answer) - volume sold x average selling price
Profit as an objective - (correct Answer) - Profit is the most important source of cash flow and finance
Can be other reasons for running a business than profit
Why profit is important - (correct Answer) - A return on investment
A reward for taking risks
A key source of finance
A measure of business success
A motivating factor
Profit equation - (correct Answer) - total sales - total costs
Costs - (correct Answer) - amounts that a business incurs in order to make goods/services
Costs are important because - (correct Answer) - They drain away profit
Change profit margins
Main causes of cash flow problems
Changes with output
Variable costs - (correct Answer) - Change as output varies
, Lower risk for startups
Variable cost examples - (correct Answer) - Raw materials
Brought in stocks
Wages based on hours
Marketing costs based on sales
Fixed costs - (correct Answer) - Don't change with output
Higher risk for startups
Fixed cost examples - (correct Answer) - Rent & rates
Salaries
Advertising
Insurance, banking, legal fees
Software
Advisers
Total costs equation - (correct Answer) - fixed costs + variable costs
Problems estimating costs - (correct Answer) - Some are easier than others
Rent, salaries, advertising
Others are harder
Raw materials
Returns or refunds
Budget - (correct Answer) - a financial plan for the future concerning the revenues and costs of a
business
Managerial accountability - (correct Answer) - Budgets on the objectives
Managers are required to think ahead
Budget uses for management - (correct Answer) - Set targets
Motivate staffs
Improve efficiency
Forecast outcomes
Monitor performances
Retained profits - (correct Answer) - profits that the owners have reinvested into the business after
paying costs and taxes
Owners' funds - (correct Answer) - money put in by the owners themselves
Sale of assets - (correct Answer) - a one-off way to raise money, generally used during financial struggles
Benefits of owners funds - (correct Answer) - Avoids interest on loans
Owners keep complete control
Disadvantages of owners funds - (correct Answer) - If it fails after remortgaging, they could lose their
house
Limit to amount raised
Short term finance examples - (correct Answer) - overdrafts for daily expenses
Medium term finance examples - (correct Answer) - loans, hire purchase, trade credit, debt factoring
used to pay for repairs, paid back after 1-5 years
Long term finance examples - (correct Answer) - issuing shares, debentures, mortgages, grants used to
pay for major expenditure, paid back over many years
Selling assets - (correct Answer) - Can sell machines, buildings, land
Limited buyers
Advertising costs
Sold cheaply
Loans - (correct Answer) - High interest rates
Usually requires security in the form of assets which will be taken away if they don't make the
repayments
Needs regular updates
Grants - (correct Answer) - No repayment
May be recalled if conditions aren't met
May not cover full amount
Hire purchase / leasing - (correct Answer) - Must pay deposit and monthly
Own assets at the end
,Leasing does not lead to ownership
Must pay interest
Will be re-claimed if not paid for
Issuing shares - (correct Answer) - Only for a limited company (ltd, plc)
No risk but must pay yearly dividends
Shareholders at risk as shares fluctuate
Shareholders have influence
Venture capital - (correct Answer) - Large businesses lend to smaller (not plc) businesses
Lender becomes shareholder
Aim to grow business so share price increases
Lenders play active role
Revenues - (correct Answer) - the amount of product that a customer actually buys
Total revenue equation - (correct Answer) - volume sold x average selling price
Profit as an objective - (correct Answer) - Profit is the most important source of cash flow and finance
Can be other reasons for running a business than profit
Why profit is important - (correct Answer) - A return on investment
A reward for taking risks
A key source of finance
A measure of business success
A motivating factor
Profit equation - (correct Answer) - total sales - total costs
Costs - (correct Answer) - amounts that a business incurs in order to make goods/services
Costs are important because - (correct Answer) - They drain away profit
Change profit margins
Main causes of cash flow problems
Changes with output
Variable costs - (correct Answer) - Change as output varies
, Lower risk for startups
Variable cost examples - (correct Answer) - Raw materials
Brought in stocks
Wages based on hours
Marketing costs based on sales
Fixed costs - (correct Answer) - Don't change with output
Higher risk for startups
Fixed cost examples - (correct Answer) - Rent & rates
Salaries
Advertising
Insurance, banking, legal fees
Software
Advisers
Total costs equation - (correct Answer) - fixed costs + variable costs
Problems estimating costs - (correct Answer) - Some are easier than others
Rent, salaries, advertising
Others are harder
Raw materials
Returns or refunds
Budget - (correct Answer) - a financial plan for the future concerning the revenues and costs of a
business
Managerial accountability - (correct Answer) - Budgets on the objectives
Managers are required to think ahead
Budget uses for management - (correct Answer) - Set targets
Motivate staffs
Improve efficiency
Forecast outcomes
Monitor performances
