Practise Finance and Accounting through funding, costs, cash flow, statements, ratios, investment appraisal and budgets, using calculations to support business judgements.
Define the term trade receivables.
Define the term trade receivables.
Indicative content
Responses may include:
AO1 Knowledge and understanding
Clear understanding of the term trade receivables is worth 2 marks.
- the amount owed by a business' customers/debtors for products supplied (on credit) but not yet paid for
- total amount a company has billed to a customer for goods and services (on credit) delivered but haven't yet received payment for
Partial understanding of the term trade receivables is worth 1 mark.
- money owed
Accept all valid responses.
Explain one reason why a business may need finance.
Explain one reason why a business may need finance.
Indicative content
Responses may include:
AO1 Knowledge and understanding - 1 mark for identifying one reason why a business may need finance Reasons why a business may need finance include:
- start up a business
- grow/expand the business
- survive
- run the business
- working capital
- buy capital equipment
AO2 Application -2 marks ± for developed explanation of one reason why a business may need finance.
1 mark Δ∗∗ f for limited explanation of one reason why a business may need finance.
- start-up finance or capital, purchase assets e.g. premises, equipment, machinery, tools, vehicles
- pay for market research and promotion to develop product and create demand
- need more finance in the early stages before getting established or when facing a crisis
- money to start trading, pay staff wages, utility bills and suppliers on time
- having funds to pay for additional assets, new machinery, new staff, additional raw materials
Accept all valid responses.
Define the term direct cost.
Define the term direct cost.
Indicative content
Responses may include:
AO1 Knowledge and understanding
Clear understanding 2 marks
- Costs that can be clearly identified/connected/directly linked with each unit of production and can be allocated to a cost centre.
Partial understanding 1 mark
- Expenses related to a product or service
- Related to producing a good
- Cost directly related to a cost centre
Accept all valid responses.
Explain one method of improving cash flow for a business.
Explain one method of improving cash flow for a business.
Indicative content
Responses may include:
AO1 Knowledge and understanding
1 mark for identifying one method of improving cash flow for a business
- Overdraft
- Short-term loan, sale of assets
- Sale and leaseback
- Reduce customer credit terms / discounts for early payment
- Debt factoring
- Increase cash inflow
- Decrease cash outflows - delay payments to suppliers (creditors)/obtain discounts
- Delay spending on capital equipment
- Use leasing, cut overheads
- Produce a cash flow forecast
Also accept long-term solutions:
- More motivated staff
- Increased revenue
- Increased productivity
- Improved inventory management
AO2 Application
2 marks for a developed application/explanation of one method of improving cash flow for a business
1 mark for a limited application/explanation of one method of improving cash flow for a business
1(b)
- An overdraft is where a bank agrees to a business borrowing up to an agreed limit as and when required - therefore increase cash inflow
- A short-term loan allows a fixed amount to be borrowed for an agreed length of time - which increases cash inflow
- Sale of assets allows cash to be obtained from selling off redundant assets - which will boost cash inflow
- Sale and leaseback allows an asset to be sold then leased back - increase cash inflow
- Reduce credit terms to customers i.e. from 2 months to 1 month - will enable cash to be brought into the business sooner
- Debt factoring enables customers' bills to be bought - means an immediate cash boost
- Make more sales - reduce price to encourage customers to buy more, more advertising
- Delay payments to suppliers i.e. pay a bill after 3 months instead of 2 months - cash outflows will fall in short term
- Delay spending on capital equipment - means money is kept in the business that might have gone out
- Use leasing - no large cash outlay is made - so less money going out of the business
- Cut overheads (that do not directly affect output) - i.e. promotion costs - so less money going out of the business
- More motivated staff - make less mistakes so less wastage of materials
- Improved productivity - higher output so potential for higher sales
- Improved inventory management - can free up cash
- Increase revenue - by diversifying
Accept all valid responses.
Explain one benefit to RP of using a budget.
Explain one benefit to RP of using a budget.
Indicative content
AO1 Knowledge and understanding
Knowledge of a benefit of using a budget □, including:
- Can plan for the future / forecast revenue/profit/costs
- Allocate resources
- Monitor performance
- Improve decision making
No further marks can be gained without knowledge and understanding of a benefit of a budget.
AO2 Application
Explanation of a benefit of using a budget □, including:
- Can use to price work done for other businesses
- Can see variance once work completed/improve future contract pricing
1(b)(ii)
Context of a benefit of using a budget □, including:
- Use of Table 1.1
- Reference to any row / numbers required/costs
- OFR from answer to Q1(b)(i)
- Adverse variance of $ 500
- Concerns that budget is not accurate
Accept all valid responses.
Guidance in awarding marks
Knowledge & understanding & Knowledge of a benefit of using a budget & 1 mark
Explanation & Explanation of a benefit to a business of using a budget & 1 mark
Context & Context linked to a benefit to RP of using a budget & 1 mark
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