7115 · 5.1
Business finance flashcards
Revision flashcards for Cambridge 7115 Business finance (syllabus 5.1). Flip, recall, then mark a real past-paper question.
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Why need finance?
To acquire assets, fund operations, grow, and survive cash gaps.
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Capital expenditure?
Long-term asset spending — machinery, buildings (fixed assets).
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Revenue expenditure?
Day-to-day costs — wages, materials, rent (expenses).
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Start-up finance needs?
Premises, equipment, marketing, initial inventory, working capital buffer.
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Growth finance needs?
New factories, entering markets, R&D, larger workforce.
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Replacement finance?
Upgrade technology before competitors; maintain efficiency.
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Link to 5.2?
Once need identified, choose source — internal vs external (5.2.2).
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Link to objectives?
Profit maximisation may limit investment; growth objectives need more finance.
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What is the primary purpose of business finance?
To provide the funds necessary for a business to start, operate, and expand. This includes purchasing assets, covering daily costs (working capital), and investing in growth opportunities.
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Define Capital Expenditure (Capex).
Spending on non-current (fixed) assets that will be used by the business for more than one year, such as machinery, property, or vehicles. It is an investment in the future earning capacity of the business.
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Define Revenue Expenditure.
Spending on the day-to-day running costs of a business, such as wages, rent, utility bills, and raw materials. These costs are consumed within one accounting period.
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How do the financial needs of a 'start-up' business differ from a 'mature' business?
A start-up needs significant finance for capital expenditure and to cover initial losses (often from high-risk sources). A mature business often generates its own finance (retained profits) for replacement investment and innovation.
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Why is it incorrect to record the purchase of a new delivery van as a revenue expense?
A van is a non-current asset with a useful life of over a year. Recording it as a revenue expense would incorrectly reduce the current year's profit significantly and understate the value of the business's assets on the Statement of Financial Position.
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A business buys a new machine for $10,000 and raw materials for $2,000. How is this classified?
The $10,000 machine is Capital Expenditure (a non-current asset). The $2,000 in raw materials is Revenue Expenditure (a day-to-day cost).
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Why does a business need finance for both capital AND revenue expenditure when starting a new project?
It needs capital expenditure for the long-term assets (e.g., machinery) to produce the goods/service, and revenue expenditure for the immediate costs (e.g., materials, marketing) to start operations and generate the first sales.