Edexcel Business A Level Paper 2
(Theme 2 & 3) Questions with Correct
Answers
Retained profits - ANSWERSprofits that the owners have reinvested into the business
after paying costs and taxes
Owners' funds - ANSWERSmoney put in by the owners themselves
Sale of assets - ANSWERSa one-off way to raise money, generally used during
financial struggles
Benefits of owners funds - ANSWERSAvoids interest on loans
Owners keep complete control
Disadvantages of owners funds - ANSWERSIf it fails after remortgaging, they could lose
their house
Limit to amount raised
Short term finance examples - ANSWERSoverdrafts for daily expenses
Medium term finance examples - ANSWERSloans, hire purchase, trade credit, debt
factoring used to pay for repairs, paid back after 1-5 years
Long term finance examples - ANSWERSissuing shares, debentures, mortgages,
grants used to pay for major expenditure, paid back over many years
Selling assets - ANSWERSCan sell machines, buildings, land
Limited buyers
Advertising costs
Sold cheaply
Loans - ANSWERSHigh 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 - ANSWERSNo repayment
May be recalled if conditions aren't met
May not cover full amount
,Hire purchase / leasing - ANSWERSMust 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 - ANSWERSOnly for a limited company (ltd, plc)
No risk but must pay yearly dividends
Shareholders at risk as shares fluctuate
Shareholders have influence
Venture capital - ANSWERSLarge businesses lend to smaller (not plc) businesses
Lender becomes shareholder
Aim to grow business so share price increases
Lenders play active role
Revenues - ANSWERSthe amount of product that a customer actually buys
Total revenue equation - ANSWERSvolume sold x average selling price
Profit as an objective - ANSWERSProfit is the most important source of cash flow and
finance
Can be other reasons for running a business than profit
Why profit is important - ANSWERSA return on investment
A reward for taking risks
A key source of finance
A measure of business success
A motivating factor
Profit equation - ANSWERStotal sales - total costs
Costs - ANSWERSamounts that a business incurs in order to make goods/services
Costs are important because - ANSWERSThey drain away profit
Change profit margins
Main causes of cash flow problems
Changes with output
Variable costs - ANSWERSChange as output varies
Lower risk for startups
Variable cost examples - ANSWERSRaw materials
Brought in stocks
Wages based on hours
Marketing costs based on sales
, Fixed costs - ANSWERSDon't change with output
Higher risk for startups
Fixed cost examples - ANSWERSRent & rates
Salaries
Advertising
Insurance, banking, legal fees
Software
Advisers
Total costs equation - ANSWERSfixed costs + variable costs
Problems estimating costs - ANSWERSSome are easier than others
Rent, salaries, advertising
Others are harder
Raw materials
Returns or refunds
Budget - ANSWERSa financial plan for the future concerning the revenues and costs of
a business
Managerial accountability - ANSWERSBudgets on the objectives
Managers are required to think ahead
Budget uses for management - ANSWERSSet targets
Motivate staffs
Improve efficiency
Forecast outcomes
Monitor performances
Assign responsibilities
Allocate resources
Budget as a motivator - ANSWERSProvide specific targets and standards
Attaining or surpassing these targets
Fear of not achieving can act as an incentive
Historical budgets - ANSWERSUse last years figures as basis
Realistic
Circumstances may have changed
Does not encourage efficiency
Zero based budgets - ANSWERSCost / revenues set to 0
Based on new proposals for sales and costs
Makes budgeting more complicated
(Theme 2 & 3) Questions with Correct
Answers
Retained profits - ANSWERSprofits that the owners have reinvested into the business
after paying costs and taxes
Owners' funds - ANSWERSmoney put in by the owners themselves
Sale of assets - ANSWERSa one-off way to raise money, generally used during
financial struggles
Benefits of owners funds - ANSWERSAvoids interest on loans
Owners keep complete control
Disadvantages of owners funds - ANSWERSIf it fails after remortgaging, they could lose
their house
Limit to amount raised
Short term finance examples - ANSWERSoverdrafts for daily expenses
Medium term finance examples - ANSWERSloans, hire purchase, trade credit, debt
factoring used to pay for repairs, paid back after 1-5 years
Long term finance examples - ANSWERSissuing shares, debentures, mortgages,
grants used to pay for major expenditure, paid back over many years
Selling assets - ANSWERSCan sell machines, buildings, land
Limited buyers
Advertising costs
Sold cheaply
Loans - ANSWERSHigh 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 - ANSWERSNo repayment
May be recalled if conditions aren't met
May not cover full amount
,Hire purchase / leasing - ANSWERSMust 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 - ANSWERSOnly for a limited company (ltd, plc)
No risk but must pay yearly dividends
Shareholders at risk as shares fluctuate
Shareholders have influence
Venture capital - ANSWERSLarge businesses lend to smaller (not plc) businesses
Lender becomes shareholder
Aim to grow business so share price increases
Lenders play active role
Revenues - ANSWERSthe amount of product that a customer actually buys
Total revenue equation - ANSWERSvolume sold x average selling price
Profit as an objective - ANSWERSProfit is the most important source of cash flow and
finance
Can be other reasons for running a business than profit
Why profit is important - ANSWERSA return on investment
A reward for taking risks
A key source of finance
A measure of business success
A motivating factor
Profit equation - ANSWERStotal sales - total costs
Costs - ANSWERSamounts that a business incurs in order to make goods/services
Costs are important because - ANSWERSThey drain away profit
Change profit margins
Main causes of cash flow problems
Changes with output
Variable costs - ANSWERSChange as output varies
Lower risk for startups
Variable cost examples - ANSWERSRaw materials
Brought in stocks
Wages based on hours
Marketing costs based on sales
, Fixed costs - ANSWERSDon't change with output
Higher risk for startups
Fixed cost examples - ANSWERSRent & rates
Salaries
Advertising
Insurance, banking, legal fees
Software
Advisers
Total costs equation - ANSWERSfixed costs + variable costs
Problems estimating costs - ANSWERSSome are easier than others
Rent, salaries, advertising
Others are harder
Raw materials
Returns or refunds
Budget - ANSWERSa financial plan for the future concerning the revenues and costs of
a business
Managerial accountability - ANSWERSBudgets on the objectives
Managers are required to think ahead
Budget uses for management - ANSWERSSet targets
Motivate staffs
Improve efficiency
Forecast outcomes
Monitor performances
Assign responsibilities
Allocate resources
Budget as a motivator - ANSWERSProvide specific targets and standards
Attaining or surpassing these targets
Fear of not achieving can act as an incentive
Historical budgets - ANSWERSUse last years figures as basis
Realistic
Circumstances may have changed
Does not encourage efficiency
Zero based budgets - ANSWERSCost / revenues set to 0
Based on new proposals for sales and costs
Makes budgeting more complicated
