3.1 Introduction to Finance (DP IB Business Management)

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  • True or False?

    Entrepreneurs need finance to cover initial setup costs when starting a new business.

    True.

    Entrepreneurs need finance to cover initial setup costs when starting a new business.

  • Define the term working capital.

    Working capital is the finance necessary to manage the day-to-day expenses of a business, such as purchasing inventory, paying suppliers and paying staff.

  • What does R&D stand for?

    R&D stands for Research and Development.

  • True or False?

    Businesses only need finance for capital expenditure.

    False.

    Businesses need finance for both capital expenditure and revenue expenditure.

  • What is meant by the term debt servicing?

    Debt servicing is the repayment of debts such as loans or credit facilities, including interest, over an agreed-upon period.

  • True or False?

    Finance provides a metric to measure business performance.

    True.

    Finance provides a metric to measure business performance.

  • Define the term capital expenditure.

    Capital expenditure is business spending on non-current assets that will be used many times and for more than one year.

  • Define the term revenue expenditure.

    Revenue expenditure is spending on goods and services that a business uses in the short-term as part of its normal trading activities.

  • True or False?

    Buildings are an example of current assets.

    False.

    Buildings are an example of non-current assets.

  • True or False?

    Machinery is considered a revenue expenditure.

    False.

    Machinery is considered capital expenditure.

  • What does the term non-current assets mean?

    Non-current assets are assets that will be used many times and for more than one year.

  • Define the term current assets.

    Current assets are short-term assets that are expected to be converted into cash or used up within one year.

  • Give two examples of revenue expenditure.

    Examples of revenue expenditure include:

    • Stock/inventory

    • Wages and salaries

    • Utilities

    • Distribution costs

    • Fuel

    • Insurance

  • True or False?

    Rent is considered capital expenditure.

    False.

    Rent is considered revenue expenditure.