Additional Activities: Finance

The relationship between own capital and borrowed capital is known as solvency?

• True

• False

Answer explanation

Solvency is the ratio between assets and liabilities.

A business in a good financial position will probably be able to negotiate a better interest rate when borrowing money.

• True

• False

The use of borrowed capital increases the risk in a business.

• True

• False

If the business sells on credit, but replaces all goods using cash, it will .... the demand for working capital.

• not influence

• increase

• decrease

• I have no idea what it will do

Which of the following is a source of working capital?

• Sale of shares

• Mortgage bond

• Vehicle finance

• Bank overdraft

The collection of overdue accounts is the responsibility of the...

• sales function

• general manager

• finance function

• creditors clerk

The statement of comprehensive income includes calculating the GP and NP.

• True

• False

The statement of financial position includes assets, what is owed to us and what is owed by us as a business.

• True

• False

A long term financial planning tool for the purchasing of new land and buildings is:

• A capital budget

• A cash budget

• A credit budget

• A debit budget

Profit is the difference between income and expenses, but not all profit is in the form of cash.

• True

• False

Answer explanation

This is because a business will often sell goods on credit. While this looks like profit on paper it will not mean cash in the bank until the debtor pays what is outstanding.