Business Finance and Accounting: notes

Sources of finance

• Short term: overdraft, trade credit.
• Long term: share capital, bank loans, retained profit.
• Hire purchase: pay in instalments and own the item after the last one.

Profit

• Gross profit = sales minus cost of goods sold.
• Net profit = gross profit minus expenses.
• Mark-up is profit as a percentage of cost price. Margin is profit as a percentage of selling price.

Interest

Simple interest = principal x rate x time.

Common mistake

Do not mix up capital expenditure (buying a machine) with revenue expenditure (paying wages).