Component 1: Finance — Eduqas A-Level Business
Test yourself on Component 1: Finance with EDUQAS A-Level practice questions.
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Component 1: Finance explained
Finance keeps the score and guards the cash.
Read the full explanation
Day to day it records transactions, runs payroll, chases customers who owe money and pays suppliers on terms that protect working capital. Periodically it produces the statement of comprehensive income and the statement of financial position for owners, lenders and the tax authorities. Looking forward it builds cash flow forecasts and budgets, reports variances back to the managers who own them, prices work using cost data, and appraises investment through payback, average rate of return and net present value. It also raises funds and watches the debt and equity mix through gearing, which is non-current liabilities as a percentage of capital employed. The trade-off is control against pace, because scrutiny protects solvency while a department that refuses everything starves growth.
Your focus
- Understand the role of the finance department
Component 1: Finance exam tips
Marking Points
- Separate financial accounting prepared for external users from management accounting produced for internal decisions, and say why the same business needs both.
- Give the department a decision to support, such as whether to approve capital spending on new machinery, and name the appraisal technique it would use.
- Show interdependence, since marketing needs a promotional budget, operations needs capital, and human resources needs wage cost forecasts, all inside the envelope finance sets.
- Use accurate liquidity and solvency vocabulary, including working capital, the current ratio and gearing, instead of writing generally about having money available.
Examiner Tips
- 💡This is usually a short knowledge and application question early in the paper, so define the role in a sentence and spend the remaining lines applying it to the named business.
- 💡Where the case includes accounts, quote one figure such as operating profit or capital employed to show the department's output actually being used in a decision.
- 💡Outline questions do not want evaluation, so resist writing a judgement that the tariff cannot reward.
Common Mistakes
- Confusing profit with cash, which produces answers claiming a profitable business cannot run out of money to pay its suppliers.
- Describing the department as only doing the accounts, missing budgeting, credit control, investment appraisal and raising finance.
- Making finance the strategic decision maker, when it advises and constrains while senior management decides.