IGCSE/ A-Level Revision Questions

Trade payables arise from purchasing goods or services on credit from suppliers. Essentially, it's a short-term debt owed to those suppliers. The business has a period of time (e.g., 30, 60, or 90 days) to pay the invoice. An overdraft is a facility provided by a bank that allows the business to spend more money than it has in its account, up to a pre-agreed limit. It's a form of short-term borrowing.

Here's a table summarizing the advantages and disadvantages:

Feature

Trade Payables

Overdraft

Advantages

Allows the business to maintain a smooth flow of goods and services without immediate cash outlay.

Can improve cash flow management.

No interest charges incurred during the credit period.

Provides immediate access to funds when needed.

Flexible – the business only pays interest on the amount actually drawn.

Can help manage unexpected cash flow gaps.

Disadvantages

Can strain relationships with suppliers if payments are consistently late.

May miss out on early payment discounts offered by suppliers.

Can lead to a build-up of debt if not managed carefully.

Interest charges can be high.

The bank may call the overdraft facility in at any time.

Can create a dependency on borrowing.

Business Studies – 5.4.1 The main elements of a statement of financial position | e-Consult

5.4.1 The main elements of a statement of financial position (1 questions)

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