Unit 1 - 4.1 (Basic terms)

Question 1

Cost

Answer 1

The total amount of cash spent by the business (expenditure)

Question 2

Revenue

Answer 2

The total amount of cash generated by the business.

Revenue = Number of units sold x Selling price per unit.

Question 3

Cash Flow

Answer 3

The inflow and outflow of cash in and from the business. Cashflow statement considers or records only cash sales/transactions not credit sales.

Question 4

Net Cash Flow

Answer 4

NCF = Cash inflow - Cash outflow

Question 5

Profit

Answer 5

Profit considers or records both cash and credit sales/transactions. Not the same as casshflow
Profit = Revenue - Cost

Question 6

Break Even

Answer 6

When the company isn’t making a profit or a loss. A strategy used when a business isn’t making any consistent profit to avoid overdraft. When total revenue = total costs

Question 7

Margin of Safety

Answer 7

Difference between the business actually produces/sells and the break even point. the greater the margin of safety the less risk.

MS = Actual output - Break Even
MS = How much is sold - Break Even

Question 8

Opening Balance

Answer 8

Money you start with at the beginning of the month

Question 9

Closing Balance

Answer 9

CB = Opening Balance + Net Cash Flow

The money left over at the end of the month and is the opening balance for the next month

Question 10

Variable Costs

Answer 10

Costs that change with the level of output.

Examples: Wages, Electricity, Raw materials costs

Question 11

Fixed Costs

Answer 11

Costs that don’t change with the level of output.

Examples: Rent, Salaries, Insurance costs

Question 12

Cash Sales

Answer 12

Sales that have been paid for in cash (coins or card)

Question 13

Credit Sales

Answer 13

Goods or services that customers pay later or in instalments/deposits as per sales agreement.