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Personal and Business Finance > Business Finance Key Terms > Flashcards

Business Finance Key Terms Flashcards

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1
Q

accounting

A

involves the recording of financial transactions, planned or actual, and the use of these figures to produce financial information

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2
Q

income

A

the money coming into a business

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3
Q

capital income

A

the money invested by the owners or other investors, used to set up the business or buy additional equipment e.g. loan, mortgage, shares, owner’s capital, debentures

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4
Q

revenue income

A

the money that comes into the business from performing its day-to-day function- selling goods or providing a service e.g. sales, rent received, commission received, interest received, discount received

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5
Q

expenditure

A

the money spent by a business

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6
Q

capital expenditure

A

used to buy capital items, which are assets that will stay in the business for a long period of time

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7
Q

non-current assets

A

tangible items that will appear on the statement of financial position and include things like land, premises, equipment and vehicles

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8
Q

intangible assets

A

cannot be touched but add value to the business e.g. goodwill, patents, trademarks and brand names

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9
Q

revenue expenditure

A

spending on items on a day-to-day or regular basis. these expenses are shown on the statement of comprehensive income e.g. inventory, rent, rates, heating & lighting, water, insurance, salaries, wages, bank charges, interest paid, depreciation allowance, discount allowed

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10
Q

retained profit

A

profit= sales revenue - total cost (money kept in the business to fund future expenditure)

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11
Q

net current assets

A

current assets - current liabilities (shows the money available in the business to fund day-to-day expenditure)

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12
Q

sale of assets

A

selling an item of value in order to achieve a cash injection

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13
Q

owner’s capital

A

money invested in the business from the owner’s personal savings

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14
Q

loans

A

money borrowed from a financial institution normally for a set period of time and for a specific purpose

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15
Q

crowdfunding

A

attracting investment from a large number of speculative investors, many of whom may invest relatively small amounts

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16
Q

mortgages

A

long-term loans, normally around 25 years, that are secured against a specific asset e.g. a building

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17
Q

venture capital

A

investment from an experienced entrepreneur in return for a stake in the business

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18
Q

debt factoring

A

selling the debts of a business to a third party in order to receive a quick cash injection

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19
Q

hire purchase

A

paying to use an asset in instalments to spread the cost over its useful life

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20
Q

leasing

A

paying to use an asset in instalments, however the ownership of the asset remains with the supplier throughout the lease agreement

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21
Q

trade credit

A

a period of time, offered by suppliers, to allow the customer to purchase now and pay later

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22
Q

grants

A

a lump sum provided to a business by the government or another organisation to be used for a specific purpose

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23
Q

donations

A

sums of money given voluntarily to a charity or social enterprise

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24
Q

peer-to-peer lending

A

involves one business lending money to another business person in return for interest payments

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25
Q

invoice discounting

A

reductions offered to customers making a product or service cheaper. usually applied as a percentage of the total value

26
Q

break-even analysis

A

the point at which a business is not making a profit or a loss. the money received from sales is the same as the money being spent on costs. total revenue = total costs

27
Q

variable costs

A

costs that change with the level of output e.g. raw materials

28
Q

semi-variable costs

A

part of the cost stays the same and part varies in relation to the degree of business activity e.g. a worker paid a fixed rate but in addition may receive variable amounts of overtime

29
Q

fixed costs

A

costs that do not vary with output. they remain the same e.g. rent

30
Q

total costs

A

total costs= fixed costs + total variable costs

31
Q

total revenue

A

the total amount of money coming in from sales. total revenue= selling price x quantity sold

32
Q

total sales

A

the amount of sales made in a set time period e.g. one year. it can be expressed as value (monetary) or volume (quantity)

33
Q

selling price per unit

A

the amount a customer will pay for each unit purchased

34
Q

sales in value

A

sales expressed as a monetary value e.g. £

35
Q

sales in volume (units)

A

sales expressed as a quantity e.g. units

36
Q

cash flow forecast

A

tries to predict the cash flowing into and out of a business. a healthy cash flow is crucial to the survival of a business.

37
Q

cash inflows/receipts

A

money coming into the business e.g. cash sales, credit sales, loans, capital introduced, sale of assets and bank interest received

38
Q

cash outflow/payments

A

money going out of a business e.g. cash purchases, credit purchases, rent, rates, salaries, wages, utilities, purchase of assets, VAT and bank interest paid

39
Q

opening balance

A

the amount of cash available in a business at the end of the start of the month

40
Q

closing balance

A

the amount of cash available in a business at the end of the month. to calculate= opening balance + net cash flow

41
Q

liquidity

A

measures a firm’s ability to meet short-term cash payments

42
Q

statement of comprehensive income

A

shows the trading position of the business which is used to calculate gross profit. it then takes into account all of the expenses to calculate the profit or loss for the year

43
Q

accural

A

when an expense is paid after the period to which it relates

44
Q

prepayment

A

when an expense is made in advance of the period to which it relates

45
Q

statement of financial position

A

provides a snapshot of the net worth of a business at a particular moment in time, normally at the end of the financial year. it is a summary of everything a business owns (assets) and everything it owes (liabilities)

46
Q

non-current assets

A

items of value that are owned by the business and likely to be held for more than one year e.g. premises and fixtures & fittings

47
Q

current assets

A

items of value that are owned by the business whose value is likely to fluctuate on a regular basis e.g. inventories, trade receivables, prepayments, cash in the bank and cash in hand

48
Q

current liabilities

A

things owned by the business that must be repaid within a 12-month period e.g. overdrafts accruals and trade payables

49
Q

non-current liabilities

A

things that a business owes that will take longer than one year to repay e.g. mortgages and bank loans

50
Q

depreciation

A

an accounting concept used to spread the cost of an asset over it’s useful life. assets appear on the statement of financial position at a realistic value (net book value) and the annual monthly amount by which the assets are depreciated is included as an expense on the statement of comprehensive income

51
Q

straight-line depreciation

A

asset is depreciated by a set amount each year

52
Q

reducing balance depreciation

A

asset is depreciated by a set % of its remaining value each year. the percentage will be set by a senior account and means that the asset will be depreciated by a lower percentage as it ages

53
Q

gross profit margin

A

looks at gross profit as a percentage of sales turnover

54
Q

mark-up

A

calculates gross profit as a percentage of the cost of sales

55
Q

net profit margin

A

shows the net profit as a percentage of the sales

56
Q

return on capital employed (ROCE)

A

shows the percentage return a business is achieving from the capital invested to generate the return

57
Q

current ratio

A

this ratio shows a business the amount of current assets it owns in relation to the amount of current liabilities it owes

58
Q

liquid capital ratio

A

this ratio gives a more accurate reflection of the true liquidity of a business as it removes the least liquid of all current assets from the equation i.e. inventories

59
Q

trade receivable days

A

this ratio measures, on average, how long it takes for debtors to pay and is expressed as a number of days

60
Q

trade payable days

A

this ratio shows, on average, how long it takes firm to pay for goods and services bought on credit and is expressed as a number of days

61
Q

inventory turnover

A

this ratio shows the average amount of time an item of stock is held by a business and is expressed as a number of days

Personal and Business Finance (13 decks)

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