Definition of profit and loss, non-profit and cashflow and the significance of each to business

Question 1

What is Gross Profit

Answer 1

The money a business makes after deductions for the costs of producing and selling a product or costs associated with its services. Gross profit is also known as sales profit or gross income.

Question 2

What is Net Profit

Answer 2

The actual profit of a business. It is the balance after the amount spent in operating the business has been taken from the amount earned. These operational costs can include equipment and machinery, buying or hiring tools, mileage/fue, insurance, rent, rates, utilities, marketing and taxes.

Question 3

What is Loss?

Answer 3

Loss is a decrease in a business’ money due to unsuccessful investment, operational inefficienceies, legal obligations or unfavourable market conditions.

Question 4

What can loss effect in a business?

Answer 4

• Overall financial health
• The ability to maintain operations or achieve financial objectives.

Question 5

What is non-profit?

Answer 5

A non-profit orginisation does not aim to make profits and its income is not more than its expenses and operational costs. If a non-profit has money after paying all costs, this money must not be taken by any individual but instead must be reinvested in the business or organisation. These include charities, schools and political organisations.

Question 6

What is cashflow?

Answer 6

The movement of money into and out of business. It trancks the money coming in (sales revenue) and money going out (expenses).

Question 7

What is positive cashflow?

Answer 7

When a business is bringing in more money than it is spending, is paying all its expenses and has enough money left over to invest into the business or save for the future.

Question 8

What is negative cashflow?

Answer 8

When a business spends more moeny than it makes, is unable to pay bills, or risks running out of money.

Question 9

How can businesses monitor and manage its cashflow?

Answer 9

1. Creating a budget which plans and allocates resources and outlines expected income and expenses
2. Tracking money coming in and money going out
3. Knowing when money needs to be spent and when it needs to be coming in
4. Preparing for unexpected costs
5. Setting clear terms and conditions with customers and suppliers for payment.