Finals Flashcards
(33 cards)
What is Capital Expenditure (CapEx)?
Spending on acquiring or upgrading long-term assets like buildings, machinery, or equipment
Expected to provide benefits for more than one accounting year and recorded as an asset on the balance sheet, gradually expensed through depreciation.
What is Revenue Expenditure (RevEx)?
Spending on day-to-day operational costs like wages, rent, utilities, and repairs
Fully expensed in the income statement during the period in which it is incurred.
What are Retained Profits?
Profits not paid out as dividends, kept for reinvestment or future growth
Define Working Capital.
Funds available for daily business operations
Formula: Working Capital = Current Assets - Current Liabilities.
What is Debt Finance?
Borrowed funds that must be repaid with interest
Ownership is not reduced, but the company has to repay the debt.
What is Equity Finance?
Raising funds by selling company shares to investors in exchange for ownership
Ownership is reduced, but no repayment is required.
What does the Current Ratio measure?
The company’s ability to pay short-term obligations (liabilities)
Formula: Current Assets ÷ Current Liabilities.
What is the Acid-Test Ratio?
A stricter test of liquidity, excluding inventory
Formula: (Cash + Accounts Receivable) ÷ Current Liabilities.
What is Gross Profit Margin?
Measures the profitability of the company after deducting the cost of goods sold (COGS)
Formula: (Gross Profit ÷ Revenue) × 100.
Define ROCE (Return on Capital Employed).
Measures the efficiency of capital use in generating profits
Formula: Operating Profit ÷ Capital Employed × 100.
What is the Break-Even Point (BEP)?
The level of sales where total revenue equals total costs, resulting in neither profit nor loss
Formula: BEP (units) = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit).
What is Contribution Per Unit?
Indicates how much each unit sold contributes toward covering fixed costs and generating profit
Formula: Selling Price per Unit - Variable Cost per Unit.
What is an Income Statement?
A financial report summarizing revenues, expenses, and net income over a specific period
Main Components: Revenue, Cost of Goods Sold (COGS), Operating Expenses, Taxes.
What does a Balance Sheet represent?
A financial report showing the company’s financial position at a specific point in time
Formula: Assets = Liabilities + Shareholders’ Equity.
Define Retained Earnings.
Profits retained for reinvestment or future use, not paid out as dividends
Formula: Retained Earnings = Beginning Retained Earnings + Net Income - Dividends Paid.
What does Transparency in accounting mean?
Ensuring financial records are accurate, clear, and understandable
What is Integrity in accounting?
Avoiding manipulation of financial data to mislead stakeholders (e.g., window dressing)
What does Fairness in accounting entail?
Adhering to ethical standards to build trust with investors and other stakeholders
What is Confidentiality in accounting?
Protecting sensitive financial information from unauthorized access
What is a limitation of accounting information related to Snapshot in Time?
Financial statements represent a point in time and do not account for long-term trends
What is Window Dressing in accounting?
Companies may present their financials in a way that exaggerates their performance or hides weaknesses
What is Subjectivity in accounting?
Some accounting methods (e.g., depreciation) require judgment, leading to subjectivity in financial reporting
What is an Autocratic leadership style?
The leader makes decisions without consulting others. Clear direction is given, but team input is minimal
What characterizes a Democratic leadership style?
The leader encourages participation from the team, fostering collaboration and innovation
