Finance

Question 1

what is a cash flow statement

Answer 1

a financial report that summarises cash transactions, involving cash flowing into and out of the business, that have occurred over a period of time

Question 2

what is the purpose of an income statement

Answer 2

a summary of all revenues generated and expenses incurred over the accounting period with the resultant profit or loss

Question 3

what is the purpose of a balance sheet

Answer 3

a summary statement of assets a business owns, the liabilities the business owes and the equity the owners have invested in the business.

Question 4

what does COGS stand for

Answer 4

cost of goods sold

Question 5

what is the equation for COGS

Answer 5

cogs = opening stock + purchases - closing stock

Question 6

define current asset

Answer 6

short term assets that are already liquid or are expected to be turned to cash within the next 12 months eg. cash , accounts receivable

Question 7

define non current asset

Answer 7

long term assets held by the business for more than 12 months e.g. furniture, car, building

Question 8

define current liability

Answer 8

short term loans that must be repaid within 12 months e.g. overdraft, accounts payable, credit card

Question 9

define non current liability

Answer 9

loans that will be repaid over a period longer than 12 months e.g. mortgage, bank loan

Question 10

define owners equity

Answer 10

Owner’s Equity refers to the owner’s claim on a business.

Question 11

define accounting

Answer 11

accounting is tool used by managers to record financial transactions and to ensure the business reaches financial goals

Question 12

define liquidity

Answer 12

liquidity refers to wether or not a business has cash available to meet payments when they are due

Question 13

define gross profit

Answer 13

the revenue remaining after paying the cost of goods sold

Question 14

define net profit

Answer 14

is the amount remaining after subtracting all expenses and COGS from the business’s revenue

Question 15

what is the equation for net profit

Answer 15

net profit = gross profit - expenses

Question 16

define capital

Answer 16

money invested by business owners (e.g. money paid to purchase shares in a company)

Question 17

define retained profits

Answer 17

net profit from previous years that has been reinvested back into the business, rather than being paid to owners as dividends

Question 18

what is finance

Answer 18

Finance is concerned with where the business sources its funding

Question 19

what is the equation for gross profit?

Answer 19

sales revenue - COGS = gross profit

Question 20

what is the equation for a balance sheet?

Answer 20

assets = liabilities + owners equity

Question 21

define stock or inventory

Answer 21

the total of unsold items still owned by the business at the end of the trading period

Question 22

define drawings

Answer 22

when the owners of a business take money out of the business for their own use