Finance And Accounting

Question 1

What is an asset?

Answer 1

An asset is any item owned by a business that can generate an income for the enterprise.

Question 2

What is capital?

Answer 2

Capital is the money invested into a business either by its owners or by organisations such as banks.

Question 3

What are non-current assets?

Answer 3

Non-current assets are assets that a business expects to hold for one year or more. Examples include property and vehicles.

Question 4

What are short term sources of finance?

Answer 4

Short-term sources of finance are needed for a limited period of time, normally less than one year

Question 5

What are long term sources of finance?

Answer 5

Long-term sources of finance are those that are needed over a longer period of time, usually over a year.

Question 6

Define insolvency

Answer 6

Insolvency exists when a business’ debts (or liabilities) exceed the assets available to pay them.

Question 7

What are liabilities?

Answer 7

Liabilities refers to the money owed by a business to individuals, suppliers, banks and others

Question 8

What is bankruptcy?

Answer 8

Bankruptcy occurs when an individual, a sole trader or a partnership is judged unable to pay its debts by a court of law.

Question 9

Define liquidation

Answer 9

Liquidation is the dissolution of a company by selling its assets to settle its liabilities

Question 10

What is administration?

Answer 10

Administration is a process available to a company to protect itself while it attempts to pay its debts and to escape insolvency.

Question 11

What is profit?

Answer 11

Profit is the surplus of sales revenue over total costs, if any exists, over a trading period.

Question 12

Define working capital

Answer 12

Working capital is the cash a business has for its
day-to-day spending.

Question 13

What are current assets?

Answer 13

Current assets are items owned by a business that can be readily turned into cash. Examples include cash, money owed by customers (trade receivables) and inventories (stocks).

Question 14

What are trade payables?

Answer 14

Trade payables is the amount of money owed by a business to its suppliers for goods and services that have been received but which have not been paid for

Question 15

What are trade receivable’s?

Answer 15

Trade receivables is the amount owed by a business’ customers for products that have been supplied but for which payment has not yet been made.

Question 16

Define revenue expenditure

Answer 16

Revenue expenditure refers to the purchase of items such as fuel and raw materials that will be used up within a short space of time.

Question 17

What is capital expenditure?

Answer 17

Capital expenditure is the spending by a business on non- current assets such as premises, production equipment and vehicles.

Question 18

What is a statement of financial position?

Answer 18

A statement of financial position is a financial statement that records the assets (possessions) and liabilities (debts) of a business on a particular day at the end of an accounting period. It was previously called a balance sheet.

Question 19

What is an income statement?

Answer 19

An income statement is a financial statement showing a business’ sales revenue over a trading period and all the relevant costs incurred to generate that revenue.

Question 20

What is an internal source of finance?

Answer 20

An internal source of finance is one that exists within the
business.

Question 21

What is an external source of finance?

Answer 21

An external source of finance is an injection of funds into the business from individuals, other businesses or financial institutions.

Question 22

Define trade credit

Answer 22

Trade credit is a period of time offered by suppliers of goods and services before payment is to be made.

Question 23

What is a bank loan?

Answer 23

A bank loan is an amount of money provided to a business for a stated purpose in return for a payment in the form of interest charges.

Question 24

What is a venture capital?

Answer 24

Venture capital is funds (in the form of a mix of share and loan capital) that is advanced to businesses which are thought to be relatively high-risk.

Question 25

Define debt factoring

Answer 25

Debt factoring takes place when banks provide up to 80 per cent of the value of a business’ debts immediately to provide an instant inflow of cash.

Question 26

What is microfinance?

Answer 26

Microfinance is the provision of financial services for poor and low-income clients.

Question 27

What is crowdfunding?

Answer 27

Crowdfunding is a source of finance that entails collecting relatively small amounts of money from a large number of supporters (the ‘crowd’).

Question 28

What is cash?

Answer 28

Cash is a business’ most liquid asset – it is notes and coins as well as funds held in the business’ bank accounts

Question 29

What is a cash flow forecast?

Answer 29

A cash-flow forecast is a document that records a business’ anticipated inflows and outflows of cash over some future period, frequently one year.

Question 30

What are costs?

Answer 30

Costs are expenses that a business has to pay to engage in its trading activities.

Question 31

What is revenue?

Answer 31

Revenue is the income a business receives from selling its goods or services.

Question 32

What are fixed costs?

Answer 32

Fixed costs do not change when a business alters its level of output.

Question 33

What are variable costs ?

Answer 33

variable costs alter directly with the level of a firm’s output.

Question 34

What are direct costs?

Answer 34

Direct costs can be related to the production of a particular product and vary directly with the level of output.

Question 35

What are indirect costs?

Answer 35

Indirect costs are overheads that cannot be allocated to the production of a particular product and relate to the business as a whole.

Question 36

what is full costing?

Answer 36

Full costing allocates all the costs of production for the whole business. Therefore, these costs are absorbed into each output unit. This is also known as absorption costing.

Question 37

Define contribution

Answer 37

Contribution can be defined as the difference between sales revenue and variable costs of production.

Question 38

Define break-even

Answer 38

Break-even is the level of production or output at which a business’ sales or total revenue is exactly equal to its total costs of production.

Question 39

Define profits

Answer 39

Profits are the amount by which revenue exceeds total costs, although there are several different measures of profit.

Question 40

What is full costing?

Answer 40

The full-costing approach normally divides costs into direct costs and indirect costs

Question 41

Define contribution costing/ marginal costing

Answer 41

Contribution costing calculates the cost of a product solely on the basis of variable costs, thus avoiding the need to allocate fixed costs.

Question 42

Define average costs

Answer 42

Average costs are the total cost of production divided by the number of units produced.

Question 43

Define marginal cost

Answer 43

Marginal cost is the extra cost resulting from producing one additional unit of output. In most situations the marginal cost of an additional unit of a product is the variable cost of its production.

Question 44

What is cost-plus pricing?

Answer 44

Cost-plus pricing is the process of establishing the price of a product by calculating its cost of production and then adding an amount which is profit.

Question 45

What is contribution pricing?

Answer 45

Contribution pricing is based on the notion that any price set that is higher than the variable cost of producing a product is making a payment towards fixed costs.

Question 46

What are special order decisions?

Answer 46

Special-order decisions occur when a business’ managers have to decide whether or not to accept unusual customer orders.

Question 47

Define margin of safety

Answer 47

The margin of safety measures the quantity by which a firm’s current level of sales exceeds the level of output necessary to break even.

Question 48

Define incremental budgeting

Answer 48

Incremental budgeting is a process where budget figures are minor changes from the preceding period’s budgeted or actual data.

Question 49

What is a flexible budget?

Answer 49

A flexible budget is a budget that is designed to change along with the sales volume or production levels.

Question 50

What is a budget holder?

Answer 50

A budget holder is responsible for the use and management of a particular budget.

Question 51

What are zero budgets?

Answer 51

Zero budgets exist when budgets are automatically set at zero and budget holders have to argue their case to receive any funds.