finance terms

Question 1

What are assets?

Answer 1

Anything that the organisation owns which has a measurable value.

Question 2

What are current assets?

Answer 2

Assets that can be sold in a short time, usually within a year, e.g. cash, stocks, bonds, organisation inventory.

Question 3

What are fixed assets?

Answer 3

Assets that take a long time to reach the desired price or that the company does not wish to sell within a year, e.g. building, furniture, land.

Question 4

What is a balance?

Answer 4

The amount of money held in a financial account, showing what is owed as well.

Question 5

What is a balance sheet?

Answer 5

A financial statement that provides a snapshot of the organisation’s financial position, showing assets, liabilities, and shareholders’ equity.

Question 6

What does a balance sheet show?

Answer 6

The organisation’s total assets, total liabilities, and shareholders’ equity.

Question 7

What is the break-even point?

Answer 7

The point when total sales/revenue covers all expenses, resulting in zero profit or loss.

Question 8

How is the break-even point calculated?

Answer 8

Break-even point (Units) = fixed costs / (sales price per unit - variable costs per unit).

Question 9

What is cash flow?

Answer 9

Cash flows in and out of a company through payments of debts and receipts of monies owed.

Question 10

What is corporation tax?

Answer 10

A tax set by government on the net profit of a limited company.

Question 11

What are current liabilities?

Answer 11

Debt that will need to be paid within one year, e.g. supplier invoices, wages, payroll taxes.

Question 12

What is entry adjustment?

Answer 12

Adjustments made at the end of every accounting cycle due to internal events in the company.

Question 13

What are the four types of entry adjustments?

Answer 13

• Accrued Revenue
• Accrued Expense
• Deferred Revenue
• Deferred Expense

Question 14

What is gross profit?

Answer 14

The amount of profit a company makes after the costs of producing goods or services sold are deducted.

Question 15

What is an income statement?

Answer 15

A financial report that itemises the income and expenditure that a company has had for a given reporting period.

Question 16

What is income tax?

Answer 16

A tax levied by the government on the amount of salary or wages that employees earn.

Question 17

What is interest?

Answer 17

The amount charged to the organisation for borrowing money.

Question 18

What is an interest rate?

Answer 18

A percentage charged on the value of borrowed money.

Question 19

What are liabilities?

Answer 19

What companies owe, less all operating costs and expenses.

Question 20

What is net profit?

Answer 20

Gross profit minus total expenditures.

Question 21

What is a non-current or long-term liability?

Answer 21

Debt that is not payable within the current year, such as a bank loan or mortgage.

Question 22

What is another term for a profit and loss statement?

Answer 22

Income statement.

Question 23

What is profit margin?

Answer 23

difference between the cost to produce goods and
the price charged to customers,

Question 24

How is profit margin calculated?

Answer 24

sale price /production costs x100.

Question 25

What does a 20% profit margin indicate?

Answer 25

A 20% profit margin means that after costs, the organization makes 20% profit on each product sold.

Question 26

What is retained profit?

Answer 26

Retained profit is the net profit that a company keeps in its accounts after all other costs and payments, including shareholder dividends, have been paid.

Question 27

What is revenue?

Answer 27

Revenue is the total income that a company receives from any source before any costs or expenses during a specified accounting period.

Question 28

What is sales turnover?

Answer 28

Sales turnover is the total amount of money received for all goods or services sold by the company during a given accounting period.

Question 29

Who are stakeholders?

Answer 29

Stakeholders are individuals or companies with an interest in the company, including customers, suppliers, employees, and shareholders.

Question 30

What is value added tax (VAT)?

Answer 30

VAT is a tax on products and services sold by VAT registered businesses, with different rates applicable to different goods and services.

Question 31

Are all goods and services subject to VAT?

Answer 31

No, not all goods and services are subject to VAT. Businesses must maintain records of which goods and services attract VAT and the applicable rates.

Question 32

What is an example of VAT rates?

Answer 32

Plain biscuits are zero rated (no VAT), while biscuits partially or wholly covered in chocolate are charged at the standard VAT rate.

Question 33

What is the definition of costs in a business context?

Answer 33

The amount of money that a business has spent on its goods and services ## Footnote Costs are essential for determining profitability and pricing strategies.

Question 34

What are fixed costs?

Answer 34

Costs that don't change depending on the number of items made or sold ## Footnote Examples include rent, salaries, and insurance.

Question 35

What are variable costs?

Answer 35

Costs that change in line with the number of items the business makes and sells ## Footnote Examples include raw materials and production labor.

Question 36

What is an accounting period?

Answer 36

An accounting period is a period of time that covers certain accounting functions, which can be either a calendar or fiscal year, but also a week, month, or quarter.

Question 37

Why do we have accounting periods?

Answer 37

We have them for consistency and to enable owners to compare business performance.

Question 38

Who benefits from accounting periods?

Answer 38

Investors benefit from accounting periods as they allow for comparison of results from consecutive time periods.

Question 39

Fill in the blank: An accounting period can be a _______.

Answer 39

[calendar year, fiscal year, week, month, quarter]

Question 40

True or False: Accounting periods are only applicable to fiscal years.

Answer 40

False

Question 41

What is gross profit?

Answer 41

The amount left from the revenue after you have paid the costs of the goods you sold (cost of sales)

Question 42

How is gross profit calculated?

Answer 42

Revenue - cost of raw materials (cost of sales) = gross profit

Question 43

In the context of making pizzas, what does gross profit represent?

Answer 43

The price charged to customers less the cost of the raw materials needed to make the pizza

Question 44

True or False: Gross profit includes all operating expenses.

Answer 44

False

Question 45

Fill in the blank: Gross profit is calculated by subtracting _______ from revenue.

Answer 45

cost of sales

Question 46

What is net profit?

Answer 46

The amount left after all other costs (fixed costs) are deducted from the gross profit. ## Footnote Fixed costs include expenses not directly related to production, such as advertising and mortgage for the shop.

Question 47

How is net profit calculated?

Answer 47

Gross profit - expenses (overheads) = Net profit. ## Footnote Overheads refer to fixed costs that support business operations.

Question 48

Fill in the blank: Net profit is calculated by subtracting _______ from gross profit.

Answer 48

[expenses (overheads)]

Question 49

True or False: Net profit is the same as gross profit.

Answer 49

False ## Footnote Net profit is derived from gross profit after deducting expenses.