Section 3 - Accounting and Finance

Question 1

Hire Purchase

Answer 1

Buying specific goods with a loan, often provided by a finance house.

Question 2

Leasing

Answer 2

Renting or hiring equipment or property.

Question 3

Retained Profit

Answer 3

The profit held by a business rather than returning it to the owners.

Question 4

Short-term Finance

Answer 4

Money borrowed for one year or less.

Question 5

Debenture

Answer 5

A long-term loan to a business.

Question 6

Gearing

Answer 6

The amount of capital raised from loans in relation to the amount raised from the sale of shares.

Question 7

Long-term Finance

Answer 7

Money borrowed for more than one year.

Question 8

Mortgage

Answer 8

Long-term loan secured with property.

Question 9

Share Capital

Answer 9

Money raised from the sale of shares in a limited company.

Question 10

Venture Capitalists

Answer 10

Specialists (individuals or financial institutions) which provide funds for businesses, usually in exchange for an equity stake.

Question 11

Working Capital

Answer 11

The funds left over to meet day-to-day expenses after current debts have been paid. It is calculated by current assets minus current liabilities.

Question 12

Working Capital Cycle

Answer 12

The flow of liquid resources into and out of a business.

Question 13

Budget

Answer 13

A plan that shows how much money a business expects to spend or receive in a specified period.

Question 14

Cash Flow

Answer 14

The flow of money into and out of a business.

Question 15

Cash Flow Forecast

Answer 15

The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of the month.

Question 16

Cash Inflows

Answer 16

The flow of money into a business.

Question 17

Cash Outflows

Answer 17

The flow of money out of a business.

Question 18

Liquid Asset

Answer 18

An asset which is easily changed into cash.

Question 19

Net Cash Flow

Answer 19

The difference between the cash flowing in and cash flowing out of a business in a given time period.

Question 20

Costs

Answer 20

Expenses that must be met when setting up and running a business.

Question 21

Direct Cost

Answer 21

A cost which can be clearly identified with a particular unit of output.

Question 22

Fixed Costs

Answer 22

Costs that do not vary with the level of output.

Question 23

Indirect Cost or Overhead

Answer 23

A cost which cannot be identified with a particular unit of output. It is incurred by the whole organisation or department.

Question 24

Total Costs

Answer 24

Fixed costs and variable costs added together.

Question 25

Total Revenue

Answer 25

The money generated from the sale of output. It is price multiplied by quantity.

Question 26

Variable Costs

Answer 26

Costs which rise as output levels are increased.

Question 27

Break even

Answer 27

The level of output where total costs and total revenue are exactly the same. Neither a profit or a loss is made.

Question 28

Break-even chart

Answer 28

A graph which shows total cost and total revenue. The break-even point is where total cost and total revenue intersect.

Question 29

Margin of safety

Answer 29

The amount of output available to be sold above the break-even point where the business makes a profit.

Question 30

Distributed profit

Answer 30

Profit that is returned to the owners of a business.

Question 31

Dividend

Answer 31

Money paid to shareholders (owners of the business) when profit is distributed.

Question 32

Gross profit

Answer 32

Sales revenue less cost of sales.

Question 33

Net profit

Answer 33

Gross profit less expenses.

Question 34

Profit

Answer 34

The money left over after all costs have been subtracted from revenue.

Question 35

Profit and loss account or income statement

Answer 35

A financial document showing a firm’s income and expenditure in a particular time period.

Question 36

Profit and loss account

Answer 36

Shows how net profit is calculated by subtracting expenses from gross profit.

Question 37

Profit and loss account appropriation account

Answer 37

Shows how the profit after tax is distributed between owners and the business.

Question 38

Retained profit

Answer 38

Profit that is kept by the business and may be used in the future.

Question 39

Trading account

Answer 39

Shows how gross profit is calculated by subtracting cost of sales from turnover.

Question 40

Assets

Answer 40

Resources owned or used by the business in production.

Question 41

Balance sheet

Answer 41

A summary at a point in time of business assets, liabilities and capital.

Question 42

Capital

Answer 42

A source of funds provided by the owners of the business and used to buy assets.

Question 43

Current assets

Answer 43

Assets likely to be changed into cash within the year.

Question 44

Current liabilities

Answer 44

Debts that have to be repaid within a year.

Question 45

Drawings

Answer 45

The money taken from the business by the owner for personal use.

Question 46

Fixed assets

Answer 46

Assets with a life span of more than one year.

Question 47

Liabilities

Answer 47

The debts of the business which provide a source of funds.

Question 48

Long-term liabilities

Answer 48

Debts that are payable after 12 months.

Question 49

Net assets

Answer 49

The total at the bottom of the first part of the balance sheet. It is the value of all assets less the value of all liabilities.

Question 50

Net current assets

Answer 50

Current assets minus current liabilities. Also known as working capital.

Question 51

Auditing

Answer 51

An accounting procedure which checks thoroughly the accuracy of a company’s accounts.

Question 52

Acid test ratio

Answer 52

Similar to the current ratio but excludes stocks from current assets. Sometimes called the quick ratio.

Question 53

Current ratio

Answer 53

Assesses the firm’s liquidity by dividing current liabilities into current assets.

Question 54

Gross profit margin / Mark-up

Answer 54

Gross profit expressed as a percentage of turnover.

Question 55

Net profit margin

Answer 55

Net profit expressed as a percentage of turnover.

Question 56

Ratio analysis

Answer 56

A numerical approach to investigating accounts by comparing two related figures.

Question 57

Return on capital employed (ROCE)

Answer 57

The profit of a business as a percentage of the total amount of money used to generate it.