unit 4

Question 1

what is an income statement

Answer 1

shows a business’s income and expenditure and therefore if its making a profit or loss over a specific period of time

Question 2

what is a cash flow statement

Answer 2

shows a business’s sources and movement of cash in and out of a business, over a specific period of time

Question 3

what is a balance sheet

Answer 3

shows what a business owns and owes, together with the amount invested by shareholders, at a particular moment in time

Question 4

what is an accounting period

Answer 4

the timeframe for the set of accounts to be reported on

Question 5

what can an accounting period be

Answer 5

• a calendar
• fiscal year
• week
• month
• quarter

Question 6

what is income

Answer 6

the total money a business earns from its main operations

Question 7

what is costs/expenditure

Answer 7

the total money a business spends in order to operate

Question 8

what is sales turnover

Answer 8

money earned solely from the sale of goods or services over a given period of time

Question 9

what is revenue

Answer 9

total money earned by a business given period of time

Question 10

sales turnover =

Answer 10

sales turnover = number of sales x price per unit

Question 11

what are costs

Answer 11

the total money a business spends in order to operate

Question 12

what is expenditure

Answer 12

the total money a business spends as payment for goods and/or services

Question 13

what are operating expenses

Answer 13

costs that are directly involved in the day-to-da operations of a business

Question 14

what are non-operating expenses

Answer 14

costs that are not related to a business’s core operations

Question 15

what are direct/variable costs

Answer 15

costs involved in producing the product. do change directly with output

Question 16

what are indirect/fixed costs

Answer 16

costs that have to be paid even if there is no output. don’t change with output

Question 17

variable cost =

Answer 17

costs per item x no. of items

Question 18

total costs =

Answer 18

fixed costs + variable costs

Question 19

what are costs of goods (COGS)

Answer 19

all the direct/variable costs incurred by a business in a specific period of time

Question 20

what is overheads

Answer 20

ongoing business expenses that are not directly tied to production i.e. fixed costs

Question 21

what is profit

Answer 21

revenue is more than expenditure

Question 22

what is loss

Answer 22

revenue is less than expenditure

Question 23

profit =

Answer 23

revenue - expenditure

Question 24

what is gross profit

Answer 24

the profit a business makes after deducting the cost of sales from revenue

Question 25

what is net profit

Answer 25

the gross profit, plus any other income, minus all other expenses

Question 26

gross profit =

Answer 26

revenue - cost of sales

Question 27

net profit =

Answer 27

gross profit - expenses

Question 28

what is cash flow forecast

Answer 28

predicts potential cash floe in the future based on financial objectives

Question 29

what is cash floe statement record of

Answer 29

its a record of actual money transfers that demonstrates the real cash floe position of the business

Question 30

what is inflow

Answer 30

money that is entering the business

Question 31

what is outflows

Answer 31

money that is leaving the business

Question 32

what is positive cash flow

Answer 32

the business has money in the bank. inflows are more than outflows

Question 33

what is negative cash flow

Answer 33

the business is in an overdraft (debt) situation. inflows are less than outflows

Question 34

what is the closing balance

Answer 34

the amount of money present in a financial repository.

Question 35

what is a small, positive balance

Answer 35

the business can afford to pay its bills and has little danger of going bankrupt

Question 36

what is a large, positive balance

Answer 36

there is money available fir investment or expansion

Question 37

what is small negative balance

Answer 37

money may have to be borrowed, at least for the short term

Question 38

what is large, negative balance

Answer 38

the business cannot pay its way and may go bankrupt unless urgent action is taken

Question 39

what are assets

Answer 39

items of value that a business owns, creates or benefits from

Question 40

what are liabilities

Answer 40

a business's debts or obligations i.e. what a business owes

Question 41

what are current assets

Answer 41

short-term assets used in the day-to-day running of the business and expected to be used within one year to create more revenue

Question 42

what are fixed assets

Answer 42

long-term assets with a useful life for longer than one year

Question 43

what are current liabilities

Answer 43

creditors that must be paid within one year

Question 44

what are long-term liabilities

Answer 44

creditors that are paid after more than one year

Question 45

net current assets (working capital) =

Answer 45

current assets - current liabilities

Question 46

net assets (capital) =

Answer 46

total assets - total liabilities

Question 47

what is retained profit

Answer 47

the amount of net income kept in the business to be reinvested rather than distributed to the owners or shareholders as dividends

Question 48

what is a profit margin

Answer 48

ratios that measures the degree to which a business is actually making money - its profitability shows what percentage of its sales has generated profits

Question 49

what is 5% profit margin considered

Answer 49

low

Question 50

what is 10% profit margin considered

Answer 50

average

Question 51

what is 20% profit margin considered

Answer 51

good

Question 52

what is 50-70% profit margin considered

Answer 52

healthy

Question 53

what is gross profit margin

Answer 53

the percentage ratio of revenue a business keeps for each sale after all direct costs are deducted

Question 54

what is net profit margin

Answer 54

the percentage ratio of revenue that is left after all costs are deducted

Question 55

gross profit margin =

Answer 55

gross profit / revenue x 100

Question 56

net profit margin =

Answer 56

net profit / revenue x 100

Question 57

what is break-even point

Answer 57

where total costs equal total revenue

Question 58

what is break-even analysis

Answer 58

a management decision tool to help understand the minimum levels of production/sales required to avoid losses

Question 59

break-even units =

Answer 59

fixed costs / (sales per unit - variable costs per unit)

Question 60

break-even point sales value =

Answer 60

(selling price x fixed costs / contribution margin

Question 61

contribution margin =

Answer 61

sales price per unit - variable cost per unit

Question 62

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