unit 4 Flashcards
(142 cards)
1
Q
what is an income statement
A
shows a business’s income and expenditure and therefore if its making a profit or loss over a specific period of time
2
Q
what is a cash flow statement
A
shows a business’s sources and movement of cash in and out of a business, over a specific period of time
3
Q
what is a balance sheet
A
shows what a business owns and owes, together with the amount invested by shareholders, at a particular moment in time
4
Q
what is an accounting period
A
the timeframe for the set of accounts to be reported on
5
Q
what can an accounting period be
A
- a calendar
- fiscal year
- week
- month
- quarter
6
Q
what is income
A
the total money a business earns from its main operations
7
Q
what is costs/expenditure
A
the total money a business spends in order to operate
8
Q
what is sales turnover
A
money earned solely from the sale of goods or services over a given period of time
9
Q
what is revenue
A
total money earned by a business given period of time
10
Q
sales turnover =
A
sales turnover = number of sales x price per unit
11
Q
what are costs
A
the total money a business spends in order to operate
12
Q
what is expenditure
A
the total money a business spends as payment for goods and/or services
13
Q
what are operating expenses
A
costs that are directly involved in the day-to-da operations of a business
14
Q
what are non-operating expenses
A
costs that are not related to a business’s core operations
15
Q
what are direct/variable costs
A
costs involved in producing the product. do change directly with output
16
Q
what are indirect/fixed costs
A
costs that have to be paid even if there is no output. don’t change with output
17
Q
variable cost =
A
costs per item x no. of items
18
Q
total costs =
A
fixed costs + variable costs
19
Q
what are costs of goods (COGS)
A
all the direct/variable costs incurred by a business in a specific period of time
20
Q
what is overheads
A
ongoing business expenses that are not directly tied to production i.e. fixed costs
21
Q
what is profit
A
revenue is more than expenditure
22
Q
what is loss
A
revenue is less than expenditure
23
Q
profit =
A
revenue - expenditure
24
Q
what is gross profit
A
the profit a business makes after deducting the cost of sales from revenue
25
what is net profit
the gross profit, plus any other income, minus all other expenses
26
gross profit =
revenue - cost of sales
27
net profit =
gross profit - expenses
28
what is cash flow forecast
predicts potential cash flow in the future based on financial objectives
29
what is cash floe statement record of
its a record of actual money transfers that demonstrates the real cash floe position of the business
30
what is inflow
money that is entering the business
31
what is outflows
money that is leaving the business
32
what is positive cash flow
the business has money in the bank. inflows are more than outflows
33
what is negative cash flow
the business is in an overdraft (debt) situation. inflows are less than outflows
34
what is the closing balance
the amount of money present in a financial repository.
35
what is a small, positive balance
the business can afford to pay its bills and has little danger of going bankrupt
36
what is a large, positive balance
there is money available fir investment or expansion
37
what is small negative balance
money may have to be borrowed, at least for the short term
38
what is large, negative balance
the business cannot pay its way and may go bankrupt unless urgent action is taken
39
what are assets
items of value that a business owns, creates or benefits from
40
what are liabilities
a business's debts or obligations i.e. what a business owes
41
what are current assets
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
42
what are fixed assets
long-term assets with a useful life for longer than one year
43
what are current liabilities
creditors that must be paid within one year
44
what are long-term liabilities
creditors that are paid after more than one year
45
net current assets (working capital) =
current assets - current liabilities
46
net assets (capital) =
total assets - total liabilities
47
what is retained profit
the amount of net income kept in the business to be reinvested rather than distributed to the owners or shareholders as dividends
48
what is a profit margin
ratios that measures the degree to which a business is actually making money - its profitability
shows what percentage of its sales has generated profits
49
what is 5% profit margin considered
low
50
what is 10% profit margin considered
average
51
what is 20% profit margin considered
good
52
what is 50-70% profit margin considered
healthy
53
what is gross profit margin
the percentage ratio of revenue a business keeps for each sale after all direct costs are deducted
54
what is net profit margin
the percentage ratio of revenue that is left after all costs are deducted
55
gross profit margin =
gross profit / revenue x 100
56
net profit margin =
net profit / revenue x 100
57
what is break-even point
where total costs equal total revenue
58
what is break-even analysis
a management decision tool to help understand the minimum levels of production/sales required to avoid losses
59
break-even units =
fixed costs / (sales per unit - variable costs per unit)
60
break-even point sales value =
(selling price x fixed costs / contribution margin
61
contribution margin =
sales price per unit - variable cost per unit
62
what are financial stakeholders
individuals, groups or entities with a financial interest or investment in the business and who are affected by its financial performance
63
identifying their financial stakeholders allows businesses to meet stakeholders' needs, such as:
- providing accurate financial reports to investors
- ensuring timely payments to creditors
- maintaining employee wages
- ultimately fostering trust, accountability and sustainable operations
64
who are the 8 financial stakeholders
1. owners/partners
2.investors/creditors
3. management
4. suppliers
5. customers
6. employees
7. the public
8. government
65
what information do owners/partners require
- profitability
- liquidity
- financial position
- financial risk
- future prospects
- market risks
66
what information does investors/creditors require
- can it pay interest
- make loan repayments
- share dividend payments
67
what information does management require
- decision making
- strategic and operational planning
- coordination of business activities
- performance monitoring and reviews
- set and control budgets to manage resources
68
what information does suppliers require
- cash rich/liquidity to pay quickly
- the business is financially secure
- the business can and do pay invoices on time
69
what information does customers require
- stability of the customer business
- credit reputation in the industry
- potential for risky behaviours
- profit levels reported
70
what information does employees require
- business strategy and growth
- market share and market changes
- business solvency and cash for wages
- salary packages and bonuses
71
what information does the public require
- employment levels and opportunities
- the impact on other business
- products/services offered
- environmental issues
- infrastructure
72
what information does the government require
- income and profitability
- collect/pay employees taxes
- national insurance payments
- business taxes, income tax, VAT
- corporation tax for incorporated companies
73
what is tax
a mandatory financial charge imposed by the government on individuals, businesses, or other entities
74
what is tax used for
used to fund public services and infrastructures, such as healthcare, education and national defence
75
what is income tax
paid by every taxpayer based on their personal income, also other sources such as dividends and interests on savings
76
what is corporation tax
paid by all limited companies based on the gross profit made in a financial year
77
what is value added tax (VAT)
a sales tax paid on most goods and services sold. paid by customers based on the value of the products they buy
78
what are the corporation tax requirements
- register limited company with companies house
- register corporation tax with HMRC
- receive a unique tax reference (UTR) from HMRC
- report corporation tax with company annual return
- HMRC notifies companies of corporation tax deadlines
79
what are the VAT rates
20% standard rate
5% reduced rate
0% zero rate
80
what VAT rate are most goods and services
20% standard rate
81
what VAT rate are children's car seats and home energy
5% reduced rate
82
what VAT rate are on most food, books and children's clothes
0% zero rate
83
what is the main role of financial reporting
communicate financial information to the people who need to use it
84
what is the main purpose of financial reporting
to provide insights into the integrity and credit worthiness of the business
85
what are the 5 areas of financial reporting
1. revenue
2. expenses
3. assets
4. liabilities
5. equality
86
what are the 5 things management accounts include
1. planning
2. budgeting
3. risk management
4. company investments
5. KPIs
87
what 3 things does an end of year report include
1. financial information
2. company performance
3. KPIs
88
when is a short term finance usually paid
within 12 months
89
when is a medium term finance paid
within 2 - 3 years
90
when is a long term finance paid
3+ years
91
what is a sole trader
owned and managed by one individual who takes full responsibility for profits and liabilities
92
what is a partnership
owned and managed by two or more people who share responsibilities
93
what is a private limited company (Ltd)
owned by private shareholders and cannot sell shares to the public
94
what is a public limited company (PLC)
owned by shareholders and traded publicly on the stock exchange
95
what is a social enterprise
operates for social or environmental purposes, reinvesting profits to achieve its goals while still engaging in commercial activities
96
what is a charity
run for altruistic purposes and reinvests profits to further its mission rather than distribute them to owners or shareholders
97
what is owners capital
- internal source of finance
- owner investing in their own company
98
what is savings
- internal source of finance
- funds that are saved
- cannot be withdrawn before a fixed date
99
what is retained profit
- internal source of finance
- part of profits reinvested into the business
100
what is selling assets in sources of finance
- internal source of finance
- process of converting items into cash
101
what is a bank loan
- external source of finance
- money borrowed from bank
- agreed interest rate
102
what is an overdraft
- external source of finance
- an agreement with bank
- borrow a fixed amount of money
103
what is a credit card
- external source of finance
- short-term finance
- buy now pay later
104
what is a government start-up loan
- external source of finance
- low interest
- help fund new businesses
105
what is government grant funding
- external source of finance
- non-repayable
- provided by government
106
what is hire purchase
- external source of finance
- purchasing assets through deposit and instalments
107
what is leasing
- external source of finance
- paying to use asset
- not owning
108
what is a venture capitalist
- external source of finance
- private equity
- investors provide funding to small businesses
- with potential to grow
109
what is an angel investor
- external source of finance
- wealthy individual
- offer business experience
- takes shares
110
what is crowdfunding
- external source of finance
- raising small amounts for large number of people
111
what is invoice factoring
- external source of finance
- selling unpaid customer invoices
- at discount
112
what is investor funding
- external source of finance
- selling shares
113
what is private equity
- external source of finance
- funds invested directly into the business
- without public knowledge
114
what is trade credit
- external source of finance
- an agreement with suppliers
- receive now pay later
115
what are donations
- external source of finance
- made by someone with an interest in the business
- no repayment
116
what is a cash advance
- external source of finance
- loans based upon future income
117
what is a cost
the total money a business spends in order to operate
118
what is an expenditure
the total money a business spends as payment for goods or services
119
what are expenses
ongoing/recurring, short-term costs incurred in the business's day-to-day operations
120
what is capital expenditure
money spent to maintain or improve a business's fixed assets
121
what purchases that are included in capital expenditure
- property
- machinery
- land
- computers and software
122
what are operating expenses
costs that are directly involved in the day-to-day operations of a business
123
what are non-operating expenses
costs that are not related to a business's core operations
124
what are direct/variable costs
costs involved in producing the product.
do change directly with output
125
what is an indirect/fix cost
costs that have to be paid even if there is no output
does not change with output
126
what is economies of scale
the cost advantages a business achieves as it increases production
127
what are the 3 main economies of scale
1. technological economies
2. specialism economies
3. purchasing economies
128
what are the other 4 internal economies of scale
1. financial economies
2. marketing economies
3. research and development economies
4. management and administration economies
129
what is diseconomies of scale
a tipping point in aiming for economies when organisations lose efficiencies and unit costs of production start to rise
130
where is are technological economies found
common in capital-intensive business reliant on mass production techniques and in digital industries
131
what does specialism economies focus on
becoming extremely proficient in specific areas of operations
132
what is purchasing economies about
the balance of power between the organisation buying the goods and services, and the suppliers
133
what are financial economies
more easily get loans
lower interest rates
retained profits
share issues
134
what are marketing economies
advertising budget
expensive media
more in-depth market research
135
what are research and development economies
more money into innovation
new product development
research products
136
what are management and admin economies
afford best managers and admin staff
develop cost-effective processes
137
what are the 2 parts of double entry
debit
credit
138
is credit positive or negative in double enter
negative
139
is debit positive or negative in double entry
positive
140
what are the 4 types of accounts in double entry
1. asset
2. expense
3. income
4. liability
141
what 3 things go under debit in double entry
1. expenses
2. assets
3. drawings
142
what 3 things go under credit in double entry
1. liabilities
2. income
3. capital
