5. Financial Information & Decisions

Question 1

Start-up capital

Answer 1

the finance needed by a new business to pay for essential non- current and current assets before it can begin trading

Question 2

Working capital

Answer 2

the finance needed by a business to pay for its day-to-day activities

Question 3

Capital expenditure

Answer 3

money spent on non-current assets which will last for more than one year

Question 4

Revenue expenditure

Answer 4

money spent on day-to-day expenses which do not involve the purchase of a long-term asset, for example, wages or rent

Question 5

Internal finance

Answer 5

obtained from within the business itself

Question 6

External finance

Answer 6

obtained from sources outside of and separate from the business

Question 7

Micro-finance

Answer 7

providing financial services - including small loans - to poor people not served by traditional banks

Question 8

Crowdfunding

Answer 8

funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the internet

Question 9

Cash flow

Answer 9

the cash inflows and outflows over a period of time

Question 10

Cash inflow

Answer 10

the sums of money received by a business during a period of time

Question 11

Cash outflow

Answer 11

the sums of money paid out by a business during a period of time

Question 12

Cash flow cycle

Answer 12

the stages between paying out cash for labour, materials, and so on, and receiving cash from the sale of goods

Question 13

Profit

Answer 13

the surplus after total costs have been subtracted from revenue

Question 14

Cash flow forecast

Answer 14

an estimate of future cash inflows and outflows of a business, usually on a month-by-month basis. This then shows the expected cash balance at the end of each month

Question 15

Net cash flow

Answer 15

the difference, each month, between inflows and outflows.

Question 16

Closing cash (bank balance)

Answer 16

the amount of cash held by the business at the end of each month. This becomes next month’s opening cash balance.

Question 17

Opening cash (bank balance)

Answer 17

the amount of cash held by the business at the start of the month

Question 18

Working capital

Answer 18

the finance needed by a business to pay for its day-to-day expenses

Question 19

Account

Answer 19

the financial records of a firm’s transactions

Question 20

Final account

Answer 20

produced at the end of the financial year and give details of the profit or loss made over the year and the worth of the business

Question 21

Income statement

Answer 21

a financial statement that records the income of a business and all costs incurred to earn that income over a period of time. It is also known as a profit and loss account

Question 22

Revenue

Answer 22

the income to a business during a period of time from the sale of goods and services

Question 23

Cost of sales

Answer 23

the cost of producing or buying in the goods actually sold by the business during a time period

Question 24

Gross profit

Answer 24

made when revenue is greater than the cost of sales

Question 25

Trading account

Answer 25

shows how the gross profit of a business is calculated

Question 26

Net profit

Answer 26

the profit made by a business after all costs have been deducted from revenue. It is calculated by subtracting overhead costs from gross profits

Question 27

Depreciation

Answer 27

the fall in the value of a fixed asset over time

Question 28

Retained profit

Answer 28

the net profit reinvested back into the company, after deducting tax and payments to owners, such as dividends

Question 29

Statement of financial position

Answer 29

shows the value of a business’s assets and liabilities at a particular time

Question 30

Asset

Answer 30

those items of value which are owned by the business. They may be non- current (fixed) assets or currents assets

Question 31

Liabilities

Answer 31

debts owed by the business. They may be non-current liabilities or currents liabilities

Question 32

Non-current asset

Answer 32

items owned by the business for more than one year

Question 33

Current asset

Answer 33

owned by the business and used within one year

Question 34

Non-current liabilities

Answer 34

long-term debts owed by the business, repaid over more than one year

Question 35

Current liabilities

Answer 35

short-term debts owed by the business, repaid in less than one year

Question 36

Capital employed

Answer 36

shareholders’ equity + non-current liabilities and is the total long-term and permanent capital invested in a business

Question 37

Liquidity

Answer 37

the ability of a business to pay back its short-term debts

Question 38

Profitability

Answer 38

the measurement of the profit made relative to either the value of sales achieved or the capital invested in the business