Business 3.4

Question 1

P & L

Answer 1

Profit and loss, Showing the revenue, cost and profit over a period of time

Question 2

Balance sheet

Answer 2

Records the net worth of a business at one moment in time

Question 3

What are Assets

Answer 3

Assets are Items of monetary value owned by the company

Question 4

current assets

Answer 4

Assets that are likely to be converted into cash within 12 months

Question 5

Liabilities

Answer 5

A financial obligation that must be paid in the future

Question 6

current liabilities

Answer 6

Debts of the business, usually paid < 12 months

Question 7

Long term liabilities

Answer 7

Long term loans of the business - > 12 months

Question 8

Net Assets

Answer 8

Total Assets – Total Liabilities

The net worth of the business

Question 9

Shareholder equity

Answer 9

Value of Total Assets above Total Liabilities

Net worth of the company

Value belonging to owners

Question 10

Revenue

Answer 10

The amount earned from the sale of products

Revenue = Price x quantity sold

Question 11

Cost of goods sold

Answer 11

The cost of purchasing the inputs needed to produce the product

Question 12

Expenses

Answer 12

Costs of running the business not directly related to production. E.g.

Advertising, rent, machinery repairs

Question 13

Net profit

Answer 13

Net Profit = Gross profit - Expenses

Question 14

Profit and loss account

Answer 14

A summary of the business’ financial performance over a given time period

Showing the revenue, cost and profit over a period of time

Also known as Income Statement

Question 15

Define Investors

Answer 15

Assess the value of the business compared to the share price

Is the business becoming more or less profitable?

Question 16

Define managers

Answer 16

Measure the performance against targets

Question 17

The role of creditors in accounts

Answer 17

Is the business financially secure?

Does it have liquidity (I.e cash) to pay its debts

Question 18

What are the 5 stakeholders for accounts?

Answer 18

Investors, Managers, Banks, creditors, Government and Tax authorities

Question 19

The role of government and tax authorities

Answer 19

Calculate the corporation tax

Is the business following tax and accounting rules?

Question 20

What are the principles and ethics of accounts?

Answer 20

Integrity; Honestly and with morals

Objectivity; No bias, conflict of interest

Due care; Do it with care, competent

Confidentiality; Do not disclose information to external parties (Stock market)

Professional behaviour Comply with the law, (Enron accounting scandal ) Was America’s 7th largest company , Energy company

Question 21

Limitations of final accounts

Answer 21

One set of accounts is limited on its own; Need to compare across time

Some items cannot be measured in terms of numbers; E.g. management skill, level of technology

Can only compare companies in similar industries

Only minimum information published by law

Accounts are historic; Can be 6 months out of date

Question 22

define intangible assets

Answer 22

Items of monetary value owned by the company (assets),

That have no physical substance and are not financial instruments (e.g. bank accounts)

Question 23

Types of intangible assets

Answer 23

Marketing-related; Trademarks, logos, brand names, slogans, internet domain names

Customer related; list of customers names and email addresses

Contract related; franchises, licensing agreements

Technology-related; patents, innovation