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Business Unit 3 > Business Finance Key Terms > Flashcards

Business Finance Key Terms Flashcards

1
Q

Accounting

A

Accounting involves the recording of financial transactions, planned or actual, and the use of these figures to produce financial information.

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2
Q

Income

A

Income is the money coming into a business.

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3
Q

Capital income

A

Capital income is the money invested by the owners or other investors, used to set up the business or buy additional equipment e.g. loan, mortgage, shares and owner’s capital.

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4
Q

Revenue income

A

Revenue income is the money that comes into a business from performing its day-to-day function - selling goods or providing a service e.g. sales, rent, interest, discounts.

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5
Q

Expenditure

A

Expenditure is the money spent by a business.

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6
Q

Capital expenditure

A

Capital expenditure is used to buy capital items, which are assets that will stay in the business for a long period of time.

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7
Q

Non-current assets

A

Tangible items that will appear on the statement of financial position and include things like lands, premises, equipment and vehicles.

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8
Q

Intangible assets

A

Cannot be touched but add value to the business e.g. patents, trademarks and brand names.

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9
Q

Revenue expenditure

A

Spending on items on a regular basis. These expenses are shown on the statement of comprehensive income e.g. inventory, rent, rates, heating & lighting, water, insurance, salaries, wages…

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10
Q

Retained profit

A

Money kept in the business to fund future expenditure.

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11
Q

Net current assets

A

Shows the money available in the business to fund day-to-day expenditure.

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12
Q

Sale of assets

A

Selling an item of value in order to achieve a cash injection.

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13
Q

Owner’s capital

A

Money invested in the business from the owner’s personal savings.

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14
Q

Loans

A

Money borrowed from a financial institution normally for a set period of time and for a specific purpose.

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15
Q

Crowdfunding

A

Attracting investment from a large number of speculative investors, many of whom my invest relatively small amounts.

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16
Q

Venture capital

A

Investment from an experienced entrepreneur in return for a stake in the business.

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17
Q

Debt factoring

A

Selling debts of a business to a third party in order to receive quick cash injection.

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18
Q

Leasing

A

Paying to use an asset in instalments, however the ownership of the asset remains with the supplier throughout the lease agreement.

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19
Q

Trade credit

A

A period of time, offered by suppliers, to allow the customer to purchase now and pay later.

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20
Q

Grants

A

A lump sum provided to a business by the government or another organisation to be used for a specific purpose.

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21
Q

Donations

A

Sums of money given voluntarily to a charity or social enterprise.

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22
Q

Peer-to-peer lending

A

Involves one business lending money to another business person in return for interest payments.

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23
Q

Invoice discounting

A

Reductions offered to customers making a product or service cheaper. Usually applied as a percentage of the total value.

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24
Q

Break-even point

A

Break-even is the point at which a business is not making a profit or loss. Total Revenue = Total Costs

25
Q

Variable costs

A

Costs that can change withn the level of output e.g. raw materials.

26
Q

Semi-variable costs

A

Part of the cost stays the same and part varies in relation to the degree of the business activity e.g. a worker paid a fixed rate of pay but in addition may receive variable amounts of overtime.

27
Q

Fixed costs

A

Costs that do not vary with output. They will always remain the same e.g. rent

28
Q

Total revenue

A

The total amount of money comeing in from sales.

29
Q

Total sales

A

The amount of sales made in a set time period.

30
Q

Selling price per unit

A

The amount a customer will pay for each unit purchased.

31
Q

Sales in value

A

Sales expressed as a monetary value e.g. £,$

32
Q

Sales in volume

A

Sales expressed as a quantity e.g. units.

33
Q

Cash flow forecast

A

A cash flow forecast tries to predict the cash flowing into and out of a business. A healthy cash flow is crucial to the survival of a business.

34
Q

Cash inflows/receipts

A

Money coming into the business from various sources e.g. cash sales, loans, capital introduced, sales of assets and bank interest received.

35
Q

Cash outflow/payments

A

Money going out of a business for various purposes e.g. cash purchases, credit purchases, rent, rates, salaries, wages, utilities, purchase of assets, VAT and bank interest paid.

36
Q

Opening balance

A

The amount of cash available in a business at the start of the month.

37
Q

Closing balance

A

The amount of cash available in a business at the end of the month.

38
Q

Liquidity

A

Measures a firm’s ability to meet short-term cash payments.

39
Q

Statements of comprehensive income

A

SOCI shows the trading position of the business which is used to calculate gross profit. It then takes into account all of the expenses to calculate the profit or loss for the year.

40
Q

Accrual

A

Accrual is when an expense is paid after the period to which it relates.

41
Q

Prepayment

A

Prepayment is when an expense is made in advance of the period to which it relates.

42
Q

Statement of financial position

A

SOFP provides a snapshot of the net worth of a business at a particular moment in time, normally at the end of the financial year. It is a summary of everything a business owns and everything it owes.

43
Q

Non-current assets

A

Non-current assets are items of value that are owned by the business and likely to be held for more than one year e.g. premises and fixtures and fittings.

44
Q

Current assets

A

Current assets are items of value that are owned by the business whose value is likely to fluctuate on a regular basis e.g. inventories, trade receivable, prepayments, cash in the bank and cash in hand.

45
Q

Current liabilities

A

Current liabilities are things owed by the business that must be repaid within a 12-month period e.g. overdrafts, accruals, and trade payables.

46
Q

Non-current liabilities

A

Non-current liabilities are things a business owes that will take longer than one year to repay e.g. mortgages and bank loans.

47
Q

Depreciation

A

A reduction in the value of an asset over time.

48
Q

Straight-line depreciation

A

Asset is depreciated byt a set amount each year.

49
Q

Reducing balance depreciation

A

Asset is depreciated by a set % of its remaining value each year. The percentage will be set by a senior account and means that the asset will be depreciated by a lower amount as it ages.

50
Q

Gross profit margin

A

This ratio looks at gross profit as a percentage of sales turnover.

51
Q

Mark-up

A

This ratio calculates gross profit as a percentage of the cost of sales.

52
Q

Net profit margin

A

This ratio shows the net profit as a percentage of sales

53
Q

Return on capital employed (ROCE)

A

This ratio shows the percentage return a business is achieving from the capital invested to generate the return.

54
Q

Current ratio

A

This ratio shows a business the amount of current assets it owns in relation to the amount of current liabilities it owes.

55
Q

Liquid capital ratio

A

This ratio gives a more accurate reflection of the true liquidity of a business as it removes the least liquid of all current assets from the equation.

56
Q

Trade receivable days

A

This ratio measures, on average how long it takes for debtors to pay and is expressed as a number of days.

57
Q

Trade payable days

A

This ratio shows, on average, how long it takes a firm to pay for goods and services bought on credit.

58
Q

Inventory turnover

A

This ratio shows the average amount of time an item of stock is held by a business and is expressed as a number of days.

Business Unit 3 (3 decks)

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