Business Section 4 Flashcards
Fixed and variable costs
- What are fixed costs?
- What are variable costs?
- Fixed costs are the business costs that remain the same whatever the output is for example rent.
- Variable costs are the costs that change depending on the output for example raw materials.
Revenue
- What is revenue?
- Revenue is the income the business receives.
Cash inflow and cash outflows
What is cash inflow?
What is cash outflow?
Cash inflow is money coming into the business.
Cash outflow is money going out of the business.
Net cash flow
What is net cash flow?
Net cash flow is the difference between cash inflows and cash outflows.
Break even point
What is the break even point?
The break even point is the point at which total revenue is equal to total costs.
Margin of safety
What is the margin of safety?
The margin of safety is how far beyond the break even point a business is operating.
Net book value
What is net book value?
Net book value is the value of non current asset at the present time not how much is cost to purchase.
For example a vehicle looses value over time (depreciation). Let’s say it is brought for £10,000 the used for two years is net book value now is 4,000 as that’s how much it is worth now.
Non current assets
What is a non current asset?
Non current assets are assets that the business owns that are intended to remain in the business to help it carry out its day to day operations.
E.g vehicles and machinery.
Current assets
What are current assets?
Current assets are items a business owns that are likely to be converted to cash during its annual trading cycle.
E.g inventory, cash at bank, trade receivables.
Trade receivables
What are trade receivables?
Trade receivables are money owed to the business by debtors, usually because good have been sold to them on credit (but now pay later)
Prepayments
What is prepayments?
Prepayments is when money is paid in this accounting period which relate to the next accounting period.
E.g
Advance payment of rent.
Trade payables
What are trade payables?
Trade payables is money the business owes to creditors, usually for the purchase of stock which the business has brought on credit (buy now pay later)
Accruals
What are accruals?
Accruals are expenses for the current accounting period which ha e yet to be paid.
E.g broadband expenses for the end of last month which haven’t been payed yet possibly because bill hasn’t arrived.
Net assets
What are net assets?
Net assets are all of the businesses assets minus all of its liabilities.
Liabilities are a businesses legal financial debts or obligations that arise during the course of business operations.
Total equity
What is total equity
Total equity is the total capital invested in the business.
