Chapters 18-22 Finance Flashcards
Components 1
A Budget
A financial plan of action for a period, describing expected levels of revenue and expenditure.
Zero budgeting
Managers are not allocated with a budgeted amount of money that they are entitled to spend. Instead they must request and justify all expenditure made.
Variance
Any unplanned change from the budgeted amount.
Favourable variance
When actual expenditure is less than expected, or revenues are higher than expected.
Sale of assets
When a business sells fixed assets they no longer need, such as an old factory site or unused machinery.
Owner’s capital
Money invested in a business by the owners from their own savings, selling their own assets or through personal borrowing to fund the business.
Share issue or Share Capital
When a business sells shares to investors in exchange for part ownership, voting rights and a share of the profits.
Cashflow statement
A historical document of cash flowing in and out of a business during a trading period.
Cashflow forecast
Shows future expected flows of cash into and out of a business over a trading period.
Inflows
Money received by a business. Examples include revenues, loans from a bank and government assistance.
Outflows
Money paid out by a business to pay for expenses. Examples include wages, rent and raw materials.
Net cash flow
Inflows minus outflows.
Opening balance
The amount of money a business starts with at the beginning of the period
Closing balance
The amount of money a business has at the end of the period.
Opening balance plus net cash flow.
Liquid assets
Things a business owns that can quickly be used, or turned into cash, to pay bills as they fall due. E.g. Cash in hand, cash in bank, debtors, stock
Trading, profit & loss account
A financial document showing a historic view of all the business’s trading income and expenditure over a year.
Cost of sales
The direct costs of purchasing the stock that is used in sales.
Opening stock, plus purchases, minus closing stock.
Opening stock
The value of inventory (stock) held by a business at the beginning of the trading period.
Purchases
The value of stock purchased by the business during the trading period.
Closing stock
The value of stock held by the business at the end of the trading period.
Gross profit Formula
Revenue minus Cost of Sales
Expenses
The indirect costs (overheads) that a business must pay. E.g. rent, salaries, insurance.
Net profit
Gross profit minus Expenses.
Revenue minus Total Costs.
The money left over in a business after all costs have been paid.
Dividends
The share of the profits that is paid to shareholders (owners) of a limited company.
