Costs 5.4 Flashcards
Define the term “Income statement”
Records the revenue, costs, and profit (or loss) of a business over a given period of time.
Define the term “Gross profit”
Equal to sales revenue - cost of sales.
Define the term “Revenue”
The total value of sales made during the trading period = Q x P
Define the term “Cost of sales”
This is the direct cost of the goods that were sold during the financial year.
Define the term “Operating profit”
Gross profit - overhead expenses.
Define the term “Profit for the year”
Operating profit - interest costs and corporation tax.
Define the term “Dividends”
The share of the profits paid to shareholders as a return for investing in the company.
Define the term “Retained earnings”
The profit left after all deductions, including dividends, have been made, this is “ploughed back” into the company as a source of finance.
Define the term “Low quality profit”
One-off profit that cannot easily be repeated or sustained.
Define the term “High-quality profit”
Profit that can be repeated and sustained.
Define the term “Statement of financial position” (balance sheet)
An accounting statement that records the values of a business’s assets, liabilities and shareholder’s equity at one point in time.
Define the term “Asset”
An item of monetary value that is owned by a business.
Define the term “Liability”
A financial obligation of a business that it is required to pay in the future.
Define the term “Share capital”
The total value of capital raised from shareholders by the issue of shares.
Define the term “Non-current assets”
Assets to be kept and used by the business for more than one year.
Define the term “Intangible assets”
Items of value that do not have a physical presence.
Define the term “Current assets”
Items of value that have been owned by the business for less than 1 year.
Define the term “Inventories”
Stocks held by the business in the form of materials, work in progress and finished goods.
Define the term “Trade receivables” (debtors)
The value of payments to be received from customers who have bought goods or services on credit.
Define the term “Current liabilities”
Debts of a business that have to be paid back within a years time.
Define the term “Trade payable” (creditors)
Value of debts for goods bought on credit payable to suppliers.
Define the term “Non-current liabilities”
Value of debts of a business that have to be payable for more than 1 year.
Define the term “Intellectual capital or property”
The amount by which the market value of a firm exceeds its tangible assets less liabilities.
Define the term “Goodwill”
Arises when a business is valued at or sold for more than the balance-sheet value of its assets.
Define the term “Cash flow statement”
A record of the cash received by a business over a period of time and the cash outflows from the business.
Define the term “Gross profit margin”
This ratio compared gross profit with revenue. GPM = GP/REV x 100
Define the term “Liquidity”
The ability of a firm to pay its short term debts.
Define the term “Current ratio”
Current assets/current liabilities
Define the term “Acid test ratio”
Liquid asset/current liabilities
Define the term “Liquid assets”
Current assets - inventories = liquid assets
Define the term “Window dressing”
Presenting the company accounts in a favorable light to flatter business performance.
