Economics and Finance Flashcards
What is the purpose of the Trial Balance?
Ensure transactions are kept and balanced accordingly
Management accounts are required by law? T or F
F- internal use, decision making planning and monitoring companies performance
The company takes out a loan to pay for a new van. Is this a loan or an asset
Loan-liability
Van - asset
Define Trade debtor and creditorl
C- an entitiy or person to whom money is owed
D- entity or person who owe money to the person
What is the difference between Gross Profit and a Gross Profit Ratio
GP- money left after subtracting the cost of goods sold
GP Ratio- (Sales - cost of sales)/ turnover x 100
Discuss the difference between Cash and Profit
Cash is tangible, physical
Profit is the financial gain a business makes after subtracting its expenses from its revenues. It reflects how much money the business has made from its operations over a specific period.
Double entry book keeping is a waste of time and money
A: time consuming, needs for speacilised accounting software, overvomplicated.
D: Ensures accounting record remains balanced and accurate, clear and comprehensive view of a biz financial position
Define limited liability
Limited liability gives legal protection to the owners of a company, shareholders not liable to contribute more than their initial investment towards that overall debt.
Recognise the business and the owners as two separate bodies .
Define sole traders
one person owns the business. The debts of the business are the debts of the owner, no obligation for public disclosure of financial information regarding the business.
Define Public Company
Is a limited company. To form a limited company, it must be registered on Companies House, prepare annual accounts and submit
Define a Not for Profit Organisation
Government have in place legislation which allows community sport org. as ‘incorporated associations’ allowing their members to be legally separated from the org. whilst maintaining a tax- free status.
Define corporation tax
Introduced in 1965, tax levied on the profits of a business
Define liquidity ratio
Measure of a company’s ability to meet its short-term obligations with it’s short-term assets
Easily a company can convert its assets into cash to cover debts
What is current ratio
Example of a liquidity ratio
Total Current Assets/ Total Current Liabilities
Displayed as X:1
Define marginal costing
The additional cost of making one more in a set period of time
Define Defensive Position
Long term solvency relationship between capital and long-term debt
‘useful for sport’ assess the level of financial risk to identify if they are likely to get their money back
Lower level of borrowing= healthier position to be in
Define the debt ratio
The extent to which creditors have power over an organisation
Identifies how much of the company’s assets are financed by debt
Define Return on Capital Employed (ROCE)
A measure of how efficiently a company is using its capital to generate profits
Funding, capital employed, -sum of equity and debt funding
What are the Pros and Cons of Ratio Analysis
Ratios are based on historical information contained in the financial statements, past performance not necessarily an indication of future performance
Even if audited the numbers in the financial statement are wrong even if audited
P: Allow for easy comparisons between companies , helps identify trends and patterns such as improving or declining profitability, liquidity or solvency
