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business b-tech > F > Flashcards

F Flashcards

1
Q

What are the 4 types of profit?

A
  • gross
    -net
    -net after tax
    -operating
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2
Q

How do you work out gross profit?

A

net sales minus the cost of goods sold

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3
Q

How do you work out operating profit?

A

gross profit minus any selling/aministritive expenses

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4
Q

How do you work out net profit?

A

the operating proft minus any other expense before tax

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5
Q

How do you work out net profit after tax?

A

final profit figure once the business has met its tax liabilities

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6
Q

How do you work out loss?

A

Cost of product - selling price

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7
Q

When do prepayments occur?

A

when the business pays for something in advance

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8
Q

Why should you make adjustments for depreciation?

A

assets fall in value over time as they age
- if asset depreciates to quickly profit will fall
- depreciation is too slow inflates profits

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9
Q

What are reserves?

A

they are funds that the business set aside, intended to be spent on an asset or make payment with shareholders

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10
Q

What does SOFP show?

A
  • actual value of a business
  • progress when compared to numbers over a year
  • whether the business is borrowing money and how interest rate will affect it
  • whether business uses short or long term loans
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11
Q

What are liabilities?

A

Share Capital, borrowings, otehr creditors and reserves.

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12
Q

What are total assets of the business equal to?

A

fixed and current assets

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13
Q

What are assets equal to?

A

liabilities

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14
Q

What can happen with non-current assets?

A
  • tangible or intangible
  • depreciate in value
  • get depreciated
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15
Q

What is net book value?

A

the cost of a non-current asset before it is depreciated

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16
Q

What is the equation for net assets?

A

net assets = current assets + fixed assets - current liabilities.

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17
Q

What are examples of current liabilites?

A

Bank overdraft
trade payables
Accruals

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18
Q

What are exmaples of current assets?

A

inventories
trade receivables
prepayments
money in cash or in the bank

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19
Q

What is opening capital?

A

value of investment by the owners

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20
Q

What is transfer of profit or loss?

A

statement of comprenhensive income the profit or loss of the business

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21
Q

What are drawings?

A

funds that could be either salaray or wages taken by the owners

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22
Q

What is closing capital?

A

equal to the opening capital plus or minus
(drawings, transfer of profit or loss and opening capital)

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23
Q

What is the equation for annual depreciation?

A

asset purchase price -
estimated salvage value
___________________________________________
estimate useful life of asset

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24
Q

What is reducing-balance depreciation?

A

is a method slightly more complicated as it requires a series of calculations every year.

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25
Q

What are prepayments?

A

used when an invoice has been paid in advance of current accounting period

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26
Q

What is profitability of a business?

A

measured by profit margins, mark up and efficiency using capital

27
Q

What is liqudity?

A

business’s ability to cover its current liability with its current assets

28
Q

What is efficiency?

A

business’s ability to collect and pay debts and its use of stock.

29
Q

Whhat is the equation for net assets?

A

Current assets + fixed assets - current liabilities

30
Q

What is opening capital?

A

value of investment by owners

31
Q

What is drawings?

A

funds that can be either salary or wages taken by the owners

32
Q

What is closing capital?

A

equal to opening capital plus or minus - Drawings, and transfer of profit or loss

33
Q

What is transfer of profit or loss?

A

statement of comprehensive income showss profit or loss of the business

34
Q

What are non-current assets?

A

those that are not intended to be converted into cash into short term

35
Q

What are current assets?

A

assets that are intended to be converted into cash in the short term

36
Q

What are non-current liabilities?

A

due after more than a year like a mortgage.

37
Q

What are accurals?

A

these are stock assets or other items that have been recieved from a supplier but the invoices have either not been received or not yet due

38
Q

What is annual deoreciation?

A

asset purchase price -
estimated salvage value
_________________________
estimated useful life of asset

39
Q

What is gross profit margin?

A

what enables a business to work out their gross profit on goods sold after deducting their costs

40
Q

what is gross profit measured as?

A

a percentage of revenue

41
Q

What is the formula for gross profit margin?

A

Gross profit
_____________ times by 100
revnue

42
Q

What is the mark up formula for?

A

Gross profit
_____________ times by 100
cost of sales

43
Q

What is mark up?

A

percentage added to the cost to create the seeling price,

44
Q

what is gross profit measured as?

A

percentage of cost of sales

45
Q

What is net profit margin?

A

a ratio that measures the profit made by the business after all expenses have been deducted shows profit

46
Q

What is return on capital employed?

A

the return on money invested into the business by owners and investors

47
Q

What is the formula for net profit?

A

net profit
__________ * 100
revenue

48
Q

What is the formule for return on capital employed?

A

net profit before interest and tax
___________________________________ *100
capital employed

49
Q

What is current ratio?

A

the measure of a business’s assets compared to its liabilities, shows if a business is being managed properly

50
Q

What is liquid capital ratio?

A

an acid test ratio, removes inventory from calculation as can be hard to turn this quickly into cash to pay of debts

51
Q

What is the formula for current ratio?

A

Current assets
________________
Current liabilities

52
Q

What is the equation for liquid capital ratio formula?

A

(current assets - inventory)
______________________________
current liabilities

53
Q

What is the equation for trade recievable days?

A

(Trade recievables/credit sales)*365

54
Q

What is trade recievale days?

A

a ration that measures the average amount of days it takes debtors to pay invoices

55
Q

What is the equation for trade payable days?

A

(trade payables/credit purchases)*365

56
Q

What is trade payable days?

A

average number of days it takes a business to pay suppliers

57
Q

What is the equation for inventory turnover?

A

(average inventory/cost of sales)*365

58
Q

What is inventory turnover?

A

the average number of days a business holds up its stock.

59
Q

What is an issue with ratios being an average?

A

figures used for ratio calculations are taken away from the business

60
Q

Why is it an issue that ratios highlight problems?

A

they don’t explain why there is an issue or how to fix it

61
Q

Whats an issue on ratios being based on data that could change?

A

if numbers change than data changes and could become innacurate

62
Q

Why is it an issue that it is difficult to cimpare ratios with competitors?

A

how people do accounting varies from business to business and data changes meaning rival busines situations could change

63
Q

What may accoutniing practices used by a business do?

A

distort performance, figures in accounts could be misleading.

64
Q

Why is poor performance misleading?

A

does not mean that the business is failing, market could be competitive and lower profits but could still be making decent profits is all in persepctive of how business typically does.

business b-tech (7 decks)

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