F- Financial performance of a business

Question 1

Statement of comprehensive income (Profit and Loss Account)

Answer 1

shows the trading position of the business which is used to calculate gross profit. It then takes into account all other expenses to calculate the profit or loss for the year.

Question 2

Statement of financial position (Balance Sheet)

Answer 2

a snapshot of a business’ net worth at a particular moment in time, normally at the end of a financial year.

Question 3

Cost of goods sold

Answer 3

the actual value of inventory used to generate sales

Question 4

Opening inventory (stock)

Answer 4

the value of inventory in a business at the start of a financial year.

Question 5

Closing inventory (stock)

Answer 5

he value of inventory at the end of a financial year.

Question 6

Historic cost

Answer 6

the cost of an asset when it was first purchased.

Question 7

Expected life

Answer 7

how long an asset is expected to be used within a business

Question 8

Residual value

Answer 8

the value of an asset when it is disposed of by the business, e.g. resale value.

Question 9

Current assets

Answer 9

items owned by the business that change in value on a regular basis, such as stock.

Question 10

Capital employed

Answer 10

the total amount of capital tied up in a business at a point in time. It is calculated as owners’ or shareholders’ capital + retained profit – drawings.

Question 11

Interfirm

Answer 11

between different firms, e.g. comparing the performance of two different house builders.

Question 12

Intrafirm

Answer 12

within the firm, e.g. comparing this year’s results with last year’s, or the performance of the York branch with the Leicester branch of a retail store.

Question 13

Stakeholder

Answer 13

anyone with an interest in the activities of a business, whether directly or indirectly involved.