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Business Studies > finance > Flashcards

finance Flashcards

1
Q

what does finance involve

A

involves the control of money within the business

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2
Q

what is accounting

A

is a managerial and administrative tool for recording financial transactions

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3
Q

what is double entry bookkeeping and what does it ensure

A

every transaction is recorded twice in accounting records to ensure that the financial statements are accurate

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4
Q

define financial statements

A

reports that summarise transactions over a period of time

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5
Q

describe a cashflow statement

A

indicates the movement of cash receipts and cash payments resulting from transactions over a period of time
show the movement of cash in and out of a business

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6
Q

describe an income statement

A

shows the revenue earned and expenses incurred over the accounting period with the resultant profit or loss
statement of financial performance
it is a summary of all the revenue (income) earned minus all the costs incurred, for a period of time (normally one year)

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7
Q

describe balance sheets

A

represent a business’s assets and liabilities at a particular point in time and represent the net worth of the business
lists all the business’s assets and liabilities on a certain date

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8
Q

define assets

A

things that the business owns

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9
Q

define liabilities

A

amounts that the business owes externally e.g. to suppliers and backs

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10
Q

what is the accounting equation

A

assets = liabilities+owner’s equity

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11
Q

what categories are assets divided into?

A

current and non-current assets

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12
Q

what are current assets? with examples

A

are items easily converted into cash and are expected to be used within 12 months e.g. cash, stock, amounts due from customers (accounts receivable)

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13
Q

what is accounts reveivable

A

amounts due from customers

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14
Q

what is non-current assets? with examples

A

expected to be held by the business for more than 12 months e.g. plant, machinery, vehicles, furniture

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15
Q

define owners equity

A

is amounts that the business owes internally e.g. to investors and owners

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16
Q

what are liabilities dived into

A

current and non-current

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17
Q

what are current liabilities and examples

A

current liabilities are amounts due to be repaid in less than 12 months, including bank overdrafts, amounts due to suppliers (accounts payable) and short term loans

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18
Q

what is accounts payable

A

amounts due to suppliers

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19
Q

what is non-current liabilities and examples

A

non-current liabilities are amounts due for repayment in more than 12 months, including mortgages and loans

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20
Q

what is owners equity divided into

A

capital and retained profits

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21
Q

define capital

A

is the amount invested by the owner(s) of the business, including shareholders. It is owed by the business back to those investors

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22
Q

define dividend

A

profit distributed to investors

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23
Q

what 2 things can a business do with its profits

A

distribute dividend or retain profits

24
Q

what is retained profits

A

business reinvests profits back into the business

25
Q

why would business retain profits

A

to plough the money back into the business in the hope it will generate even more profit and higher dividends in the future

26
Q

what 2 ways have assets owned by a business been bought

A

using either finance invested by owners/investors (owner’s equity) or finance borrowed from third parties (debt=liabilities)

27
Q

define debtors

A

people who owe the business money a.k.a. accounts payable

28
Q

define creditors

A

people the business owes money to a.k.a. accounts receivable

29
Q

what is the profit equation

A

revenue-costs=profits

30
Q

what is revenue equation

A

number of items sold/ divided by units sold times x selling price

31
Q

what is COGS

A

cost of goods sold

32
Q

what is the cost of good sold

A

how much it costs to buy all those items that were sold during the period

33
Q

what is COGS equation

A

opening stock + purchases of stock - closing stock = COGS

34
Q

what is gross profit equation

A

revenue -COGS = gross profit

35
Q

what does the gross profit tell businesses

A

tells them the profit margin that the business is making on its products i.e. the difference between what it buys them for and what it sells them for

36
Q

what are expenses

A

are all the other costs incurred by the business in making and selling its products

37
Q

how are expenses categorised

A

selling: relate to the process of selling the good or service and can be directly traced to the need for sales e.g. advertising, salaries
administration: related to the general running of the business e.g. electricity, rent
finance: costs associated with borrowing money from outside people or organisations and to minimising business risk e.g. interest payments, lease payments, dividends

38
Q

what is the net profit equation

A

net profit = gross profit - expenses

39
Q

how can net profit be paid

A

the overall net profit earned by a business can either be paid out in the form of drawings (to owner) or dividends (to investors), or retained within the business

40
Q

what happens when a business is said to be liquid

A

a business is said to be liquid when it can meet its short term debts as they fall due

41
Q

what do cashflow statements highlight

A

periods of surplus and deficit cash positions

42
Q

define surplus

A

when income or revenue exceeds expenditures

43
Q

define deficit

A

when expenses exceed revenues

44
Q

what is the importance of cashflow statements

A

cashflows problems are often the first indicator that a business is in trouble, it identifies if sales are on credit and customer have taken a long time to pay their invoices because then the business will not have the cash it needs to pay its costs

45
Q

define inflows and examples

A

the money going into a business which could be from sales, investments, or financing e.g. cash sales, credit sales when paid, other income (interest from investments, non-operating income)

46
Q

define outflows and examples

A

any money leaving a business e.g. payments for stock, payments for expenses (wages, insurance), payments for non-operating expenses

47
Q

what activities can cashflow statements be divided into

A

operating: cash inflows and outflows relating to the main activity of the business
financing: related to the acquisition and repayment of both debt and equity finance
investing: related to the purchase and sale of non-current assets and investments

48
Q

what should the closing cash position on the cashflow statement correspond with?

A

the cash position reflected on the balance sheet

49
Q

what is the cashflow forecasting process?

A

businesses may calculate how many items they need to sell in order to break even

50
Q

define break even

A

means that you make no profit or loss - you sell just enough to cover you costs

51
Q

what is the breakeven point

A

total revenue=total costs

52
Q

what is the point of making a profit

A

total revenue>total costs

53
Q

`what is the point of making a loss

A

total revenue<total costs

54
Q

what is the breakeven point equation

A

breakeven point = fixed costs / (price - variable costs)

55
Q

what is a cashflow projection

A

is a forecast of your cashflow statement, estimating cash inflows and outflows

Business Studies (14 decks)

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