Finance Flashcards
Working Capital
Money a company has for its everyday expenses and operations.
It’s what’s left after subtracting what it owes in the short term.
Purpose of Balance sheet
Reports a company’s assets, liabilities, and shareholder equity at a specific point in time.
Indicates whether a company can generate enough cash to survive a financial crisis.
Purpose of profit and loss account
Shows revenue, expenses, and profit or loss of a company over a certain period of time.
Help assess the financial health of business, make decisions where to allocate resources.
Cash Flow statement
Breakdown of a company’s inflow and outflow of cash from three main activities: operating activities, investing activities, financing activities.
It provides an overview of a company’s financial strength.
Strong cash flow indicates company capable to expand its business or invest in new projects.
DEFINE INCOME and PROFIT
Income is the sum of revenues generated by a company, e.g. income from license sales or service charges.
Profit is calculated after deducting expenses from
revenue (gross profit / net profit).
DEFINE NON CURRENT / FIXED ASSETS
Assets purchased for long term use and are not likely to be sold in near future (normally within one year) such as buildings, equipment etc.
DEFINE CURRENT ASSET
Any assets which are expected to be converted to cash within one year period.
Cash, Accounts receivables, inventory etc.
are examples of current assets
TANGIBLE ASSETS
Any assets that can be touched and seen such as cash, building, equipment etc.
INTANGIBLE ASSETS
Intangible assets are long term resources which have value but cannot be touched or seen and does not exist physically.
Some examples may include Brand Name, Reputation (goodwill), Intellectual property (knowledge or
experience)
Goodwill
The extra value a company pays for when buying another company. It represents things you can’t touch, like the company’s reputation or customer loyalty.
Listed as an asset on the buyer’s balance sheet.
Budget
A plan that outlines how much money you have and how you intend to spend or save it over a specific period, like a month or a year.
It helps you track your income and expenses to ensure you’re spending within your means and reaching your financial goals.
Overheads
Ongoing expenses for a business, like rent and utilities, that aren’t directly tied to making products or services.
Owner’s equity
Owner’s equity is what’s left for the owner(s) after subtracting what the business owes from what it owns.
It’s like the owner’s share of the business’s value.
DIRECT COST
Directly contribute to the production of goods or services. Examples include raw materials, labor wages for workers directly involved in production, and manufacturing equipment.
INDIRECT COST
Necessary for the overall operation of the business but are not directly tied to the production process. Examples include rent, utilities, administrative salaries, and office supplies.
