Finance

Question 1

What is Budget

Answer 1

A detailed plan of income and expenses expected over a certain period of time

Question 2

What are the stages of a budget

Answer 2

-Cost- value of money that has been used to produce good or service

-Operating budget- the expenses and revenue generated from the day-to-day business operations of the company

Question 3

Advantages of budgeting

Answer 3

• Budgets help businesses achieve targets and objectives.
• Budgets help managers and leaders focus on cost control which can increase profit.
• Budgets can be used to motivate staff by providing spending authority to individual departments and teams.

Question 4

Disadvantages of Budgeting

Answer 4

• Inflexibility. A budget can be inflexible and may not allow for unexpected changes in circumstances
• Time-Consuming. Creating and monitoring a budget can be time-consuming and may take away from other important tasks.
• Unrealistic Targets.

Question 5

What is Zero budgeting

Answer 5

Budgeting by justifying and approving all expenses for each accounting period, rather than basing it on your past spending

Question 6

What is Variance Analysis

Answer 6

A method of assessing the difference between estimated budgets and actual numbers. It’s a quantitative method that helps to maintain better control over a business

Question 7

What is Adverse Variance

Answer 7

Where actual income is less than budget, or actual expenditure is more than budget

Question 8

What is Favorable Variance

Answer 8

Where actual income is more than budget, or actual expenditure is less than budget.

Question 9

What is a cash flow forecast

Answer 9

A tool that is used by a company to help them understand where their organisations cash balances will be at certain points in the future

Question 10

What are the components of a cash flow forecast

Answer 10

• Total inflows - include all cash inflows coming into the business during the period
• Total outflows - include all cash outflow leaving the business during the period
• Net cash - flow is the difference between total inflows and total outflows

Question 11

Advantages of a cash flow forecast

Answer 11

• Anticipate cash shortages
• Helps plan for future growth
• Better cost control

Question 12

Disadvantages of a cash flow forecast

Answer 12

• Unable to account for changing costs
• Requires some level of skill, only as good as the person who makes it
• Takes time away from other tasks such as running the business

Question 13

How is total Cash Outflow calculated

Answer 13

By adding all its expenses during a period (month, quarter, year etc.)

Question 14

What is Net Cash Flow

Answer 14

The difference between the money coming in (“inflows”) and the money going out of a company (“outflows”) over a specified period.

Question 15

How is Net Cash Flow calculated

Answer 15

Total Cash Inflows - Total Cash Outflows

Question 16

What is an Opening balance

Answer 16

The amount of money a business starts with at the beginning of the reporting period

Question 17

What is a Closing Balance

Answer 17

The amount of money the business has at the end of the reporting period, usually the last day of the month

Question 18

How is a closing balance calculated

Answer 18

Net Cash Flow + Opening balance

Question 19

How can cash flow problems be solved

Answer 19

• Rescheduling payments
• Using an overdraft
• Cutting costs
• Finding new sources of cashflow

Question 20

What is an income statement

Answer 20

A financial document that demonstrates the financial performance of a business based on its income and how this has changed over a period of time, usually 12 months

Question 21

What is the layout for an income statement

Answer 21

• Revenue
• Cost of goods sold
• Gross profit
• Operating expenses
• Operating profit
• Net profit before & after tax

Question 22

What is Cost of Sales

Answer 22

Represents the direct costs related to the manufacturing of goods/services that are sold to your customers

Question 23

What is Gross Profit

Answer 23

The profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services

Question 24

Formula for gross profit

Answer 24

Revenue - Cost of goods sold

Question 25

What is Net Profit

Answer 25

What is left after all the costs of a business have been taken from its sales revenue

Question 26

Formula for Net profit

Answer 26

Gross Profit - Operating expenses and interest

Question 27

What is the Gross profit margin

Answer 27

The profit after subtracting the cost of goods sold. A company’s gross profit margin is the money it makes after accounting for the cost of doing business

Question 28

Formula for Gross profit margin

Answer 28

Gross Profit
_____________ X 100 = %
Revenue

Question 29

What is the Net Profit margin

Answer 29

Measures how much net income or profit is generated as a percentage of revenue

Question 30

Formula for Net Profit Calculation

Answer 30

Net Profit
______________ X 100 = %
Total Revenue

Question 31

How can the Gross Profit Margin be improved

Answer 31

• Streamline your product offering. While all product lines may be profitable, it’s unlikely that all will yield the same margins
• Renegotiate with suppliers for better deals
• Upsell to existing clients
• Increase efficiency and productivity.

Question 32

How can the Net profit margin be improved

Answer 32

• Increasing Revenue
• Reducing Costs
• Increasing Productivity
• Increasing efficiency

Question 33

What is a Trading Account

Answer 33

Shows what the sales of the business have been and the direct costs of making those sales, known as the cost of sales

Question 34

What is a Profit and Loss Account

Answer 34

An accounting statement showing a business’ sales revenue over a trading period and all the relevant costs incurred in earning that revenue

Question 35

What is a Appropriation Account

Answer 35

Shows how companies and governments distribute their funds among partners, shareholders, and departments