Finance Flashcards
Explain the term budget
Budgets are planned financial reports containing predicted financial figures for the business. They are extremely useful for goal setting, planning, and monitoring peformance.
Explain the importance of analysing variances in a business
A variance is the difference between predicted and actual financial figures. It is important as it helps make sure that the company is reaching its financial goals, producing enough based on spending, and lets the company know if there is a financial issue arising.
Discuss the importance of comparing monthly revenues
Monthly revenue reports are used to give an accurate picture of a companies financial position. It is very important to compare them regularly to make decisions on purchasing materials, hiring/firing staff, and cutting costs.
Comparing monthly reports show how much is being earned, what is most profitable, and what costs have been fluctuating. They also highlight the cost of employing staff, and how changes in the company would effect the number of staff needed. Additionally, by comparing reports, owners can monitor financial progress.
Explain why financial information is important for decision making and planning
Financial information is figures, reports, data, and the analysis of a companies financial performance. This information can help companies identify areas for improvement and make informed decisions about investments, pricing, and other business strategies. If the financial information was not avalible, companies may overspend or not produce enough product to meet demand
How would a business use information on its (a) level of expenses, (b) levels of sales/revenue and (c) levels of profit. Provide one example for each
A business would analyse its expenses and make sure it was not spending more than it was earning or was necessary. Analysing the level of sales would allow a business to produce enough product and meet demand. It would also let the business know if there a decline in sales, and if price (or other factor) needed to be altered. Level of profit also allows businesses to work out if they are spending to much, and helps them work out how to price products.
Definition for Income Statement
An income statement is a financial report used by a business to track the company’s revenue, expenses, gains, and losses during a set period.
Definition for Statement of Financial Position
A statement of financial position outlines the financial circumstances of a business, looking at assets, liabilities, and equity
Definition for Sales Budget
The predicted amount of units a company anticipates selling in a set period, and the revenue it could earn.
Definition for Forecast
Using previous data to predict future financial figures.
Why would stakeholders be concerned about a businesses financial peformance?
They will be interested in how an organisation’s performance is likely to impact upon them.
What is cash flow and why is it important for a business?
Cash flow is the net cash and cash equivalents transferred in and out of a company. It gives a complete picture of cost versus revenue and ensures you have enough funds to pay bills whilst also making profit.
What is the break even point?
The point at which total cost and total revenue are equal
Define Assets
Any resource owned or controlled by a business
Define Revenue
Money paid into the business as a result of trading
Define Liabilities
Money, goods, or services owed to outside businesses or individuals
