Finance Flashcards
What does revenue mean?
Income earned from selling a product/service i.e. Revenue = selling price X quantity sold
What is the role of finance department?
- Make sure business makes profit by preparing job costing statement
- Make sure don’t run out of money by preparing cash budget.
- Calculate what point products start making profit by break even chart
- make sure customers pay on time (credit control)
- make sure bills get paid (staff wages, money owed to suppliers
What are fixed costs?
Stay the same even if more or less are produced e.g. Rent
What are variable costs?
Change depending upon the amount produced e.g Raw materials
What does the term total mean?
Total amount of money spent on producing product i.e. Fixed costs and variable costs
What does profit mean?
The amount left over after all costs deducted.
Profit = revenue - total costs
What does a loss mean?
When the revenue is not enough to cover costs.
When can businesses make a profit?
Revenue is greater that costs
When can businesses make a lost?
When revenue is less than costs
Businesses can break-even when?
Revenue equals costs
What is the purpose of Job costing statements?
They are used to calculate the selling price charged to customers for the product/service provided. This should include an element for profit and cover all costs ie fixed and variable.
How is selling price decided?
Total costs + profit = selling price
What is a cash budget?
- A detailed plan for a future period of time eg month
- expressed in monetary terms £’s
- shows the opening/closing balance, cash receipts (money coming in) and cash payments (money going out)
What are benefits of preparing a cash budget?
- to show if the business will have a surplus (more money coming in than out) or a deficit (more money going out than coming in).
- allows business to arrange additional finance in advance if required e.g. Bank overdraft
- it helps management and owners make decisions
What are causes of poor cash flow?
- Buying too much stock which is not selling
- allowing customers too long to pay for goods
- charging to low a selling price
- paying suppliers too much or too quickly
How can cash flow be improved?
- better stock control
- offer customers a discount for paying quickly
- increase marketing to increase the levels of sales
- shop around for cheaper suppliers or offers longer time to pay
- sell any equipment or machinery not needed
What are profit statements used for?
Used to calculate the amount of profit for a particular time period eg year.
What is gross profit?
Profit from buying and selling goods ie the difference between the cost of purchase and value of sales.
What is net profit?
Profit after adding other income (rent received from tenants or commission for selling on behalf of another business) and subtracting expenses (all bills which need to be paid by business rent, wages, electricity).
Why are spreadsheets used?
A spreadsheet package is used to record and edit numerical information.
What can Microsoft excel be used for?
- Calculate break even point
- Prepare Cash Budgets
- Calculate profit
- Prepare Job Cost Statements
- Record movements of stock
What are advantages of using spreadsheets?
- Graphs and charts can be produced to make info easier to understand.
- use of formulae to calculate figures reduces the need for repetitive calculations.
- templates can be used from year to year
What is Break Even Analysis used to calculate?
calculate the point at which the costs of producing a p/s are covered and above which it starts to become profitable i.e neither a profit or loss is being made
Sources of finance?
- Bank Loan: an amount of money is borrowed from the bank then repaid with interest over a set period of time
adv. structured repayment know exactly how much you have to pay when and for how long
dis adv. Interest is payable, may not be easy to obtain in today’s economic climate
-Government Grant: money given to the business by the gov.
adv. no need to repay the grant
dis adv. there may be restrictions on what the money can be used for
-Overdraft: bank allows business to draw more money from their bank account than they actually have
adv. good short term solution to a cash flow problem
dis adv. interest or charges may be high
