Finance And Accounting Flashcards
What is an asset?
An asset is any item owned by a business that can generate an income for the enterprise.
What is capital?
Capital is the money invested into a business either by its owners or by organisations such as banks.
What are non-current assets?
Non-current assets are assets that a business expects to hold for one year or more. Examples include property and vehicles.
What are short term sources of finance?
Short-term sources of finance are needed for a limited period of time, normally less than one year
What are long term sources of finance?
Long-term sources of finance are those that are needed over a longer period of time, usually over a year.
Define insolvency
Insolvency exists when a business’ debts (or liabilities) exceed the assets available to pay them.
What are liabilities?
Liabilities refers to the money owed by a business to individuals, suppliers, banks and others
What is bankruptcy?
Bankruptcy occurs when an individual, a sole trader or a partnership is judged unable to pay its debts by a court of law.
Define liquidation
Liquidation is the dissolution of a company by selling its assets to settle its liabilities
What is administration?
Administration is a process available to a company to protect itself while it attempts to pay its debts and to escape insolvency.
What is profit?
Profit is the surplus of sales revenue over total costs, if any exists, over a trading period.
Define working capital
Working capital is the cash a business has for its
day-to-day spending.
What are current assets?
Current assets are items owned by a business that can be readily turned into cash. Examples include cash, money owed by customers (trade receivables) and inventories (stocks).
What are trade payables?
Trade payables is the amount of money owed by a business to its suppliers for goods and services that have been received but which have not been paid for
What are trade receivable’s?
Trade receivables is the amount owed by a business’ customers for products that have been supplied but for which payment has not yet been made.
Define revenue expenditure
Revenue expenditure refers to the purchase of items such as fuel and raw materials that will be used up within a short space of time.
What is capital expenditure?
Capital expenditure is the spending by a business on non- current assets such as premises, production equipment and vehicles.
What is a statement of financial position?
A statement of financial position is a financial statement that records the assets (possessions) and liabilities (debts) of a business on a particular day at the end of an accounting period. It was previously called a balance sheet.
What is an income statement?
An income statement is a financial statement showing a business’ sales revenue over a trading period and all the relevant costs incurred to generate that revenue.
What is an internal source of finance?
An internal source of finance is one that exists within the
business.
What is an external source of finance?
An external source of finance is an injection of funds into the business from individuals, other businesses or financial institutions.
Define trade credit
Trade credit is a period of time offered by suppliers of goods and services before payment is to be made.
What is a bank loan?
A bank loan is an amount of money provided to a business for a stated purpose in return for a payment in the form of interest charges.
What is a venture capital?
Venture capital is funds (in the form of a mix of share and loan capital) that is advanced to businesses which are thought to be relatively high-risk.
Define debt factoring
Debt factoring takes place when banks provide up to 80 per cent of the value of a business’ debts immediately to provide an instant inflow of cash.
What is microfinance?
Microfinance is the provision of financial services for poor
and low-income clients.
What is crowdfunding?
Crowdfunding is a source of finance that entails collecting relatively small amounts of money from a large number of supporters (the ‘crowd’).
What is cash?
Cash is a business’ most liquid asset – it is notes and coins as well as funds held in the business’ bank accounts
What is a cash flow forecast?
A cash-flow forecast is a document that records a business’ anticipated inflows and outflows of cash over some future period, frequently one year.
What are costs?
Costs are expenses that a business has to pay to engage in
its trading activities.
What is revenue?
Revenue is the income a business receives from selling its goods or services.
What are fixed costs?
Fixed costs do not change when a business alters its level of output.
What are variable costs ?
variable costs alter directly with the level of a firm’s output.
What are direct costs?
Direct costs can be related to the production of a particular product and vary directly with the level of output.
What are indirect costs?
Indirect costs are overheads that cannot be allocated to the production of a particular product and relate to the business as a whole.
what is full costing?
Full costing allocates all the costs of production for the whole business. Therefore, these costs are absorbed into each output unit. This is also known as absorption costing.
Define contribution
Contribution can be defined as the difference between
sales revenue and variable costs of production.
Define break-even
Break-even is the level of production or output at which a business’ sales or total revenue is exactly equal to its total costs of production.
Define profits
Profits are the amount by which revenue exceeds total costs, although there are several different measures of profit.
What is full costing?
The full-costing approach normally divides costs into direct costs and indirect costs
Define contribution costing/ marginal costing
Contribution costing calculates the cost of a product solely on the basis of variable costs, thus avoiding the need to allocate fixed costs.
Define average costs
Average costs are the total cost of production divided by
the number of units produced.
Define marginal cost
Marginal cost is the extra cost resulting from producing one additional unit of output. In most situations the marginal cost of an additional unit of a product is the variable cost of its production.
What is cost-plus pricing?
Cost-plus pricing is the process of establishing the price of a product by calculating its cost of production and then adding an amount which is profit.
What is contribution pricing?
Contribution pricing is based on the notion that any price set that is higher than the variable cost of producing a product is making a payment towards fixed costs.
What are special order decisions?
Special-order decisions occur when a business’ managers have to decide whether or not to accept unusual customer orders.
Define margin of safety
The margin of safety measures the quantity by which a firm’s current level of sales exceeds the level of output necessary to break even.
Define incremental budgeting
Incremental budgeting is a process where budget figures are minor changes from the preceding period’s budgeted or actual data.
What is a flexible budget?
A flexible budget is a budget that is designed to change along with the sales volume or production levels.
What is a budget holder?
A budget holder is responsible for the use and
management of a particular budget.
What are zero budgets?
Zero budgets exist when budgets are automatically set at zero and budget holders have to argue their case to receive any funds.
