Finance: key terms

Question 1

Budget

Answer 1

A financial plan for the future that sets out targets for sales revenue and expenditures

Question 2

Income budget

Answer 2

Target set for the amount of revenue to be achieved in a specific time period and informs predicted cash inflows on the c ash flow forecast

Question 3

Expenditure budget

Answer 3

Informs predicted cash outflows in the cash flow forecast

Question 4

Profit budget

Answer 4

A target set for surpluses between income and expenditures in a given period of time

Question 5

Owners capital

Answer 5

Savings from owner that is transferred into the business- internal finance

Question 6

Retained profit

Answer 6

Profit saved up over time and invested into the business- internal finance

Question 7

Sale of assets

Answer 7

Items of value are sold and the cash generates income- internal finance

Question 8

Overdraft

Answer 8

Spend more money than they have in their current bank account- external finance

Question 9

Bank loans

Answer 9

Make regular repayments over a long period of time with added interest- external finance

Question 10

Share capital

Answer 10

Limited companies sell shares to raise finance-0 external finance

Question 11

Venture capital

Answer 11

Cash rich investors provides a business with finance for an agreed share of the business- external finance

Question 12

Leasing

Answer 12

Businesses pay a monthly payment in return for the use of an asset

Question 13

Trade credit

Answer 13

A business receives goods from a supplier but pays them later- external finance

Question 14

Debt factoring

Answer 14

Businesses sell the debt that is owing to them to a factoring company- external finance

Question 15

Cash flow

Answer 15

The movement of money into and out of the business

Question 16

Cash flow forecast

Answer 16

Shows expected flows of cash into and out pf the business over a trading period in the immediate future

Question 17

NET cash flow

Answer 17

Total rev - total expenditure

Question 18

Closing balance

Answer 18

NET cash flow + opening balance

Question 19

Opening balance

Answer 19

Closing balance + NET cash flow

Question 20

Sales revenue

Answer 20

Money coming in from sales

Quantity sold x selling price

Question 21

Cost of sales

Answer 21

Cost directly linked to the production of the goods and services sold

Question 22

Gross profit

Answer 22

Sales rev - cost of sales

Question 23

Operating profit

Answer 23

Gross profit - expenses

Question 24

Exceptional items

Answer 24

Any usually large or infrequent transaction

Question 25

NET profit

Answer 25

Gross profit - expenses

Question 26

High profit quality

Answer 26

Source of profit from normal trading (i.e. sales of core goods/services), therefore likely to be repeated next year

Question 27

Low profit quality

Answer 27

Source of profit from other activities other than sales (e.g. selling assets), therefore unlikely to be repeated next year