Key Definitions

Question 1

Consistency

Answer 1

Clearing up balance must be consistent.

Eg, statements follow same layout each year.

Question 2

Going concern

Answer 2

Running normally.

Eg. The assumption the firm will remain in Business.

Question 3

Matching

Answer 3

Accounts done at same time.

Eg. Revenues and costs exist in same year.

Question 4

Materiality

Answer 4

When doing calculations, they are realistic.

Eg. Only record meaningful assets of value.

Question 5

Objectivity

Answer 5

Being realistic removes bias.

Eg. Statements based on evidence.

Question 6

Prudence

Answer 6

To be careful, don’t overvalue.

Question 7

Realisation

Answer 7

Done on the same day.

Eg. Only record revenues and costs when a contract has been made.

Question 8

Balance sheet

Answer 8

A financial statement that reports a company’s assets, liabilities etc.

Question 9

Income statement

Answer 9

A financial statement used for reporting a company’s financial performance over a specific accounting period.

Question 10

Operating profit

Answer 10

Records how much profit has been made in total from the trading activities of the business.

Question 11

Gross profit

Answer 11

The difference between revenue and the cost of making a product or providing a service.

Question 12

Net profit

Answer 12

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

Question 13

Creditor days

Answer 13

Estimates the average time it takes a business to settle its debts with trade suppliers.

Question 14

Working capital

Answer 14

The money used for the day-to-day running of the business.

Question 15

Depreciation

Answer 15

A drop in value of machinery.

Question 16

Fixed assets

Answer 16

Anything you own.

Question 17

Current assets

Answer 17

The change on a daily basis.

Question 18

Net current assets

Answer 18

Own stock.

Question 19

Trade creditors

Answer 19

What we owe.

Question 20

Creditor

Answer 20

People you owe money to.

Question 21

Equity Shareholders’ funds

Answer 21

Money invested in the business.

Question 22

Debenture

Answer 22

A debenture is a form of bond or long-term loan which is issued by the company. The debenture typically carries a fixed rate of interest over the course of the loan.

Question 23

Debt

Answer 23

Borrowing money to be repaid plus interest.

YOU OWE

Question 24

Equity

Answer 24

Raising money by selling money by selling interests. RELEASING MONEY

Question 25

Loan

Answer 25

FIXED amount

Question 26

Overdraft

Answer 26

VARIABLE amount agreed with the Bank.

Question 27

Positive variance

Answer 27

When you come in under budget. | Spent less than planned.

Question 28

Negative variance

Answer 28

When you come in over budget. | Spent more than planned.

Question 29

Variance

Answer 29

When there is a difference between planned budget and the actual outcome of the budget.

Question 30

Budget

Answer 30

Allocating a set amount of money each month for various expenses.

Question 31

Quantitive factors

Answer 31

How much debt do we have already? | Eg grant, hire purchase.

Question 32

Qualitative factors

Answer 32

Do we remain in complete control of the business and finance? Eg Venture Capital and Personal Savings.

Question 33

Gearing ratio

Answer 33

Measures the proportion of assets invested in a business that are financed by long-term borrowing. The breakdown of money invested in the business. Fixed cost capital/long term capital times 100

Question 34

Profitability ratios

Answer 34

Tells you what you keep as gross profit once deducted the cost of making the product. Gross profit Margin % = Gross profit —————- * 100 Sales revenue

Question 35

Profitability ratios

Answer 35

Net profit margin = Net profit (before tax) —————————-*100 Sales

Question 36

Interest cover

Answer 36

The interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt. Formula - Profit before tax + interest ———————————- Interest

Question 37

Operating profit

Answer 37

Profit you pay before you pay tax and dividends.

Question 38

Stock - is it least liquid or more?

Answer 38

Least because it’s hardest to turn into cash.

Question 39

Types of stock?

Answer 39

1. Raw materials 2. Work in progress 3. Finished goods

Question 40

Asset turnover

Answer 40

How much revenue your assets are generating.

Question 41

Price earnings

Answer 41

Confidence about what the shares will earn.

Question 42

Dividend

Answer 42

Money that is paid - a reward.

Question 43

Re order level STOCK CONTROL GRAPH

Answer 43

amount * no of days = x X+minimum level = xx ``` X = first answer Xx = final answer ```

Question 44

A last accounting principle | Transparency

Answer 44

Everything can be proven (receipts).