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Business Studies Finance > Key Definitions > Flashcards

Key Definitions Flashcards

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1
Q

Consistency

A

Clearing up balance must be consistent.

Eg, statements follow same layout each year.

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2
Q

Going concern

A

Running normally.

Eg. The assumption the firm will remain in Business.

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3
Q

Matching

A

Accounts done at same time.

Eg. Revenues and costs exist in same year.

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4
Q

Materiality

A

When doing calculations, they are realistic.

Eg. Only record meaningful assets of value.

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5
Q

Objectivity

A

Being realistic removes bias.

Eg. Statements based on evidence.

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6
Q

Prudence

A

To be careful, don’t overvalue.

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7
Q

Realisation

A

Done on the same day.

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

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8
Q

Balance sheet

A

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

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9
Q

Income statement

A

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

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10
Q

Operating profit

A

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

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11
Q

Gross profit

A

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

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12
Q

Net profit

A

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

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13
Q

Creditor days

A

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

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14
Q

Working capital

A

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

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15
Q

Depreciation

A

A drop in value of machinery.

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16
Q

Fixed assets

A

Anything you own.

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17
Q

Current assets

A

The change on a daily basis.

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18
Q

Net current assets

A

Own stock.

19
Q

Trade creditors

A

What we owe.

20
Q

Creditor

A

People you owe money to.

21
Q

Equity Shareholders’ funds

A

Money invested in the business.

22
Q

Debenture

A

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.

23
Q

Debt

A

Borrowing money to be repaid plus interest.

YOU OWE

24
Q

Equity

A

Raising money by selling money by selling interests. RELEASING MONEY

25
Q

Loan

A

FIXED amount

26
Q

Overdraft

A

VARIABLE amount agreed with the Bank.

27
Q

Positive variance

A

When you come in under budget.

Spent less than planned.

28
Q

Negative variance

A

When you come in over budget.

Spent more than planned.

29
Q

Variance

A

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

30
Q

Budget

A

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

31
Q

Quantitive factors

A

How much debt do we have already?

Eg grant, hire purchase.

32
Q

Qualitative factors

A

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

33
Q

Gearing ratio

A

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

34
Q

Profitability ratios

A

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

35
Q

Profitability ratios

A

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

36
Q

Interest cover

A

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

37
Q

Operating profit

A

Profit you pay before you pay tax and dividends.

38
Q

Stock - is it least liquid or more?

A

Least because it’s hardest to turn into cash.

39
Q

Types of stock?

A
  1. Raw materials
  2. Work in progress
  3. Finished goods
40
Q

Asset turnover

A

How much revenue your assets are generating.

41
Q

Price earnings

A

Confidence about what the shares will earn.

42
Q

Dividend

A

Money that is paid - a reward.

43
Q

Re order level STOCK CONTROL GRAPH

A

amount * no of days = x
X+minimum level = xx

X = first answer 
Xx = final answer
44
Q

A last accounting principle

Transparency

A

Everything can be proven (receipts).

Business Studies Finance (1 decks)

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