Key terms

Question 1

Start up costs

Answer 1

The amount of money spent setting up a business before it starts trading.

Question 2

Operating costs (or running costs)

Answer 2

Money spent on a regular basis to keep a business running.

Question 3

Income

Answer 3

Money which is paid into a business.

Question 4

Fixed costs( or indirect costs)

Answer 4

Expenditure on items which does not change with the number of items sold or produced

Question 5

Variable costs (or direct costs)

Answer 5

Costs which vary according to the number of items sold or produced.

Question 6

Total costs

Answer 6

The total amount of money spent running a business over a certain period of time (e.g. a month).

Question 7

Expenditure

Answer 7

Money that a business spends.

Question 8

Overheads

Answer 8

The everyday running costs of the business.

Question 9

Profit

Answer 9

Occurs when revenue is more than expenditure .

Question 10

Loss

Answer 10

Occurs when expenditure is more than revenue.

Question 11

Budgeting

Answer 11

Planning future expenditure and revenue targets with the aim of ensuring a profit is made.

Question 12

Budgeting control

Answer 12

The process of checking what is actually happening, comparing this with the plan and taking action if things are not correct.

Question 13

Cash inflows (revenue)

Answer 13

The amounts of money entering a business’s bank account.

Question 14

Cash outflows (expenditure)

Answer 14

The amounts of money leaving a business’s bank account.

Question 15

Net cash flow

Answer 15

The difference between the cash inflow and outflow figures over a particular time period.

Question 16

Cash balance

Answer 16

The amount of money forecast to be in the bank account after the net cash flow figure has been added or subtracted from the existing bank balance.

Question 17

Overdraft

Answer 17

This occurs if a business pays more out of its bank account than it has in credit. The bank may allow this but will make an extra change.

Question 18

Capital

Answer 18

Money spent by the business on items which should last a long time (assets).

Question 19

Cost of sales

Answer 19

The cost of producing a product.

Question 20

Gross profit

Answer 20

The money made from selling a product (the sales revenue) after the cost of producing that product (cost of sales) has been deducted.

Question 21

Net profit

Answer 21

The money made from selling a product after all costs (expenditure) have been deducted from the gross profit.

Question 22

Financial year

Answer 22

the trading period over which a business collects information for their annual income statement (for example, a business might have a financial year that starts on 1 May and ends on 30 April).

Question 23

Assets

Answer 23

Items that a business buys that normally last a long time, such as a van or a computer, or money it is owed.

Question 24

Debtors (or trade receivables)

Answer 24

People who owe money to the business for goods or services they have received. Trade payables are traders to whom the business owes money because they have supplied goods or services.