Key Terms Flashcards
Interest Rate
The cost of borrowing money or the reward for saving money.
Debt
Money owed
Credit rating
A score given to individuals on how likely they are to repay debts based upon their previous actions
Bankrupt
When an individual or organisation legally states its inability to repay debts
Solvent
The ability to meet day-to-day expenditure and repay debts
Current account
An account with a bank or building society designed for frequent use. e.g. regular deposits and withdrawals.
Overdraft
The ability to withdraw money that you do not have from a current account.
Expenditure
The amount of money you need to cover all your expenses/outgoings. e.g. your mortgage and bills.
Shareholder
Someone who has invested in a company in return for equity. i.e. a share of the business.
Saving
Placing money in a secure place so that it grows in value and can be used in the future.
Investment
Speculative commitment to a business venture in the hope that it generates a financial reward in the future.
Insurance
An agreement with a third party to provide compensation against financial loss in line with the conditions laid down in policy agreement.
Premiums
Regular payments made by an individual or company to an insurance provider in return for protection.
Financial transactions
Actions by a business that involve money either going into or out of a business - for example, making a sale or paying a bill.
HM Revenue & Customs (HMRC)
HM is an abbreviation for Her Majesty’s, and the HMRC is a British’s government department responsible for the collection of all types of taxes.
Fraud
When an individual acquires company money for personal gain, through illegal actions.
Profit
Surplus achieved when total revenue (income) from sales is higher than the total costs of a business.
Loss
Shortfall suffered when total revenue from sales is lower than the total costs of a business.
Gross Profit
Sales revenue minus costs of goods sold (the cost of the actual materials used to produce the quantity of goods sold).
Sales Revenue
Quantity sold multiplied by the selling price.
Net Profit
Gross profit minus other expenses, for example, rent and advertising.
Trade Receivables
Money owed to the business from sales made but not yet paid for.
Trade Payable
Money the business owes from supplies purchased but not yet paid for.
Fixed assets
Items of value owned by a business that are likely to stay in business for more than one year - for example, machinery. Also known as non-current assets.
Asset
Any item of value owned by an individual or firm.
Commission
A commission is a fee paid to a salesperson in exchange for services in facilitating or completing a sales transaction. Commission could be a flat fee or a percentage of the revenue, gross margin or profit generated by the sale. It could also be charged by brokers to assist in the sale of security, properties etc.
Capital Items
Assets bought from capital expenditure such as machinery and vehicles that will stay in the business for more than a year.
Statement of financial situation
A financial document that shows the net worth of a business by balancing its assets against its liabilities. It is often called a balance sheet.
Depreciation
An accounting technique used to spread the cost of an asset over its useful life.
Internal Sources of Finance
Money available to fund expenditure from within the business.
Cash Flow Forecast
A document that shows the predicted flow of cash into and out of a business over a given period of time normally 12 months.
Opening Balance
Amount of cash available in a business at the start of a set time period, for example a month.
Closing Balance
Amount of cash available in a business at the end of a set time period, for example a month.
Credit Period
The length of time given to customers to pay for goods or services received.
Liq Idity
Measures a firm’s ability to meet short-term cash payments.
Insolvent
When a firm is unable to meet short-term cash payments.
Statement of Comprehensive Income
Shows the trading position of the business which is used to calculate gross profit. It then takes into account all other expenses to calculate the profit or loss for the year.
Statement of financial position
A snapshot of a business’s net worth at a particular moment in time, normally the end of a financial year.
Cost of goods sold
The actual value of inventory used to generate sales.
Opening inventory
The value of inventory in a business at the start of a financial year.
Closing inventory
The value of inventory at the end of a financial year.
Historic cost
The cost of an asset when it was first purchased.
Expected life
How long an asset is expected to be used within a business.
Residual value
The value of an asset when it is disposed of by the business, for example, resale value.
Current assets
Items owned by the business that change in value on a regular basis, such as stock
Capital Employed
The total amount of capital tied up in a business at a point in time. It is calculated as owners’ or shareholders’ capital + retained profit - drawings.
Interfirm
Between different firms, for example, comparing the performance of two different house builders.
Intrafirm
Within the firm, for example, comparing this year’s results with last year’s, or the performance of the York branch with the Leicester branch of a retail store.
Stakeholder
Anyone with an interest in the activities of a business, whether directly or indirectly involved.
Illiquid
Not easily converted into cash.
Business-to-business (B2B)
Refers to when one business sells to another business - for example, a stationery business selling to a firm of accountants.
Business-to-Consumer (B2C)
Refers to when one business sells to an individual - for example, a stationery business selling wedding stationery to a bride and groom.
