LO4

Question 1

revenue

Answer 1

Revenue is the money generated from the sale of goods or services, calculated using sale price x number of units sold.

Question 2

costs

Answer 2

Costs are the amounts that a business incurs in order to make goods and/or provide services.

Question 3

profit

Answer 3

Profit is the money left after costs have been paid.

Question 4

cash flow

Answer 4

Cash flow is the movement of money in and out of the business.
a plan that shows how much money you expect your business to receive and pay out over a set period of time. It can help you plan how much you expect to make in sales and spend in costs. It can also help you understand when money will enter and leave your bank account.

Question 5

profit and loss account

Answer 5

A profit and loss account is a financial document showing the company revenue or income over the year and their costs and expenditure. Money in, money out
- it is a legal requirement
- it sums up the performance of a business to - its stakeholders
- it can be compared with the previous year’s performance
- it can help to forecast future profits and helps with planning.

Question 6

sales revenue

Answer 6

the money obtained from the sale of goods or services

Question 7

cost of sales

Answer 7

Costs that can be directly attributed to the sales. They vary depending on sales.

Question 8

how do you calculate gross profit and what is it?

Answer 8

Gross profit = Sales – Cost of sales

It is the profit made from selling the product after the costs of sale have been taken away

Question 9

how do u calculate operating profit and what is it?

Answer 9

Operating profit= gross profit - expenses

This is a measurement of the firms profit before interest and tax has been taken in to account (may also be referred to as PBIT –Profit Before Interest & Tax)

Question 10

how do u calculate net profit and what is it?

Answer 10

Net profit = operating profit - tax - interest

Profit for the financial year, after all expenses and taxes have been taken off. This is the money that is left and belongs to the business

Question 11

what is a balance sheet?

Answer 11

Shows how much a business is worth.
It also shows the businesses Assets, its Liabilities and how it is financed.

Unlike the profit & Loss Account it doesn’t measure what happens over time. Instead it takes a snapshot of the value of the business right now.

Question 12

assets

Answer 12

what the business owns

Question 13

non current assets

Answer 13

The long term assets of a business which are not expected to be sold within the next year of trading. Assets that are not consumed or sold as part of the every day operation of the business

Question 14

current assets

Answer 14

These are short term assets of the business which are likely to be turned into cash within the next year of trading

Question 15

liabilities

Answer 15

what the business owes

Question 16

non current liabilities

Answer 16

these are debts that are not expected to be paid within the next year of trading

Question 17

current liabilities

Answer 17

these are debts that are expected to be paid within the next year of trading

Question 18

breakeven

Answer 18

allows us to see how many products we need to sell in order to cover our costs. Or, to put it another way, it is the point at which a business makes no profit, and no loss. Only the costs are covered.

breakeven can help you to:
- work out how many units you need to sell to make a profit
- Support loan application by showing your business is financially viable
- Identify costs that need to be reduced
- Decide on a price to charge for the product

Question 19

how do u calculate breakeven

Answer 19

Breakeven = Fixed Costs
————————————
(Selling Price –variable costs)

Question 20

fixed costs

Answer 20

Fixed costs include any number of expenses, including rental lease payments, salaries, insurance, property taxes, interest expenses, depreciation, and potentially some utilities. Fixed costs include:.
- rent
- loan repayment
- insurance
- advertising
- salaries
- Utilities

Question 21

variable costs

Answer 21

variable costs change with the amount produced. For example, the cost of raw materials rises as more output is made.
- raw materials
- components
- stock
- Packaging

Question 22

total costs

Answer 22

The total cost is the amount of money spent by a firm on producing a given level of output. Total costs are made up of fixed costs (FC) and variable costs (VC).

Question 23

how to calculate revenue

Answer 23

Total revenue = volume sold x selling price

Question 24

Net cash flow

Answer 24

Net cash flow is the difference between the company’s cash inflows and cash outflows in a given period. It’s a key indicator of a company’s financial health. If the cash outflows are greater than the cash inflows, then the business will have a negative cash flow, and will need to plan additional finance to support the business

Question 25

opening balance

Answer 25

An opening balance is the amount in the business’ account at the start of the month. It is also referred to as the ‘balance brought forward' from the previous month. The opening balance is the closing balance from the previous month.

Question 26

closing balance

Answer 26

The closing balance refers to the amount in the business’ bank account at the end of the month. It is calculated by adding the opening balance to the net cash flow. A negative figure would indicate a weak financial position and potentially require additional finances to keep the business bills being paid