LO4 Flashcards
revenue
Revenue is the money generated from the sale of goods or services, calculated using sale price x number of units sold.
costs
Costs are the amounts that a business incurs in order to make goods and/or provide services.
profit
Profit is the money left after costs have been paid.
cash flow
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.
profit and loss account
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.
sales revenue
the money obtained from the sale of goods or services
cost of sales
Costs that can be directly attributed to the sales. They vary depending on sales.
how do you calculate gross profit and what is it?
Gross profit = Sales – Cost of sales
It is the profit made from selling the product after the costs of sale have been taken away
how do u calculate operating profit and what is it?
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)
how do u calculate net profit and what is it?
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
what is a balance sheet?
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.
assets
what the business owns
non current assets
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
current assets
These are short term assets of the business which are likely to be turned into cash within the next year of trading
liabilities
what the business owes
non current liabilities
these are debts that are not expected to be paid within the next year of trading
current liabilities
these are debts that are expected to be paid within the next year of trading
breakeven
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
how do u calculate breakeven
Breakeven = Fixed Costs
————————————
(Selling Price –variable costs)
fixed costs
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
variable costs
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
total costs
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).
how to calculate revenue
Total revenue = volume sold x selling price
Net cash flow
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
opening balance
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.
closing balance
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
