Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Chartered Governance Institution - Foundation Programme > Module 4, Chapter 11 - Revenue, Costs and Profit > Flashcards

Module 4, Chapter 11 - Revenue, Costs and Profit Flashcards

1
Q

What is revenue?

A

Revenue is the money a business receives, measured over a specific period of time. Revenue can be received from
several sources.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the equation for revenue?

A

Revenue = Sale price × Number of products sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

True or false? If products (or goods) are sold at different prices then total revenue is the sum of the prices at which the goods are sold.

A

True!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is meant by the ‘separate entity concept’/ the ‘business entity concept’?

A

This means that a business is a separate entity from the people who own it, therefore the business’s activities should be
considered separately from the owners’ activities. For instance, the personal spending/ earnings of a company owner would not be looked at when examining the activities of that business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the alternative names for revenue?

A
  1. Turnover
  2. Sales, or occasionally net sales
  3. Income, or occasionally gross income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Where does revenue come from? List 4 sources.

A
  1. Sales of goods or services
  2. Interest income
  3. Royalties
  4. Other income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Where does most business revenue come from?

A

Most business revenue comes from the sale of goods and/or services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is meant by the ‘sale of goods’?

A

The sale of physical goods/ tangible items.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is meant by the ‘sale of services’? Provide examples.

A

The sale of a service, as opposed to the sale of tangible items.

An example is internet service providers, whom you pay for internet access, rather than for a tangible item. The internet service company’s revenue will come from people paying them for internet access.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Some businesses sell goods and services, and the business’s revenue will come from both. Provide an example of a business that sells both.

A

A garage which sells car parts (goods) where you can also pay mechanics for car maintenance (services) will make income from both the sale of goods and services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is interest income/ interest receivable?

A

This is interest earned from, for example, money in a bank account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are royalties?

A

These include earnings from patents, copyrights or other copyrighted material, such as books and music.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

List 3 examples of ‘other income’?

A

This can include income from:

  1. The sale of an asset (such as property or vehicles)
  2. The sale of a business
  3. One-off items that generate income.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Broadly speaking, what is meant by a business’s costs, expenses or expenditure?

A

Items or services that the business has to pay for.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define ‘expenditure’.

A

Expenditure is money spent (on an item, or a service, etc.) by the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Define ‘expense’.

A

An expense is an amount paid for an item or service that is being, or has been, used in the business. It often refers to a
payment – or expenditure – that a business makes regularly over a specific time period, like office rent (rental expense),
utilities (i.e. payments for electricity, gas, water), wages or advertising.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Define ‘costs’.

A

A cost is an amount that has to be spent to buy or obtain something. A more thorough definition would be ‘a resource
sacrificed or foregone to achieve a specific outcome’ as cost is not always financial.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Costs are often broken down into further categories. Name the two categories.

A
  1. Fixed costs and variable costs
  2. Direct costs and indirect costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a ‘fixed cost’?

A

Fixed costs are costs or expenditure amounts that are unchanged (i.e. fixed) regardless of how much work is done or
how much output is produced.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Provide 6 examples of fixed costs.

A

Examples of fixed costs are:
1. Rent
2. Business rates (i.e. local council tax on business properties)
3. Business insurance
4. Utilities (i.e. water bills, electricity and gas bills)
5. Legal and accountancy fees
6. Managers’ wages.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define variable costs.

A

Variable costs are costs that vary with how much work is done or how much output is produced. As activity rises,
variable costs increase; and vice versa.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Provide examples of variable costs.

A
  1. The cost of raw materials used to make the business’s product – the more products that are made for sale, the
    more raw materials need to be acquired.
  2. Transport or distribution costs in cases where the more products are sold and delivered, the more workers/lorries/
    fuel etc. is needed to transport goods to customers.
  3. Staff or labour costs where this is dependent on time or quantity (e.g. if a product requires a business to pay a
    worker £20 to make it, then the labour cost of two products is £40, and the labour cost of 15 products is £300).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Some costs have both a fixed part and a variable part (e.g. managers’ wages which have a performance-related bonus element). What is the name of these costs?

A

These are known as semi-fixed costs or, more usually, as semi-variable costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is an ‘indirect cost’?

A

Indirect costs are costs or expenses that are necessary to operate the business, but which do not relate directly to the
production or sale of the business’s products or services. Another name for indirect costs is overheads.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Provide examples of indirect costs.
Examples are: 1. Utilities 2. Rent 3. Administrative costs 4. Marketing expenses 5. Interest paid on overdraft or loan 6. Insurance 7. Accountancy and legal fees
26
What is a 'direct cost'?
Direct costs are costs or expenses that relate specifically to the production or sale of the business’s products or services.
27
Provide examples of direct costs.
These can include: 1. Wages 2. Raw materials 3. The purchase of inventory (also known as stock), which is defined as items the business intends to sell in the course of its trade 4. Transport costs – either carriage inwards (or carriage in), which is the cost, paid for by the business rather than the supplier, of delivering purchases to the business; or carriage outwards (also known as carriage out), which is the cost of delivering goods to customers that is paid for by the business and not the customer.
28
Where in a business’s accounting records are costs and expenses recorded?
In a business’s statement of profit or loss (also known as the income statement, or formerly profit and loss account)
29
What does the statement of profit or loss show?
This shows a business’s total revenue (or income) and deducts total expenses for the period, resulting in a profit or loss – it is one of the primary financial statements used to show how a business performed over a given period of time.
30
In the statement profit or loss, what do the numbers in brackets indicate?
The numbers in brackets indicate subtracted amounts.
31
What is a business’s cost of sales?
These are expenses relating directly to the make or manufacture of the products sold by the business in the course of its trade. It is a term often used by merchanting businesses (i.e. those that sell goods) rather than service industry businesses (which provide services).
32
What do cost of sales usually include?
1. Raw materials, which are the basic materials that make a product the business intends to sell as part of its trade. 2. Inventory (also known as stock or finished goods), which are goods the business holds with the intention of selling in its trade, but have not yet been sold. 3. Work in progress, WIP for short; these are goods that are in the process of being made or manufactured but have not yet been finished. 4. Staff wages and other labour costs that relate to the make or manufacture of these goods can also be included in the cost of sales figure.
33
Define depreciation expense and provide an example.
Depreciation is an allocation of the cost of an asset over its useful life. It is recorded as an expense even though no actual money has been spent or received. Since tangible assets wear out and need to be replaced, a business will account for this by estimating how much value of the asset used in the business, (such as vehicles or machinary) has reduced by over a given period of time.
34
Provide examples of selling and distribution costs.
Selling and distribution costs include all expenses involved in marketing, selling and distributing a business’s goods or services. This can include the wages of staff working in those departments, vehicle and transportation costs (which could include depreciation), advertising and promotion costs, etc.
35
What are administrative expenses? Provide examples.
Administrative expenses, or administration costs, are expenses relating to the administration or administrative systems the business runs on, such as office rent, business rates, telephone costs, postage and stationery expenses, computer and software expenses and the salaries of admin staff.
36
Define 'amortisation'?
Amortisation is the depreciation of intangible assets such as goodwill.
37
What is 'goodwill'? Relate this to the purchase of a business.
Goodwill represents the additional amount paid for factors such as the reputation of the business, the customer base and the experience of employees and the brands of the business.
38
What are 'finance costs'?
Finance costs, also known as finance expenses or finance charges, are expenses relating to the financing of a business.
39
Provide examples of finance costs.
1. Interest paid on loans or overdrafts (interest expense) 2. Bank charges 3. Other borrowing/financing charges or fees
40
What are start-up costs?
Start-up costs, also known as pre-trade expenses, are the expenditures made in starting a business or costs that need to be considered in starting a business.
41
Why are start-up costs useful?
They can be useful to know for: 1. When performing economic analysis 2. When writing a business plan 3. When calculating the likely overheads of the business might be, as well as likely fixed and variable costs
42
Provide examples of start-up costs. List five examples.
Types of start-up cost can include: 1. Rent of premises 2. Business insurance 3. Staff recruitment fees 4. Employee uniforms, if needed 5. Initial stock or materials 6. Fixtures and fittings (i.e. things like décor, lights, office furniture, heaters) 7. Legal and accountancy advice 8. Financing costs 9. Marketing costs for launch of the business
43
What are operating costs?
Operating costs (or running costs) are costs and expenses that relate to the operating of the business, but not necessarily directly to the manufacture or making of the business’s products or services to be sold.
44
Provide examples of operating costs.
These include selling and distribution costs, administrative expenses, and sometimes depreciation or amortisation – but not usually finance costs such as interest paid on bank loans or overdrafts. Operating expenses is the term often used by service industry businesses in place of cost of sales.
45
What is meant by the 'total cost'?
Total cost is the sum of all fixed and variable costs a business incurs to reach a particular output level.
46
What is the equation for total cost?
Total cost = Fixed costs + (Variable costs per unit × Quantity of goods produced)
47
What is the difference between total variable cost vs total fixed cost?
Total variable cost is the sum of all the variable costs a business incurs, while total fixed cost is the sum of all the fixed costs a business incurs.
48
What do marginal costs represent?
Marginal costs represent how total costs change as output changes.
49
How can a business obtain its average cost or unit cost?
By dividing the total cost by the quantity produced.
50
What is the equation for total variable costs?
Total variable costs = Variable costs per unit × Quantity of goods produced Or Total variable costs = Average variable cost × Quantity of goods produced
51
What is the equation for total fixed costs?
Total fixed cost = Total cost – Total variable cost
52
What is the equation for average fixed costs?
Average fixed cost = Total fixed costs ÷ Quantity of goods produced
53
What is the equation for average variable costs?
Average variable cost = Total variable costs ÷ Quantity of goods produced
54
What is the equation for marginal cost?
Marginal cost = Change in total cost ÷ Change in quantity produced
55
Define 'profit'.
Profit is the amount by which the revenue the business generates is greater than the business’s expenses (or costs paid) for the trading period.
56
What is the equation for profit?
Profit = income – expenses
57
Define 'loss'?
If the profit figure is negative (i.e. the business’s expenses exceeded the income it received), then the business is said to have made a loss.
58
There are several profit and loss metrics a business may look at. List the four types of profit and loss metrics.
1. Gross profit 2. Net profit 3. Operating profit and/or EBIT 4. EBITDA
59
True or false? In finance, gross refers to the total amount before anything is deducted, while net refers to the amount after deductions are made.
True!
60
Define 'gross profit'.
Gross profit is the amount made from total sales (or revenue, or turnover) minus the cost of sales.
61
What is the equation for gross profit?
Gross profit = sales – cost of goods sold (COGS)
62
Why is the gross profit figure useful?
The gross profit figure is useful for seeing how much profit a business is making on its products or services before any incidental business costs or expenses are taken into account. It can be used to see how much money is left over for the rest of the business’s operations, and also to calculate the gross profit margin.
63
What is 'net profit'?
Net profit is the amount left when all expenses – COGS included – are deducted from total income (or revenue, or turnover).
64
What is the equation for net profit?
Net profit = total income – total expenses = gross profit – all other expenses
65
What is the net profit figure useful for?
The net profit figure is useful for seeing how well the business is performing overall, once all costs have been taken into account, and will be used in calculating the net profit margin later.
66
What is meant by 'operating profit'?
Operating profit is the amount of profit that’s left after COGS and what are known as operating expenses are deducted from total income (or revenue, or turnover). Unlike net profit, not all expenses are included when calculating operating profit (e.g. finance costs such as interest expenses are not included).
67
What is the equation for operating profit?
Operating profit = sales – (COGS + operating expenses) = gross profit – operating expenses
68
What does 'EBIT' stand for?
Earnings before interest and tax
69
What is the equation for EBIT?
EBIT = revenue excluding interest income – (COGS + operating expenses)
70
What does 'EBITDA' stand for?
Earnings before interest, tax, depreciation and amortisation.
71
What are the two equations for EBITDA?
EBITDA = EBIT (if EBIT does not include depreciation or amortisation expense) or: EBITDA = EBIT + depreciation + amortisation (if it does)
72
What is EBITDA useful for measuring?
EBITDA is a way of measuring a company’s profitability without the effects of financing, tax or accounting treatments being taken into account.
73
The EBITDA calculation removes depreciation and amortisation. Why is this useful?
By removing depreciation and amortisation (as well as taxation, and the effect of management’s choice of financing) in the EBITDA calculation, it is easier to get a less distorted view of how a business is actually performing.
74
Define 'profit margins' and explain how they are expressed.
Profit margins are a way of measuring a business’s profitability. They are expressed as a percentage.
75
What does 'COGS' stand for?
Cost of goods
76
There are three different profit margins a business might look at. Name them.
1. Gross profit margin 2. Operating profit margin 3. Net profit margin
77
The gross profit margin expresses gross profit as a percentage of sales or revenue. Write the equation for this.
Gross profit margin % = (gross profit ÷ revenue) × 100
78
Operating profit margin (or operating margin) expresses operating profit as a percentage of sales or revenue. Write the equation for this.
Operating profit margin % = (operating profit ÷ revenue) × 100
79
Net profit margin expresses net profit as a percentage of sales or revenue. Write the equation for this.
Net profit margin % = (net profit ÷ revenue) × 100
80
While the purpose of a business is to make a profit for the owners, the owners of the business depend on the type of entity the business is. There are three main types of UK business entity. List them.
1. Sole trader 2. Partnership 3. Company
81
What is a 'sole trader'? Provide examples.
A sole trader business is one owned and run by an individual person. Examples include plumbers and freelance journalists. Sometimes sole traders employ other people – a builder might employ an accountant, or the owner of a small corner shop might employ shop assistants.
82
What is a 'partnership'?
A partnership is owned and run by two or more individuals. It is similar to a sole trader and can employ people, but often a legal contract known as the partnership agreement is drawn up, which specifies (among other things) how profits are to be shared between the partners.
83
True or false? From a legal standpoint, the owners of sole traders and partnerships are not considered separate from the business itself. If a sole trader or partnership owes money, the owners may have to sell or use some of their own personal assets – even the house they live in – to pay the money their business owes.
True!
84
Broadly speaking, what is a 'company'?
A company, on the other hand, is a legal entity in its own right, incorporated under legislation (in the UK, the Companies Act 2006) it is governed by.
85
The owners of a company own shares in that company, and are called shareholders. If the company owes money, any losses shareholders make is limited to the amount of money they put into the company, which is represented by the shares they own (limited liability). What are the two types of limited liability companies?
1. Private limited companies 2. Public limited companies

Chartered Governance Institution - Foundation Programme (22 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions