Profit and Expenses

Question 1

Expenses are the indirect costs of the enterprise.
Expenses are not …

Answer 1

Expenses are not directly associated with making a product (cost of sales)

Question 2

Expenses are the indirect costs of the enterprise.
Expenses are not directly associated with making a product (cost of sales).
What may expenses include?

Answer 2

Expenses include:
1) Wages and salaries
2) Rent on premises
3) Heating and lighting
4) Delivery vehicles
5) Business insurance

Question 3

Expenses are the indirect costs of the enterprise.
Expenses are not directly associated with making a product (cost of sales).
Expenses include wages and salaries, rent on premises, heating and lighting, delivery vehicles and business insurance.

What are these referred to?

Answer 3

These are referred to as the enterprise’s expenditure

Question 4

Net profit is the money remaining after deducting expenses (expenditure) from gross profit.

Calculating net profit:
What is the formula for calculating net profit?

Answer 4

The formula for calculating net profit is:
Net profit = Gross profit - Expenditure

Question 5

Net profit is the money remaining after deducting expenses (expenditure) from gross profit.
Net profit can be … or …?

Answer 5

Net profit can be:
1) Paid out to the owners of the enterprise
Or
2) It may be kept within the enterprise as retained profit

Question 6

Retained profit:
Net profit can be paid out to the owners of the enterprise or it may be kept within the enterprise as retained profit.
What can retained profit be used to do?

Answer 6

Retained profit can be used to finance the growth of the enterprise

Question 7

Retained profit:
Net profit can be paid out to the owners of the enterprise or it may be kept within the enterprise as retained profit.
Retained profit can be used to finance the growth of the enterprise, for example by how?

Answer 7

Retained profit can be used to finance the growth of the enterprise, for example by:
1) Purchasing new machinery
Or
2) Moving into larger premises

Question 8

Calculating retained profit:
What is the formula for calculating retained profit?

Answer 8

The formula for calculating retained profit is:
Retained profit = Net profit - The amount of net profit paid to owners of the enterprise

Question 9

Gross profit: When to take action:
When gross profit is a positive (+) figure, …?

Answer 9

When gross profit is a positive (+) figure, the enterprise’s revenue is greater than its cost of sales

Question 10

Gross profit: When to take action:
When gross profit is a positive (+) figure, the enterprise’s revenue is greater than its cost of sales.

When gross profit is low or negative (-), what does the enterprise need to do?

Answer 10

When gross profit is low or negative (-), the enterprise needs to:
1) Increase sales revenue
2) Reduce the cost of sales

Question 11

Gross profit: When to take action:
When gross profit is a positive (+) figure, the enterprise’s revenue is greater than its cost of sales.

When gross profit is low or negative (-), the enterprise needs to:
1) Increase sales revenue - how?
2) Reduce the cost of sales

Answer 11

When gross profit is low or negative (-), the enterprise needs to:
1) Increase sales revenue - either by increasing the number of sales or the prices of products
2) Reduce the cost of sales

Question 12

Gross profit: When to take action:
When gross profit is a positive (+) figure, the enterprise’s revenue is greater than its cost of sales.

When gross profit is low or negative (-), the enterprise needs to:
1) Increase sales revenue - either by increasing the number of sales or the prices of products
2) Reduce the cost of sales, for example by doing what?

Answer 12

When gross profit is low or negative (-), the enterprise needs to increase sales revenue - either by increasing the number of sales or the prices of products and reduce the cost of sales, for example by:
1) Buying cheaper raw materials
2) Buying in bulk
3) Changing suppliers or negotiating discounts with existing suppliers

Question 13

Net profit: When to take action:
When net profit is positive (+), the enterprise will need to …

Answer 13

When net profit is positive (+), the enterprise will need to decide the amount to:
1) Retain
Or
2) Spend

Question 14

Net profit: When to take action:
When net profit is positive (+), the enterprise will need to decide the amount to retain or spend.

When net profit is negative (-), what does the enterprise need to do?

Answer 14

When net profit is negative (-), the enterprise needs to:
1) Increase revenue from sales
2) Reduce the cost of sales
3) Reduce expenses