Unit 3 - Financial Statements

Question 1

Cash

Answer 1

Most liquid asset

Question 2

Liquidity

Answer 2

The ease in which something can be converted to money
- For resources
- for investors
- For unforeseen events

Question 3

Net cash flow

Answer 3

Cash in - cash out

Question 4

Cash flow

Answer 4

Flow of cash in and cash out of a business under a period of time

Question 5

Cash inflow

Answer 5

The money that comes into a business from sales and other sources

Question 6

Cash outflow

Answer 6

The money leaving a business that it spends on raw materials, labour and other expenses

Question 7

How can cash flow into a business?

Answer 7

• Sale of goods for cash
• Payments made by debtors
• Borrowing money from external sources (e.g. loans)
• Sale of assets
• From investors

Question 8

Fixed costs

Answer 8

Costs that do not change based on output

Question 9

Variable costs

Answer 9

Costs that change depending on output

Question 10

Total costs

Answer 10

Variable costs + Fixed costs

Question 11

Average costs

Answer 11

Total cost/quantity

Question 12

Total revenue

Answer 12

Quantity sold x price

Question 13

Break-even

Answer 13

When total revenue = total costs

Question 14

Margin of safety

Answer 14

Difference between currnet/forecasted sales and sales at break-even point

Question 15

Limitations of break-even analysis

Answer 15

• It assumes that variable and fixed costs remain constant over time

Question 16

Ways to lower the break-even point

Answer 16

1. Lower price of units
2. Increase selling price
3. Decreasing expenses