Unit 3 L Flashcards
What is sales revenue?
The money that the business earns from selling its goods and services to customers exclusively, meaning it does not include other sources
Sales revenue is a key indicator of a company’s financial health.
What does cost of goods sold (COGS) include?
Expenses and costs directly related to the production of goods, excluding overheads, sales, and marketing
COGS is crucial for calculating gross profit.
How is cost of goods sold calculated?
Cost of goods sold = open inventory + purchases - closing inventories
This formula helps businesses track their inventory costs effectively.
What does the term ‘inventory’ refer to?
All the assets the business owns
Inventory management is vital for maintaining cash flow and profitability.
Define gross profit.
The profit a business makes after deducting the costs associated with making and selling their products, or the costs associated with providing its services
Gross profit is a key metric for assessing a company’s profitability.
What is the formula for gross profit?
Gross profit = goods sold - revenue
This calculation helps determine how efficiently a company is producing its goods.
What are expenses in a business context?
The cost of operations that a company incurs to generate revenue, such as payments to suppliers, employees, wages, etc.
Managing expenses is crucial for maintaining profitability.
What does depreciation represent?
An accounting method of allocating the cost of tangible or physical assets over its useful life or life expectancy
Depreciation affects the net profit by reducing taxable income.
What is net profit?
The measurement of the company’s profit once operating costs, taxes, interest, and depreciation are accounted for
Net profit is often referred to as the bottom line and is a key indicator of financial performance.
What are prepayments?
When an expense is made in advance of the period where it’s used.
Example: Paying rent in advance means you would divide the prepayment on your financial statement.
What are accruals?
When an expense is paid before the period it was incurred.
Example: Utility bills.
How is percentage change calculated?
New - Old divided by Old.
What is a statement of financial position?
It shows what the business owns vs what it owes.
What are assets?
Resources owned by the business.
What are liabilities?
Debts a business owes.
