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AICE Business > Unit 5 > Flashcards

Unit 5 Flashcards

1
Q

Start-up capital

A

the capital needed by an entrepreneur
to set up a business. This includes capital equipment, premises, location.

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2
Q

Working capital

A

the capital needed to pay for raw
materials, day-to-day running costs and credit of ered to
customers. In accounting terms working capital = current
assets – current liabilities.

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3
Q

Capital expenditure

A

the purchase of assets that are
expected to last for more than one year, such as building
and machinery.

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4
Q

Revenue expenditure

A

spending on all costs and assets
other than fixed assets and includes wages and salaries
and materials bought for stock.

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5
Q

Liquidity

A

the ability of a firm to be able to pay its short-
term debts.

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6
Q

Liquidation

A

when a firm ceases trading and its assets are
sold for cash to pay suppliers and other creditors.

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7
Q

Overdraft

A

bank agrees to a business borrowing up to an
agreed limit as and when required.

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8
Q

Factoring

A

selling of claims over trade receivables to a
debt factor in exchange for immediate liquidity – only a
proportion of the value of the debts will be received as cash.

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9
Q

Hire purchase

A

an asset is sold to a company that agrees
to pay fixed repayments over an agreed time period – the
asset belongs to the company.

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10
Q

Leasing

A

obtaining the use of equipment or vehicles and
paying a rental or leasing charge over a fixed period, this
avoids the need for the business to raise long-term capital
to buy the asset; ownership remains with the leasing
company.

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11
Q

Equity finance

A

permanent finance raised by companies
through the sale of shares

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12
Q

Long-term loans

A

loans that do not have to be repaid for
at least one year.

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13
Q

Long-term bonds or debentures

A

bonds issued by
companies to raise debt finance, often with a fixed rate of
interest.

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14
Q

Rights issue

A

existing shareholders are given the right to
buy additional shares at a discounted price.

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15
Q

Venture capital

A

risk capital invested in business start-ups
or expanding small businesses that have good profit potential
but do not find it easy to gain finance from other sources.

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16
Q

Crowd funding

A

the use of small amounts of capital from a
large number of individuals to finance a new business venture.

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17
Q

Microfinance

A

providing financial services for poor and
low-income customers who do not have access to banking
services, such as loans and overdraf s of ered by traditional
commercial banks.

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18
Q

Business plan

A

a detailed document giving evidence
about a new or existing business, and that aims to convince
external lenders and investors to extend finance to the
business.

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19
Q

Direct costs

A

these costs can be clearly identified with each
unit of production and can be allocated to a cost center.

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20
Q

Indirect costs

A

Costs that cannot be identified with a unit of production or allocated accurately to a cost center.

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21
Q

Fixed costs

A

Costs that do not vary with output in the short run

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22
Q

Variable costs

A

Costs that vary with output

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23
Q

Marginal costs

A

the extra cost of producing one more
unit of output.

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24
Q

Break-even point of production

A

the level of output at
which total costs equal total revenue, neither a profit nor a
loss is made.

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25
Q

Margin of safety

A

the amount by which the sales level
exceeds the break-even level of output.

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26
Q

Break even equation

A

fixed cost / contribution per unit

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27
Q

Contribution per unit

A

selling price minus the variable cost
per unit.

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28
Q

Income statement

A

records the revenue, costs and profit
(or loss) of a business over a given period of time.

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29
Q

Gross profit

A

sales revenue less cost of sales.

30
Q

Revenue

A

the total value
of sales made during the trading period

31
Q

Cost of sales

A

this is the direct cost
of the goods that were sold during the financial year.

32
Q

Operating profit

A

gross
profit minus overhead expenses.

33
Q

Profit for the year

A

operating profit minus
interest costs and corporation tax.

34
Q

Dividends

A

the share of the profits paid to shareholders as
a return for investing in the company.

35
Q

Retained earnings (profit):

A

the profit after all
deductions, including dividends, have been made, this is
‘ploughed back’ into the company as a source of finance.

36
Q

Low-quality profit

A

one-of profit that cannot easily be
repeated or sustained.

37
Q

High-quality profit

A

profit that can be repeated and
sustained.

38
Q

Statement of financial position (balance sheet)

A

an
accounting statement that records the values of a
business’s assets, liabilities and shareholders’ equity at one
point in time.

39
Q

Shareholders’ equity

A

total value of assets – total value
of liabilities.

40
Q

Asset

A

an item of monetary value that is owned by
a business.

41
Q

Liability

A

a financial obligation of a business that it is
required to pay in the future.

42
Q

Share capital

A

the total value of capital raised from
shareholders by the issue of shares.

43
Q

Non-current assets

A

assets to be kept and used by the
business for more than one year. Used to be referred to as
‘fixed assets’.

44
Q

Intangible assets

A

items of value that do not have a
physical presence, such as patents, trademarks and
current assets.

45
Q

Current assets

A

assets that are likely to be turned into
cash before the next balance-sheet date.

46
Q

Inventories

A

stocks held by the business in the form of
materials, work in progress and finished goods.

47
Q

Trade receivables (debtors)

A

the value of payments to be
received from customers who have bought goods on credit.

48
Q

Current liabilities

A

debts of the business that will usually
have to be paid within one year.

49
Q

Accounts payable (creditors)

A

value of debts for goods
bought on credit payable to suppliers; also known as ‘trade
payables’.

50
Q

Non-current liabilities

A

value of debts of the business
that will be payable after more than one year.

51
Q

Intellectual capital or property

A

the amount by which
the market value of a firm exceeds its tangible assets less
liabilities – an intangible asset.

52
Q

Goodwill

A

arises when a business is valued at or sold for
more than the balance-sheet value of its assets.

53
Q

Cash-flow statement

A

record of the cash received by a
business over a period of time and the cash outflows from
the business.

54
Q

Gross profit margin

A

This ratio compares gross profit
(profit before deduction of overheads) with revenue.

Formula: (gross profit/revenue)
× 100

55
Q

Operating profit margin

A

This ratio compares operating
profit (formerly this ratio was referred to as the net profit
margin) revenue

Formula: (Operating Profit/Revenue) x 100

56
Q

Current ratio

A

current assets/current liabilities

57
Q

Acid-test ratio

A

liquid assest/
current liabilities

58
Q

Liquid assets

A

current assets – inventories (stocks)

59
Q

Window-dressing

A

presenting the company accounts in a
favorable light – to flatter the business performance.

60
Q

Cash flow

A

the sum of cash payments to a business
(inflows) less the sum of cash payments (outflows).

61
Q

Insolvent

A

when a business cannot meet its short-term
debts.

62
Q

Cash inflows

A

payments in cash received by a business,
such as those from customers (trade receivables) or from
the bank, e.g. receiving a loan.

63
Q

Cash outflows

A

payments in cash made by a business,
such as those to suppliers and workers.

64
Q

Cash-flow forecast

A

estimate of a firm’s future cash
inflows and outflows.

65
Q

Net monthly cash flow

A

estimated difference between
monthly cash inflows and cash outflows.

66
Q

Opening cash balance

A

cash held by the business at the
start of the month.

67
Q

Closing cash balance

A

cash held at the end of the month
becomes next month’s opening balance.

68
Q

Credit control

A

monitoring of debts to ensure that credit
periods are not exceeded.

69
Q

Bad debt

A

unpaid customers’ bills that are now very
unlikely to ever be paid.

70
Q

Overtrading

A

expanding a business rapidly without
obtaining all of the necessary finance so that a cash-flow
shortage develops.

71
Q

Creditors

A

suppliers who have agreed to supply products
on credit and who have not yet been paid.

AICE Business (5 decks)

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