Unit 5- Finance Full Booklet

Question 1

Financial Objective

Answer 1

Is a goal or target pursed by the finance department or function within an organisation.

Question 2

Income statement

Answer 2

Record a business sales revenue over a trading period and all relevant costs incurred as well as the business profit or loss.

Question 3

Gross Profit

Answer 3

Is income from sales minus the costs of cost of goods and services sold.

Question 4

Direct Costs

Answer 4

Are expenditure that can be clearly be allocated to a particular product or area of business. Examples include raw materials and components.

Question 5

Indirect Costs

Answer 5

Are expenditure that relates to all aspects of a business activities such as maintenance costs for buildings or senior managers charities.

Question 6

Operating Profit

Answer 6

Is the financial surplus arising from a business’s normal trading activities and before taxation.

Question 7

Profit for the year

Answer 7

Is a measure of a business’s profit that takes into account a wider range of expenditures and incomes including taxation.

Question 8

Revenues

Answer 8

Are the earnings or income generated by a firm as a result of its trading activities.

Question 9

Objectives

Answer 9

Are medium to long term goals established to coordinate the business

Question 10

Depreciation

Answer 10

The fall in value of an assist over time, reflecting the wear and tear of the assist as it becomes older, the reduction in its economic use or its obsolescence

Question 11

Obsolescence

Answer 11

When an asset is still functioning but is no longer considered useful because it is out of date.

Question 12

Investment

Answer 12

Is the purchase of assets such as property, vehicles and machinery that will be used for a considerable time by the business.

Question 13

Return on investment

Answer 13

A measure of efficiency of an investment in financial terms, used to compare the financial returns of alternative investments.

Question 14

Non current assets

Answer 14

Are items that a business owns and which it expects to retain for one year longer.

Question 15

Capital expenditure

Answer 15

Is spending undertaken by businesses to purchase non current assets such as vehicles and property. It is another term for investment.

Question 16

Capital structure

Answer 16

Refers to the way in which a business has raised the capital it requires to purchase its assets.

Question 17

Revenue Expenditure

Answer 17

Spending on current day to day costs such as the purchase of raw materials and payments of wages. Such expenditure provides a quick return, so the company should use a short term source of finance usually repayable within one year.

Question 18

Internal Source of Finance

Answer 18

Already exist within a business eg profits from previous years (known as retained profits).

Question 19

External Source of Finance

Answer 19

Funds injected from outside the business eg bank loan

Question 20

Short Term Finance

Answer 20

Finance that is normally intended for repayment within 12 months. It is usually intended for revenue expenditure e.g pay bills or overcome cash shortages.

Question 21

Long term finance

Answer 21

Finance that is normally intended for capital expenditure, repaid after one year or more. Buy non current assets such as machinery; finance expansion plans