Unit 6 - Business Fundamentals: Finance

Question 1

what is quantitative forecasting?

Answer 1

when you look at past data, seasonal trends and statistics in order to make a judgement

Question 2

what is qualitative forecasting?

Answer 2

uses expert opinions and educated estimates to make a judgement.

Question 3

what are the 5 main types of budgets? Briefly explain them.

Answer 3

1. Incremental budgeting: this is when you look at expenditure from the last budget and keep up with changes such as wages
2. zero-based budgeting: when the budget is reset and starts from scratch each year
3. rolling budget: this is when the budget is continually changing through the period
4. activity-based budgeting: this is based on expected activities and their costs
5. contingency-based budgeting: used to deal with any unexpected financial problems / costs

Question 4

what is income/revenue?

Answer 4

the money that is earned as payment or money that has come from other sources.

Question 5

what is cost/expenditure/expenses?

Answer 5

this is money that is spent running the organisation, such as buying resources and administration fees.

Question 6

what are fixed costs?

Answer 6

something that remains the same regardless of volume, including staffing, rent and insurance.

Question 7

what are variable costs?

Answer 7

these are the changes that are made depending on production volumes, such as raw materials etc..

Question 8

what are semi-variable costs?

Answer 8

they are a fixed cost and a variable element, such as paying staff overtime.

Question 9

what are stepped costs?

Answer 9

this is increased costs for certain activities, such as needing a bigger office when staff levels are growing.

Question 10

what is a contingency?

Answer 10

budgets have this to allow for unexpected costs

Question 11

what is a breakeven?

Answer 11

when the total cost and total revenue is even

Question 12

what is profit?

Answer 12

when the total revenue exceeds the total cost, this is called profit.

Question 13

what is gross profit

Answer 13

the difference between revenue and the cost of products and services - before deducting other payments (such as payroll and taxes)

Question 14

what is net profit?

Answer 14

the difference between revenue and cost of products after deducting other payments (such as payroll and taxes). this shows the actual profit the company has made.

Question 15

what is loss?

Answer 15

if the total cost is greater than the total revenue, then the organisation is making a loss

Question 16

what are financial sattements?

Answer 16

records of an organisations financial performance

Question 17

what are annual accounts?

Answer 17

this is a summary of the financial transactions, made during the year which are covered by their accounts. this can be a “snapshot” of the assets and liabilities at the end of the year.

Question 18

what are balance sheets?

Answer 18

this is a summary of the financial balances of an individual or an organisation. shows the value of the business to the date.

Question 19

what is cash flow?

Answer 19

the difference in the amount of cash that is available at the beginning and the end of a period. - if the closing balance is higher than the opening balance, this is a positive cash flow.
-if the closing balance is lower than the opening balance, this is a negative cash flow.

Question 20

what are profit and loss accounts?

Answer 20

this shows the company’s revenue and expenses over some time

Question 21

what is turnover?

Answer 21

the amount the company have taken over a period

Question 22

what are liabilities/debt?

Answer 22

the amount owe

Question 23

what are assets or capital?

Answer 23

this is something that the company owns that has financial value.

Question 24

what are fixed assets?

Answer 24

this could be the value of equipment or buildings that the company owns.

Question 25

what are current assets?

Answer 25

this is the cash available to the company which includes stock and money that it owns.

Question 26

what are capital budgets?

Answer 26

this is money allocated to the acquisition of maintenance of fixed assets, such as buildings and materials

Question 27

what is procurement?

Answer 27

the process of purchasing goods and services

Question 28

what is a purchase order number (PON)?

Answer 28

raised when a company orders products or services from a supplier. this is unique and can be used to verify the transaction.

Question 29

what are invoices?

Answer 29

they are used to request payments. they should always be crossed-referenced with the PON.

Question 29

what is BACS?

Answer 29

Bankers Automated Clearing Service. This is the organisation that has responsibility for all schemes that deal with the settlement of UK automated payment methods.

Question 30

what is a direct debit?

Answer 30

where one bank has permission to pull money from a bank account.

Question 31

what is direct credit?

Answer 31

when money is deposited into a bank account.

Question 32

what are grants?

Answer 32

they are awarded to organisations to fulfil a particular purpose. the money can only be spent as agreed on the grant applicationw

Question 33

what are loans?

Answer 33

money that is borrowed and repaid - this usually has interest.

Question 34

what is debt factoring?

Answer 34

this is when a company is responsible for collecting money that is related to a business’ invoices - this can help with cash flow

Question 35

what is crowdfunding?

Answer 35

this is a way of raising finances by asking a large number of people for a small amount of money. when financing a business, it is common too see that they ask very few people for a large amount of money

Question 36

what are trading accounts?

Answer 36

this is a fund of money that is deposited with another organisation for financial speculation. this is usually overseen by an investment dealer, fund manager or a personal trader.

Question 36

what is Income Tax?

Answer 36

the is the tax that individuals will pay on their income. this will come directly from an individuals wage or pension.

Question 37

what does PAYE mean?

Answer 37

pay as you earn

Question 38

what is nation insurance (NI)

Answer 38

this is a tax on earnings that can be payed into a fund that covers state benefits (pensions, sick pay, unemployment benefits)

Question 39

what is corporation tax (CT)?

Answer 39

companies are subject to paying this. it is levied on business profits and other incomes as well as any chargeable gains, this is charged on the profits of a financial year,

Question 40

what is VAT?

Answer 40

value added tax. this is a consumption tax which most goods and services will have added to them

Question 40

what is a sole trader?

Answer 40

owned and managed by one person. all debts and profits are the responsibility of the owner

Question 41

what is a partnership

Answer 41

owned and managed by two or more people who agree on how profits and losses are shared between them

Question 42

what is a limited liability?

Answer 42

they are registered companies and the ownership is divided into shares. shareholders are protected personally against any action taken against the business. this means that is the organisation was to be in debt, they would not be personally liable for paying it off.