Untitled Deck Flashcards
Unit 1 - Understanding Business Activity
1 Business activity
Need
A need is a good or service essential for living
Want
A want is a good or service which people would like to have but which is not essential for living. People’s wants are unlimited.
Economic Problem
Economic Problem - There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity
Factors of Production
Factors of production are those resources needed to produce goods and services. There are four factors of production, and they are in limited supply.
Scarcity
Scarcity is the lack of sufficient products to fulfil the total wants of the population.
Opportunity Cost
Opportunity cost is the next best alternative given up by choosing another item
Specialization
Specialization occurs when people and businesses concentrate on what they are best at
Division of labour
Division of labour is when the production process is split up into different tasks and each worker performs one of those tasks. It is a form of specialization
Business
Businesses combine the factors of production to make goods and services which satisfy people’s wants.
Added Value
Added value is the difference between the selling price and the cost of bought-in materials and components
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The primary sector of industry extracts and uses the natural resources of Earth to produce raw materials used by other businesses
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The secondary sector of industry manufactures goods using the raw materials provided by the primary sector.
13
The tertiary sector of the industry provides services to consumers and other sectors of industry.
14
De-industrialisation occurs when there is a decline in the importance of the secondary manufacturing sector of industry in a country
15
A mixed economy has both a private sector and a public (state) sector
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Capital is the money invested into the business by the owners
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An entrepreneur is a person who organises, operates and takes the risk for a new business venture
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Capital employed is the total value of capital used in the business
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Internal Growth occurs when a business expands its existing operations
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External Growth is when a business takes over or merges with another business. It is often called integration, as one business is integrated into another one
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A takeover or acquisition is when one business buys out the owners of another business, which then becomes part of the ‘predator’ business (the business which has taken it over)
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A merger is when the owners of two businesses agree to join their businesses together to make one business
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Horizontal integration is when one business merges with or takes over another one in the same industry at the same stage of production
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Vertical integration is when one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backwards.
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Conglomerate integration is when one business merges with or takes over a business in a completely different industry. This is also known as diversification.
26
A sole trader is a business owned by one person.
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Limited liability means that the liability of shareholders in a company is limited to only the amount they invested
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Unlimited liability means that the owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business
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Partnership is a form of business in which two or more people agree to own a business jointly
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Unincorporated businesses do not have a separate legal identity. Sole traders and partnerships are unincorporated businesses
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incorporated businesses are companies that have separate legal status from their owners
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Shareholders are the owners of a limited company. They buy shares, which represent part-ownership of the company.
33
Private limited companies are businesses owned by shareholders, but they cannot sell shares to the public.
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Public limited companies are businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange
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Dividends are payments made to shareholders from the profits (after tax) of a company. They are the returns to shareholders for investing in the company.
36
A franchise is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor.
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A joint venture is where two or more businesses start a new project together, sharing capital, risks and profits.
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A public corporation is a business in the public sector that is owned and controlled by the state (government)
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Business objectives are the aims or targets that a business works towards
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Profit is the total income of a business (revenue) minus total costs
41
Market share is the percentage of total market sales held by one brand or business
42
A social enterprise has social objectives as well as an aim to make a profit to reinvest back into the business
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A stakeholder is any person or group with a direct interest in the performance and activities of a business
People in Business
1
Motivation is the reason why employees want to work hard and work effectively for the business.
2
Wage is a payment for work, usually paid weekly
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Time rate is the amount paid to an employee for one hour of work
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The piece rate is the amount paid for each unit of output
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Salary is payment for work, usually paid monthly.
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Bonus is an additional amount of payment above basic pay as a reward for good work.
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The commission is a payment relating to the number of sales made
8
Profit sharing is a system whereby a proportion of the company’s profits are paid out to employees
9
Job satisfaction is the enjoyment derived from feeling that you have done a good job
10
Job rotation involves workers swapping around and doing each specific task for only a limited time and then changing around again
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Job enrichment involves looking at jobs and adding tasks that require more and/or responsibility
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Team-working involves using groups of workers and allocating specific tasks and responsibilities to them
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Training is the process of improving a worker’s skills
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Promotion is the advancement of an employee in an organisation, for example, to a higher job/managerial level
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Organisational structure refers to the levels of management and division of responsibilities within an organisation
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An organisational chart refers to a diagram that outlines the internal management structure
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Hierarchy refers to the levels of management in any organisation, from the highest to the lowest.
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A level of hierarchy refers to managers/supervisors/other employees who are given a similar level of responsibility in an organisation.
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Chain of command is the structure in an organisation which allows instructions to be passed down from senior management to lower levels of management.
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The span of control is the number of subordinates working directly under a manager.
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Directors are senior managers who lead a particular department or a division of a business.
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Line managers have direct responsibility for people below them in the hierarchy of an organisation.
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Supervisors are junior managers who have direct control over the employees below them in the organisational structure.
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Staff managers are specialists who provide support, information and assistance to line managers.
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Delegation means giving a subordinate the authority to perform particular tasks.
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Leadership styles are the different approaches to dealing with people and making decisions when in apposition of authority - autocratic, democratic and laissez-faire.
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Autocratic leadership is where the manager expects to be in charge of the business and to have their orders followed.
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Democratic leadership gets other employees involved in the decision-making process.
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Laissez-faire leadership makes the broad objectives of the business known to employees, but then they are left to make their own decisions and organise their own work.
30
Recruitment is the process of identifying that the business needs to employ someone up to the point at which applications have arrived at the business.
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Job analysis identifies and records the responsibilities and tasks relating to a job.
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A job description outlines the responsibilities and duties to be carried out by someone employed to do a specific job.
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Job specification is a document which outlines the requirements, qualifications, expertise, physical characteristics, etc., for a specified job
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Internal recruitment is when a vacancy is filled by someone who is an existing employee of the business
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External recruitment is when a vacancy is filled by someone who is not an existing employee and will be new to the business
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induction training is an introduction given to a new employee, explaining the business’s activities, customs and procedures and introducing them to their fellow workers
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On-the-job training occurs by watching a more experienced worker doing the job
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Off-the-job training involves being trained away from the workplace, usually by specialist trainers.
39
Workforce planning is establishing the workforce needed by the business for the foreseeable future in terms of the number and skills of employees required.
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Dismissal is when employment is ended against the will of the employee, usually for not working according to the employment contract.
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Redundancy is when the employee is no longer needed and so loses their job. It is not due to any aspect of their work being unsatisfactory.
42
A contract of employment is a legal agreement between an employer and an employee, listing the rights and responsibilities of workers.
43
Communication is the transferring of a message from the sender to the receiver, who understands the message.
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A message is the information or instructions being passed by the sender to the receiver
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Internal communication is communication between members of the same organisation
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External communication is communication between the organisation and other organisations or individuals.
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The transmitter or sender of the message is the person starting off the process by sending the message.
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The medium of communication is the method used to send a message; for example, a letter is a method of written communication, and a meeting is a method of verbal communication.
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The receiver is the person who receives the message
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Feedback is the reply from the receiver which shows whether the message has arrived, been understood, and, if necessary, acted upon
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One-way communication involves a message which does not call for or require a response
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Two-way communication is when the receiver gives a response to the message, and there is a discussion about it
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Formal communication is when messages are sent through established channels using professional language
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Informal communication is when information is sent and received casually using everyday language
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Communication barriers are factors that stop the effective communication of messages
Marketing
1
Marketing is identifying customer wants and satisfying them profitably
2
A customer is a person, business or other organisation which buys goods or services from a business
3
Customer loyalty is when existing customers continually buy products from the same business
4
Customer relationships are communicating with customers to encourage them to become loyal to the business and its products
5
Market share is the percentage of total market sales held by one brand or business
6
Consumer buys goods or services for personal use- not to re-sell
7
Mass market is where there is a large number of sales of a product
8
Niche market is a small, usually specialised, segment of a much larger market
9
Market segment is an identifiable sub-group of a whole market in which consumers have similar characteristics or preferences
10
Market research is the process of gathering, analyzing and interpreting information about a market
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A product-orientated business is one whose main focus of activity is on the product itself
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The market-orientated business carries out market research to find out what consumer wants before a product is developed and produced
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The marketing budget is a financial plan for the marketing of a product or product range for some specific period of time. It specifies how much money is available to market the product or range so that the Marketing department may know how much it may spend
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Primary research is the collection and collation of original data via direct contact with potential or existing customers
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Secondary research uses information that has already been collected and is available for use by others
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A questionnaire is a set of questions to be answered as a means of collecting data for market research
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Online surveys require the target sample to answer a series of questions over the internet
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Interviews involve asking individuals a series of questions, often face-to-face or over the phone
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A focus group is a group of people who are representative of the target market
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A sample is a group of people who are selected to respond to a market research exercise, such as a questionnaire
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A random sample is when people are selected at random as a source of information for market research
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A quota sample is when people are selected on the basis of certain characteristics (such as age, gender or income) as a source of information for market research
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The marketing mix is a term which is used to describe all the activities which go into marketing a product or service. These activities are often summarized as the four Ps - product, price, place and promotion
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The USP is the special feature of a product that differentiates it from the products of competitors
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The brand name is the unique name of a product that distinguishes it from other brands
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Brand loyalty is when consumers keep buying the same brand again and again instead of choosing a competitor’s brand
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Brand image is an image or identity given to a product which gives it a personality of its own and distinguishes it from its competitors’ brands
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Packaging is the physical container or wrapping for a product. It is also used for promotion and selling appeal.
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The product life cycle describes the stages a product will pass through from its introduction, through its growth until it is mature, and then finally, its decline
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Extension strategy is a way of keeping a product at the maturity stage of the life cycle and extending the cycle
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Cost-plus pricing is the cost of manufacturing the product plus a profit mark-up
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Competitive pricing is when the product is priced in line with or just below competitors’ prices to try to capture more of the market
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Penetration pricing is when the price is set lower than the competitors’ prices in order to be able to enter a new market
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Price skimming is where a high price is set for a new product on the market
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Promotional pricing is when a product is sold at a very low price for a short period of time
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Dynamic pricing is when businesses change product prices, usually when selling online, depending on the level of demand
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Price elastic demand is where consumers are very sensitive to changes in price
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Price inelastic demand is where consumers are not sensitive to changes in price
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A distribution channel is the means by which a product is passed from the place of production to the consumer
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An agent is an independent person or business that is appointed to deal with the sales and distribution of a product or a range of products
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Promotion is where marketing activities aim to raise customer awareness of a product or a brand, generating sales and helping to create brand loyalty
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Advertising means paying for communication with potential customers about a product to encourage them to buy it
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informative advertising is where the emphasis of advertising or sales promotion is to give full information about the product
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Persuasive advertising is advertising or promotion which is trying to persuade the consumer that they really need the product and should buy it
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Target audience refers to people who are potential buyers of a product or a service
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Sales promotions are incentives such as special offers aimed at consumers to achieve short-term increases in sales
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Marketing budget is a financial plan for the marketing of a product or a product range for a specified period of time
48
Social media marketing is a form of internet marketing that involves creating and sharing content on social media networks in order to achieve marketing and branding goals. It includes activities such as posting text and image updates, videos, and other content that achieves audience engagement as well as paid social media advertising
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Viral marketing is when consumers are encouraged to share information online about the products of a business
50
E-commerce is the ‘online’ buying and selling of goods and services using computer systems linked to the internet and apps on mobile (cell) phones
51
A marketing strategy is a plan to combine the right combination of the four elements of the marketing mix for a product or a service to achieve a particular marketing objective(s)
Operations Management
1
Productivity is the output measured against the inputs used to create it
2
The buffer inventory level is the inventory held to deal with uncertainty in customer demand and deliveries of supplies
3
Lean production is a term for those techniques used by businesses to cut down on waste and, therefore, increase efficiency, for example, by reducing the time it takes for a product to be developed and become available for sale.
4
Kaizen is a Japanese term meaning ‘continuous improvement through the elimination of waste.
5
Just-in-time is a production method that involves reducing or virtually eliminating the need to hold inventories of raw materials or unsold inventories of the finished product.
6
Job production is where a single product is made at a time
7
Batch production is where a quantity of one product is made, and then a quantity of another item will be produced
8
Flow production is where large quantities of a product are produced in a continuous process. It is sometimes referred to as mass production
9
Fixed costs are costs which do not vary in the short run with the number of items sold or produced. They have to be paid whether the business is making any sales or not. They are also known as overhead costs.
10
Variable costs are costs which vary directly with the number of items sold or produced.
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Total costs are fixed and variable costs combined.
12
Average cost per unit (unit cost) is the total cost of production divided by total output.
13
Economies of scale are the factors that lead to a reduction in average costs as a business increases in size.
14
Diseconomies of scale are the factors that lead to an increase in average costs as a business grows beyond a certain size.
15
The break-even point is the level of sales at which total costs = total revenue.
16
The revenue of a business is the income during a period of time from the sale of goods or services.
17
Quality means to produce a good or service, which means customer expectations.
18
Quality control is checking for quality at the end of the production process; it uses quality inspectors to find any faults.
19
Quality assurance is the checking for quality standards by employees throughout the production process.
Financial Information and Decisions
1
Start-up capital is the finance needed by a new business to pay for essential non-current and current assets before it can begin trading.
2
Working capital is the finance needed by a business to pay for its day-to-day activities.
3
Capital expenditure is money spent on non-current assets which will last for more than one year.
4
Revenue expenditure is money spent on day-to-day expenses which do not involve the purchase of a long-term asset, for example, wages or rent.
5
Internal finance is obtained from within the business itself
6
External finance is obtained from sources outside of and separate from the business
7
Micro-finance is providing financial services - including small loans - to poor people not served by traditional banks
8
Crowdfunding is funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the internet
9
The cash flow of a business is the cash inflows and outflows over a period of time
10
Cash inflows are the sums of money received by a business during a period of time
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Cash outflows are the sums of money paid out by a business during a period of time
12
A cash flow cycle shows the stages between paying out cash for labour, materials, and so on, and receiving cash from the sale of goods
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Profit is the surplus after total costs have been subtracted from revenue
14
A cash flow forecast is an estimate of future cash inflows and outflows of a business, usually on a month-by-month basis. This then shows the expected cash balance at the end of each month
15
Net cash flow is the difference, each month, between inflows and outflows.
16
Closing cash (or bank balance) is the amount of cash held by the business at the end of each month. This becomes next month’s opening cash balance.
17
Opening cash (or bank balance) is the amount of cash held by the business at the start of the month.
18
Working capital is the finance needed by a business to pay for its day-to-day expenses.
19
Accounts are the financial records of a firm’s transactions
20
Final accounts are produced at the end of the financial year and give details of the profit or loss made over the year and the worth of the business
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An income statement is a financial statement that records the income of a business and all costs incurred to earn that income over a period of time. It is also known as a profit and loss account
22
The revenue is the income to a business during a period of time from the sale of goods and services
23
The cost of sales is the cost of producing or buying the goods actually sold by the business during a time period
24
A gross profit is made when revenue is greater than the cost of sales
25
A trading account shows how the gross profit of a business is calculated
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Net profit is the profit made by a business after all costs have been deducted from revenue. It is calculated by subtracting overhead costs from gross profits
27
Depreciation is the fall in the value of a fixed asset over time
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Retained profit is the net profit reinvested back into the company after deducting tax and payments to owners, such as dividends
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The statement of financial position shows the value of a business’s assets and liabilities at a particular time
30
Assets are those items of value which are owned by the business. They may be non-current (fixed) assets or current assets
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Liabilities are debts owed by the business. They may be non-current liabilities or current liabilities
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Non-current assets are items owned by the business for more than one year
33
Current assets are owned by the business and used within one year
34
Non-current liabilities are long-term debts owed by the business, repaid over more than one year
35
Current liabilities are short-term debts owed by the business, repaid in less than one year
36
Capital employed is shareholders’ equity + non-current liabilities and is the total long-term and permanent capital invested in a business
37
Liquidity is the ability of a business to pay back its short-term debts
38
Profitability is the measurement of the profit made relative to either the value of sales achieved or the capital invested in the business
39
Illiquid means that assets are not readily convertible into cash
External Influences on Business Activity
1
Gross Domestic Product (GDP) is the total value of the output of goods and services in a country in one year
2
A recession is when there is a period of falling GDP
3
Inflation is the increase in the average price level of goods and services over time
4
Unemployment exists when the people who are willing and able to work cannot find a job
5
Economic growth is when a country’s GDP increases- more goods and services are produced than in the previous year
6
Balance of payments records the difference between a country’s exports and imports
7
Real income is the value of income, and it falls when prices rise faster than money income
8
Exports are goods and services sold from one country to another country
9
imports are goods and services bought by one country from other countries
10
The exchange rate is the price of one currency in terms of another
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Exchange rate appreciation is the rise in the value of a currency compared with other currencies
12
Exchange rate depreciation is the fall in value of a currency compared with other currencies
13
Fiscal policy is any change by the government in tax rates or public sector spending
14
Direct taxes are paid directly from incomes, eg, income tax or profits tax
15
indirect taxes are added to the prices of goods, and taxpayers pay the tax as they purchase the goods, eg-VAT
16
Disposable income is the level of income a taxpayer has after paying income tax
17
An import tariff is a tax on an imported product
18
Monetary policy is a change in rates by the government or central bank
19
Supply-side policies aim to increase supply and make the economy more efficient
20
Private costs of an activity are the costs paid for by a business or the consumer of the product
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Private benefits of an activity are the gains to a business or the consumer of the product
22
External costs are costs paid for by the rest of society, other than the business, as a result of business activity
23
External benefits are the gains to the rest of society, other than the business, as a result of business activity
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Social cost = external costs + private costs
25
Social benefit = external benefits + private benefits
26
Globalisation is the term used to describe increases in worldwide trade and movement of people and capital between countries
27
Sustainable development refers to development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
28
Free trade agreements exist when countries agree to trade imports/exports with no barriers, such as tariffs or quotas
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An import tariff is a tax placed on imported goods when they arrive in the country
30
An import quota is a restriction on the quantity of a product that can be imported
31
Protectionism is when a government protects domestic businesses from foreign competition using tariffs and quotas
32
Multinational businesses are those with factories, production or service operations in more than one country
