Section 3 - Accounting and Finance Flashcards Preview

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Flashcards in Section 3 - Accounting and Finance Deck (57)
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1
Q

Hire Purchase

A

Buying specific goods with a loan, often provided by a finance house.

2
Q

Leasing

A

Renting or hiring equipment or property.

3
Q

Retained Profit

A

The profit held by a business rather than returning it to the owners.

4
Q

Short-term Finance

A

Money borrowed for one year or less.

5
Q

Debenture

A

A long-term loan to a business.

6
Q

Gearing

A

The amount of capital raised from loans in relation to the amount raised from the sale of shares.

7
Q

Long-term Finance

A

Money borrowed for more than one year.

8
Q

Mortgage

A

Long-term loan secured with property.

9
Q

Share Capital

A

Money raised from the sale of shares in a limited company.

10
Q

Venture Capitalists

A

Specialists (individuals or financial institutions) which provide funds for businesses, usually in exchange for an equity stake.

11
Q

Working Capital

A

The funds left over to meet day-to-day expenses after current debts have been paid. It is calculated by current assets minus current liabilities.

12
Q

Working Capital Cycle

A

The flow of liquid resources into and out of a business.

13
Q

Budget

A

A plan that shows how much money a business expects to spend or receive in a specified period.

14
Q

Cash Flow

A

The flow of money into and out of a business.

15
Q

Cash Flow Forecast

A

The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of the month.

16
Q

Cash Inflows

A

The flow of money into a business.

17
Q

Cash Outflows

A

The flow of money out of a business.

18
Q

Liquid Asset

A

An asset which is easily changed into cash.

19
Q

Net Cash Flow

A

The difference between the cash flowing in and cash flowing out of a business in a given time period.

Net Cash Flow = Total Cash Outflow - Total Cash Inflow

20
Q

Costs

A

Expenses that must be met when setting up and running a business.

Average Costs = Total Costs ÷ Quantity Produced

21
Q

Direct Cost

A

A cost which can be clearly identified with a particular unit of output.

22
Q

Fixed Costs

A

Costs that do not vary with the level of output.

23
Q

Indirect Cost or Overhead

A

A cost which cannot be identified with a particular unit of output. It is incurred by the whole organisation or department.

24
Q

Total Costs

A

Fixed costs and variable costs added together.

Total Costs = Fixed Costs + Variable Costs

25
Q

Total Revenue

A

The money generated from the sale of output. It is price multiplied by quantity.

Total Revenue = Price x Quanitity

26
Q

Variable Costs

A

Costs which rise as output levels are increased.

27
Q

Break-even

A

The level of output where total costs and total revenue are exactly the same. Neither a profit or a loss is made.

Break-even Point = Fixed Costs ÷ (Selling Price - Variable Cost per Unit)

28
Q

Break-even chart

A

A graph which shows total cost and total revenue. The break-even point is where total cost and total revenue intersect.

29
Q

Margin of safety

A

The amount of output available to be sold above the break-even point where the business makes a profit.

30
Q

Distributed profit

A

Profit that is returned to the owners of a business.

31
Q

Dividend

A

Money paid to shareholders (owners of the business) when profit is distributed.

32
Q

Gross profit

A

Sales revenue minus cost of sales.

Gross Profit = Turnover - Cost of Sales

33
Q

Net profit

A

Gross profit minus expenses.

Net Profit = Gross Profit + Other Income - Expenses

34
Q

Profit

A

The money left over after all costs have been subtracted from revenue.

Profit = Total Revenue - Total Costs

35
Q

Profit and loss account or income statement

A

A financial document showing a firm’s income and expenditure in a particular time period.

36
Q

Profit and loss account

A

Shows how net profit is calculated by subtracting expenses from gross profit.

37
Q

Profit and loss account appropriation account

A

Shows how the profit after tax is distributed between owners and the business.

38
Q

Retained profit

A

Profit that is kept by the business and may be used in the future.

39
Q

Trading account

A

Shows how gross profit is calculated by subtracting cost of sales from turnover.

40
Q

Assets

A

Resources owned or used by the business in production.

41
Q

Balance sheet

A

A summary at a point in time of business assets, liabilities and capital.

42
Q

Capital

A

A source of funds provided by the owners of the business and used to buy assets.

43
Q

Current assets

A

Assets likely to be changed into cash within the year.

44
Q

Current liabilities

A

Debts that have to be repaid within a year.

45
Q

Drawings

A

The money taken from the business by the owner for personal use.

46
Q

Fixed assets

A

Assets with a life span of more than one year.

47
Q

Liabilities

A

The debts of the business which provide a source of funds.

48
Q

Long-term liabilities

A

Debts that are payable after 12 months.

49
Q

Net assets

A

The total at the bottom of the first part of the balance sheet. It is the value of all assets minus the value of all liabilities.

Net Assets = Total Assets - Total Liabilities

50
Q

Net current assets

A

Current assets minus current liabilities. Also known as working capital.

Net Current Assets = Current Assets - Current Liabilities

51
Q

Auditing

A

An accounting procedure which checks thoroughly the accuracy of a company’s accounts.

52
Q

Acid test ratio

A

Similar to the current ratio but excludes stocks from current assets. Sometimes called the quick ratio.

Acid Test Ratio = (Current Assets - Stocks) ÷ Current Liabilities

53
Q

Current ratio

A

Assesses the firm’s liquidity by dividing current liabilities into current assets.

Current Ratio = Current Assets ÷ Current Liabilities

54
Q

Gross profit margin or Mark-up

A

Gross profit expressed as a percentage of turnover.

Gross Profit Margin = Gross Profit ÷ Turnover x 100

55
Q

Net profit margin

A

Net profit expressed as a percentage of turnover.

Net Profit Margin = (Net Profit ÷ Turnover) x 100

56
Q

Ratio analysis

A

A numerical approach to investigating accounts by comparing two related figures.

57
Q

Return on capital employed (ROCE)

A

The profit of a business as a percentage of the total amount of money used to generate it.

ROCE = (Net Profit ÷ Long-term Capital Employed) x 100