Business AS level

• A dividend is a payment made from profits to shareholders.
• Shareholders can choose whether they receive their dividend in cash or reinvest it into more shares.
• Direct costs are costs that can be clearly identified with each unit of production and can be allocated to a cost centre.
• Variable costs are costs that vary with output.
• Creditors are suppliers who have agreed to supply products on credit and who have not yet been paid.
• Bad debt is unpaid customers’ bills that is now very unlikely ever to be paid.
• Fixed costs are costs that do not vary with output in the short run.
• Marginal costs are the extra cost of producing one more unit of output.
• Indirect costs are costs that cannot be identified with a unit of production or allocated accurately to a cost centre.
• Break-even point of production is the level of output at which total costs equal total revenue; neither a profit nor a loss is made.
• The margin of safety is the amount by which the sales level exceeds the break-even level of output.
• Contribution per unit is calculated as selling price less variable cost per unit.
• Income statement records the revenue, costs and profit (or loss) of a business over a given period of time.
• Gross profit is equal to sales revenue less costs of sales.
• Revenue (formerly sales turnover) is the total value of sales made during the trading period, calculated as selling price * quantity sold.
• Cost of sales (or cost of goods sold) is the direct cost of the goods that were sold during the financial year.
• Operating profit (formerly net profit) is calculated as gross profit minus overhead expenses.
• Profit for the year (profit after tax) is calculated as operating profit minus interest costs and corporation tax.
• Dividends are the share of the profits paid to shareholders as a return for investing in the company.
• Retained earnings (profit) is the profit left after all deductions, including dividends, have been made, this is ‘ploughed back’ into the company as a source of finance.
• Low-quality profit is one-off profit that cannot easily be repeated or sustained.
• High-quality profit is profit that can be repeated and sustained.
• Non-current assets are assets to be kept and used by the business for more than one year, previously referred to as ‘fixed assets’.
• Intangible assets are items of value that do not have a physical presence, such as patents, trademarks and current assets.
• Current assets are assets that are likely to be turned into cash before the next balance sheet date.
• Inventories are stocks held by the business in the form of materials, work in progress and finished goods.
• Trade receivables (debtors) are the value of payments to be received from customers who have bought goods on credit.
• Current liabilities are debts of the business that will usually have to be paid within one year.
• Accounts payable (creditors) are the value of debts for goods bought on credit payable to suppliers, also known as ‘trade payables’.
• Non-current liabilities are the value of debts of the business that will be payable after more than one year.
• Share capital – the total value of capital rose from shareholders by the issue of shares.
• Liquid assets – current assets – inventories (stocks) = liquid assets.
• Intellectual capital OR property – the amount by which the market value of a firm exceeds its tangible assets less liabilities – an intangible asset.
• Operating profit margin – this ratio compares operating profit (formerly, this ratio was referred to as the net profit margin) revenue
• Cash outflows – payments in cash made by a business, such as those to suppliers and workers.
• Closing cash balance – cash held at the end of the month becomes next month’s opening balance.
• Operating profit margin % = operating profit/revenue × 100
• Gross profit margin – this ratio compares gross profit (profit before deduction of overheads) with revenue
• Net monthly cash flow – the estimated difference between monthly cash inflows and cash outflows.
• Statement of financial position (balance sheet) – an accounting statement that records the value of a business’s assets, liabilities and shareholders’ equity at one point in time.