Theme 2 - DW

• What is owner's capital?

  Money provided by the owner to the business
• What is trade credit?

  When a business buys materials but pays later, usually 30-60 days
• What is a grant?

  Lump sum of money awarded by local/central government or charities
• What is limited liability?

  Business and owner(s) are LEGALLY SEPARATE
• What is unlimited liability?

  Business and owner(s) are LEGALLY THE SAME ENTITY
• What is a business plan?

  A document which puts together all the information showing how a business might survive in a competitive market
• What is cash flow?

  A dynamic and unpredictable part of life for most businesses
• What is retained profit?

  Profit that is kept within a company for reinvestment or future use.
• What are sale of assets?

  Selling fixed assets in order to raise cash
• What is venture capital?

  Investment in early-stage companies with high growth potential.
• What is a debenture?

  Type of long term loan with fixed interest rates and some collateral
• What is a bank loan?

  A bank loan is a sum of money borrowed from a bank that must be repaid with interest over a specified period of time.
• What is an overdraft?

  A bank allows an individual to overspend on their current account
• What is leasing?

  When a company uses machinery, property or equipment and pays monthly installments
• What is a sales forecast?

  Prediction of future sales.
• What is sales volume (formula)?

  Total sales revenue/selling price per unit
• What is sales revenue (formula)?

  Quantity Sold x Selling Price
• What are fixed costs?

  Costs that do not vary with the level of production or sales.
• What are variable costs?

  Costs that vary with the level of production or sales.
• What is total costs (formula)?

  Fixed Costs + Variable Costs
• What is contribution per unit (formula)?

  Selling price - variable cost per unit
• What is break-even?

  The point at which total revenue equals total costs.
• What is break-even (formula)?

  Total fixed costs/contribution per unit
• What is margin of safety?

  The difference between the actual or expected sales and the break-even point.
• What is margin of safety (formula)?

  Actual sales volume - break-even
• What is total variable costs (formula)?

  Variable cost per unit x Quantity of output
• What is selling price per unit (formula)?

  Contribution per unit + variable cost per unit
• What is a historical budget?

  Using previous data as a basis for the new budget
• What is a zero-based budget?

  Clears all budgets to a zero and department must justify what they need and why they need it
• What is variance analysis?

  Comparison of actual vs. budgeted financial performance.
• What is a favourable variance?

  Actual figures are better than budgeted figures
• What is an adverse variance?

  Actual figures are worse then the budgeted figures
• What is the gross profit formula?

  Revenue - COS
• What is the gross profit margin formula?

  (gross profit / revenue) x 100
• What is the operating profit formula?

  Gross profit - operating expenses
• What is the operating profit margin formula?

  Operating Profit Margin = (operating Profit / revenue) x 100
• What is the net profit formula?

  operating profit - interest
• What is the net profit margin formula?

  (net profit / total revenue) x 100
• What is liability?

  Money that the business owes
• What is current liability?

  Debts due within one year.