Business key terms

• accounting


  involves the recording of financial transactions, planned or actual and the use of these figures to produce financial information
• income


  the money coming into a business
• capital income


  the money invested BY THE OWNERS OR OTHER INVESTORS, used to set up the business or to buy additional equipment:

  
  

  > loan

  > mortgage

  > shares

  > owner's capital

  > debentures
• what are debentures?


  a LONG-TERM SOURCE OF FINANCE.

  
  

  - a form of bond issued by the company

  - the debenture usually carries a FIXED rate of interest over the course of the loan

  
  

  > the funds can boost growth and prove cost effective
• revenue income


  the money that comes into the business from performing its day to day function (selling/providng a service)

  
  

  e.g. cash sales, credit sales, rent received, commission received, interest received, discount received)
• expenditure


  the money spent by a business
• capital expenditure


  used to buy capital items (ASSETS THAT WILL STAY IN THE BUSINESS FOR A LONG PERIOD OF TIME)
• non-current assets


  TANGIBLE items that will appear on the SOFP

  
  

  includes:

  - land

  - premises

  - equipement

  - vehicles
• intangible assets


  CANNOT BE TOUCHED

  
  

  e.g. goodwill, patents, trademarks, brand names
• revenue expenditure


  spending on items on a day to day basis. shown on the SOCI

  
  

  e..g inventory, rent, rates, heating&lighting, water, insurance, salaries, wages, bank charges, interest paid, discount allowed
• retained profit


  sales revenue - total cost

  
  

  MONEY KEPT IN THE BUSINESS
• net current assets


  current assets - current liabilities

  
  

  SHOWS THE MONEY AVAILABLE IN THE BUSINESS TO FUND DAY TO DAY EXPENDITURE
• sale of assets


  selling an item of value in order to achieve a cash injection
• owner's capital


  money invested in the business from owner's savings
• loans


  money borrowed from a financial institution for a set period of time for a set purpose

  
  

  (pays interest)
• crowd funding


  attracting investment from a a large number of speculative investors, done over the internet
• mortgages


  long term loan used to fund the purchase of property e.g. for 25 years
• venture capital


  investment from an experienced entrepreneur in return for a stake in the business
• debt factoring


  selling the debts of a business to a 3rd party in order to receive a quick cash injection (quick supply of money)
• hire purchase


  paying to use an asset in instalments, to spread the cost over its useful life
• leasing


  paying to use an asset in instalments (ownership is not yours until all payments have been made)
• trade credit


  period of time offered by suppliers to allow the customer to buy now and pay later
• grants


  lump sum provided to a business by the government or another organisation to be used for a specific purpose
• donations


  sums of money given voluntarily to charity
• peer to peer lending


  involves one business lending money to another business in return for interest payments
• invoice discounting


  reductions offered to customers making a product/service cheaper
• break even analysis


  BREAK EVEN IS THE POINT AT WHICH A BUSINESS IS NOT MAKING A PROFIT OR LOSS
• variable costs


  costs that change with the level of output

  
  

  e.g. RAW MATERIALS
• semi-variable costs


  part of the cost stays the same and part varies in relation to degree of business activity
• fixed costs


  cost that do not vary with output

  
  

  e.g. RENT
• total costs


  fixed costs + total variable costs
• total revenue


  total amount of money coming in from sales

  
  

  selling price x quantity sold
• total sales


  amount of sales made in a set time period e.g. one year

  
  

  value (monetary)

  volume (quantity)
• selling price per unit


  amount a customer will pay for each unit bought
• sales in value


  sales express as a monetary value (£)
• sales in volume (units)


  sales expressed as quantity (units)
• cash flow forecast


  tries to predict the cash inflows and outflows
• cash inflows/receipts


  money coming INTO the business from various sources e.g. cash sales, credit sales, loans, capital introduced, sales of assets
• cash outflows/payments


  money going OUT OF a business from various sources e.g. cash purchases, credit purchases, rent, rates, salaries, wages, VAT, utilities
• opening balance


  amount of cash available in a business at the START of the month

  
  

  (closing balance of previous month)