Pearson Edexcel AS/A Level Business – Key Terms

These flashcards cover key concepts and terms from the Pearson Edexcel AS/A Level Business curriculum, focusing on finance, budgeting, production methods, and economic variables.

Economic variables

Features of an economy that affect business and consumers, e.g. unemployment, inflation, and exchange rates.

Internal finance

The raising of capital/cash from within the business.

Personal savings/owners’ capital

A source of internal finance provided by the owner of the business.

Retained profit

Profit re-invested back into the business, not paid as a dividend.

Sale of assets

A type of internal finance involving selling resources owned by the business.

Bank loan

An external method of finance where money is borrowed from a bank, paid back with interest.

Business Angels

Individuals who invest in a business in exchange for equity shares.

Crowd funding

An external source of finance obtained from a large number of individuals via a website.

External finance

Money raised from outside the business.

Grant

A sum of money given by a government or organization that does not need to be repaid.

Leasing

A contract to acquire the use of resources such as property or equipment.

Loan

An external method of finance, typically repayable after more than 12 months.

Overdraft

A negative balance in a bank account due to withdrawals exceeding the balance.

Peer-to-peer funding

When an individual lends money to others via online transactions.

Share capital

Finance raised through the issuing of new shares.

Trade credit

Agreement allowing a firm to receive stock without immediate payment.

Venture capital

External finance provided by investors in exchange for shares in a business.

Liability

An obligation of a business to pay debts to lenders or suppliers.

Limited liability

A shareholder's obligation for debts is limited to their investment's value.

Unlimited liability

A business owner's obligation to cover all business debts.

Business plan

A document providing strategic insights on a business to attract investors.

Cash flow

The movement of cash into and out of a business over a period of time.

Cash inflow

The flow of cash into a business.

Cash outflow

The flow of cash out of a business.

Cash-flow forecasts

Predictions of cash inflow and outflow over a specified period.

Closing balance

Cash remaining in the account at the end of the month.

Net cash flow

The difference between cash inflows and outflows.

Opening balance

Cash in the bank on the first day of the month.

Consumer trends

Habits or behaviors of consumers using goods and services.

Economic uncertainty

When firms and consumers cannot predict future sales or incomes.

Sales forecast

Expected level of sales volume/revenue for a future period.

Average cost

The total cost of production divided by output.

Fixed costs

Costs that remain unchanged regardless of output or sales levels.

Revenue

Total income generated from sales of goods or services.

Sales revenue

Income calculated as the selling price multiplied by sales volume.

Total costs

The sum of total fixed costs and total variable costs.

Variable costs

Costs that change in accordance with production levels.

Break-even

The level of output where total revenue equals total costs.

Unit contribution

The selling price minus the variable cost per unit.

Margin of safety

The difference between current output and the break-even output.

Adverse variance

Negative variance, such as higher costs than budgeted.

Budget

A planned financial allocation of income and expenditure.

Favourable variance

Positive variance, such as lower costs than budgeted.

Historical budgeting

Budgeting based on past financial data.

Variance analysis

Comparison of budgeted figures with actual figures.

Zero-based budget

A budget requiring justification of all spending prior to allocation.

Cash

An asset of a business, sourced from investors, lenders, or customers.

Cost of sales

The total cost attributable to the inventory sold during a period.

Gross profit

Revenue minus the cost of sales.

Gross profit margin

Gross profit divided by sales revenue, expressed as a percentage.

Operating profit

Gross profit minus other operating expenses.

Operating profit margin

Operating profit divided by sales revenue, expressed as a percentage.

Profit

Total revenue minus total costs.

Profit for the year margin

Net profit divided by sales revenue, expressed as a percentage.

Profitability

The proportion of profit in relation to sales.

Statement of comprehensive income

A report showing a business's income and expenditure over a financial year.

Tax

A government charge on individual and business earnings.

Acid test ratio

A measure of liquidity calculated as current assets minus inventory divided by current liabilities.

Assets

Valuable resources owned by a business.

Capital

Money invested into the business by its owner.

Current assets

Liquid assets expected to be converted into cash within a year.

Current liabilities

Debts that are due to be paid within one year.

Current ratio

A measure of liquidity calculated as current assets divided by current liabilities.