Finance knowt Vocabulary Flashcards

Vocabulary terms and definitions focusing on business finance, accounting statements, and financial management tools.

Asset

Something the business owns; it has a value.

Average rate of return

The average profit for the year as a percentage of the original investment.

Break-even chart

A diagrammatic representation of the costs and revenue for a product; it plots total costs against total sales revenue, showing the break-even point where they cross.

Break-even output

The point at which the business' total sales equals the total costs. There is neither profit nor loss.

Cash

Money that the business has in cash or at the bank.

Cash flow forecast

A financial planning tool that estimates the money coming into and going out of the business on a month-by-month basis; it allows the business to predict times when additional finance may be needed to maintain liquidity.

Cash inflow

Money received by the business from its operations or investments.

Cash outflow

Money paid out by the business to fund its operations or investment activities.

Closing balance

The amount that remains in the account at the end of an accounting period.

External sources of finance

Obtaining funds from sources that are not part of the business; possibilities include bank loan, mortgage, overdraft, additional partner or share issue.

Fixed costs

The costs that stay largely the same, regardless of the business' output.

Government grants

Money available from the government to fund projects that it wants to support; the money is not repaid, but there are conditions and often progress reports are required.

Hire purchase

Buying items by making a small initial payment and paying the remaining amount in installments over an agreed period of time.

Income statement

A summary of the revenue and expenses over an accounting period that lead to a profit or loss position.

Interest rates

The rate charged for borrowing money over a period of time, or the reward for saving money.

Liability

The extent of the owner's/owners' responsibility for the debts of the business.

Loans

A fixed sum of money borrowed for a specified period of time at an agreed rate of interest; repaid in installments.

Loss

Where expenditure is greater than income.

Margin of safety

The amount by which current sales exceed the break-even level of output.

Net cash flow

The difference between cash inflows and cash outflows.

Opening balance

The amount brought forward from the end of the preceding accounting period so that it is the starting figure for the new one.

Overdraft

Borrowing from a bank by drawing from a current account so that the balance becomes less than zero.

Profit

The difference between the money received from the sale of a good/service and the amount it cost; the amount that remains after all the costs have been paid.

Profit maximisation

A business' ability to make maximum profit with low operating expenses.

Raising finance

Getting the money to pay for starting the business or for developing it.

Retained profit

An internal source of finance; a portion of the year's profit is kept back to fund projects.

Revenue

The income generated from the sale of goods/services.

Share issue

New shares in a business made available for the public to buy.

Sources of finance

Ways of obtaining the funds the business needs; money may be needed to meet short or long term needs.

Statement of financial position

Reports the assets, liability and equity of a business on a specific date; formerly known as the balance sheet.

Total costs

All the costs involved in producing goods/services.

Variable costs

The costs that change as the business' output changes.