Finance Revision Notes

This was a main chunk of the exam when i did it. I have used diagrams, colour, boxes and underlining. I hope this is useful to anyone who looks at it.

Just read it, something may help you.

Good luck

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  • Created by: Leah
  • Created on: 01-10-12 16:44
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Leah Powell 11R
Finance revision notes
Key words:
Cash ­All money in your business
Profit ­All money you have after you have paid your bills
Loss ­The difference between total revenue and total cost, where revenues are higher
than costs.
Insolvent ­When a business can no longer pay its debts
Costs ­The money that firms spend to make their products or to run their business.
Creditors The people to whom WE OWE money for goods and services supplied by
them to us on credit.
Debtors The people who OWE US money for goods or services we have supplied to
Variable cost­Expenses that change with the quantity produced/usedtelephone bills
Fixed cost ­ Expenses that do not vary with output or sales e.g. mortgage.
Revenue ­The money firms get from providing a service, or selling products.
Turnover The amount of money taken by a business in a particular period.
Break even ­ To exactly cover the total cost by sales
Sales ­Products or services which have been exchanged for money
Net sales ­The amount of money made from services or products after deductions such
as returned goods, discounts or damaged goods.
Gross sales ­The amount of money made from services, or products without deducting
operating expenses, the cost of the goods sold, payment of taxes ect.
Contribution method ­Working out the breakeven point using a sum.
Break even chartA line graph that is used to work out when an organisation will stop
making a loss and begin making a profit.
A cash flow forecast a chart which shows how much money you have gained and lost in
a time period.
Margin of safety A number of sales ABOVE the breakeven point
Gross profit ­The difference between the money the firm makes from the sale of goods
and what the goods cost the firm to manufacture or buys as well as the expenses of
selling them.
Return outwards Some goods have to be returned because they are broken or the
wrong goods have been delivered. The goods are going OUT from the firm to the
supplier. They reduce the total amount of the purchases.
Returned inwards Faulty or wrong goods that the customers return back to the
business. The returned goods are coming IN to the firm. They reduce the total amount of
the sales.
Current assets those assets which can quickly be exchanged for cash e.g. stock
Fixed assets Those assets which will be more permanent in the business e.g.
Current liabilities ­ Those liabilities which must be paid immediately e.g. creditors

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Leah Powell 11R
4.3 Interpretation of accounts using ratios
Who would be interested in this information?
Owners and managers to study the accounts
The firm's bank
Tax authorities and employees of the business all have their own reasons for
watching its progress.
By reading the final accounts and balance sheet it is easy to see:
The level of profit
The size of its turnover
However, this DOES NOT tell us enough to enable us to assess the true performance of
the business.…read more

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Leah Powell 11R
On the other hand, if the business deals in goods which are low value e.g.
vegetables ­ it will make a large number of sales but each would be a small sum.
Stock of perishable goods would be replaced every working day.
Return on capital employed (ROCE)
This shows the net profit which the owner has received on the capital invested.…read more

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Leah Powell 11R
Acid test ratio
This ratio measures if a business is able to pay its current debts without having to
sell some of its stock.
4.4 Breakeven
From a breakeven point you can tell whether a business is making a profit or a
If the business can sell more goods that the level of breakeven it will be making
a profit.
If the sales fall below the breakeven point then the business would be making a
loss.…read more

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