Chapter 2 Key Terms

1. Debts owed by an organisation to suppliers, shareholders, investors or customers who have paid in advance. (11)
4. Revenue – Cost of Sales. Shows how efficiently a business is converting its raw materials or stock into finished products. (5, 6)
5. Items that are owned by an organisation. (6)
6. A measure of a firm’s ability to pay its debts on time. A firm that can meet its financial commitments is described as ‘solvent’. A firm that cannot meet its financial commitments is described as ‘insolvent’. (8)
7. The revenue earned from everyday trading activities minus the costs involved in carrying out the activities. It is also gross profit minus expenses. (9, 6)
9. Measures liquidity by expressing current assets as a ratio to current liabilities. (7, 5)
10. An account showing the income and expenditure (so profit and loss) of a company over a period of time – usually a year. Both documents are based on historical data and show what has happened in the recent past. (6, 9)

2. Measure the efficiency with which a business makes a profit, in relation to its size. (13, 6)
3. Funds provided by shareholders to set up the business, fund expansion and purchase fixed assets. (5, 6)
8. A method of assessing a firm’s financial situation by comparing two sets of linked data. (5, 8)

Get Revising