19/02/2025
Chapter 33
Finance
Key TERMS:
1. Asset-An item of monetary value that is owned by a business.
2. Cost of sales: The direct cost of goods that were sold during the
financial year.
3. Current assets: Assets that are either cash or likely to be turned
into cash within 12 months.
4. Current liabilities: These are debts that have to be paid by the
business within a year.
5. Depreciation: The decline in estimated value of a non-current
asset.
6. Dividends: The share of the business’s profits that have to be paid
to shareholders.
7. Expenses: The overhead costs that arise in operating the
business, which are deducted from gross profit to calculate profit
from operations.
8. Gross profit: This is the amount obtained after deducting cost of
sales from revenue.
9. High quality profit: Profit that can be repeated and sustained.
10.
Intangible assets: These are items of value that do not have
a physical presence such as trademarks and copyrights.
11.
Intellectual property or capital: The intangible capital of a
business that includes human capital, such as skilled labour,
structural capital such as databases and relational capital like good
links with suppliers.
12.
Liability: A financial obligation of a business that is required
to pay in the future.
13.
Low quality profit: This is a once off profit that cannot easily
be repeated or sustained.
14.
Net book value: The current statement of financial position
value of a non-current asset= original cost less accumulated
depreciation.
15.
Net current assets: The amount of capital needed for day to
day activities, it is also referred to as working capital(= current
assets-current liabilities).
16.
Net realisable value: The amount for which inventory can be
sold minus the cost of selling it.
17.
Non-current assets: These are assets kept and used by the
business for more than one year.
18.
Non-current liabilities: The value of debts of the business that
are payable after more than a year.
19.
Profit for the year (profit after tax): This is profit before tax
less profit (corporation) tax.
20.
Profit from operations (operating profit): Gross profit less
overheads/ expenses.
21.
Reserves: Accumulated retained profits and capital reserves
from re-valuation of non-current assets.
22.
Retained earnings: Profit after tax in a company rather than
paid out to shareholders as dividends.
23.
Share capital: The total value of capital raised from
shareholders by the issue of shares.
24.
Shareholders’ equity: The total value off assets less total
value of liabilities.
25.
Statement of financial position: A financial statement that
records the value of a business’s assets, liabilities and
shareholder’s equity at one point in time, also known as a balance
sheet.
26.
Statement of profit or loss: A financial statement that records
the revenue, costs and profit (or loss) of a business over a given
period of time also known as income statement.
27.
Straight line depreciation: A constant amount of depreciation
is subtracted from the value of an asset each year.
28.
Trade accounts receivables (debtors): The value of
payments to be received from customers who have bought goods
on credit.
29.
Trade accounts payables (creditors): The value of debts for
goods bought on credit payable to suppliers.