BUSINESS ACCOUNTING

1.      Profit and loss account: An account that records business sales revenue, all costs and expenses, and any loss/profit made during the year.

2.      Trading account: The part of the profit and loss account that records revenue, cost of sales and gross profit.

3.      Sales turnover: The value of sales in a certain time period.

4.      Net profit: Profit after subtracting all expenses/ overheads from gross profit.

5.      Gross profit: profit after subtracting the cost of sales from sales turnover.

6.      Corporation tax: Tax on company net profits.

7.      Dividends: Annual payments from company profits to shareholders.

8.      Depreciation: The fall in the value of fixed assets over time.

9.      Liquidity: The ability of the business to convert its assets in to cash and pay off short term debts.

10.  Current ratio: Current asset / current liabilities

11.  Acid test ratio: current asset-stock / current liabilities

12.  Return on capital employed (%): Net profit / Capital employed X 100

13.  Retained profit: Profit made after payment of tax and dividends. It is reinvested back into the business.

14.  Gross profit margin(%): Gross profit / Sales turn over X 100

15.  Net profit margin (%): Net profit / Sales turnover X 100

16.  Balance sheet: The account records all business assets and liabilities and the value of shareholders funds.

17.  Working capital: The capital needed by a business to finance its day to day needs.

18.  Fixed assets: Assets owned by a business that it expects to keep and use for more than one year.

19.  Current assets: Assets that the business will use up or turn into cash within one year.

20.  Current liabilities: Loans and debts of the business that will be repaid within one year.

21.  Long term liabilities: The money value of the debts that do not have to be repaid in one year.

22.  Shareholders fund: Finance provided by shareholders –share capital or retained profits.

23.  Capital employed: Total value of business’s long term finance.

      

OTHER EXTERNAL INFLUNCES ON BUSINESS

1.      Technological change: Changes in products or the ways products are made resulting from research into new ideas.

Examples: Mobile phones with cameras.

2.      Pressure group: Groups of people who share a common interest and take action to achieve the changes they are seeking.

3.      Private costs:  The costs to producers and consumers of an economic activity.

4.      External costs: The cost of an economic activity paid for by the rest of society, not the producers/consumers

5.      External benefits: The benefits of an economic activity received by the rest of society other than producers/consumers.

6.      Private benefits: The benefits of an economic activity to producers/consumers.

Cost benefit analysis: An analysis usually carried out the government, into the overall costs and benefits of a large new project

GOVERNMENT AND ECONOMIC INFLUENCES ON BUSINESS

1.      Exports: Goods and services sold by a country to other countries.

2.      Imports: Goods and services bought by one country from other countries.

3.      Boom: The stage when an economy is at the peak of its activity.

4.      Recession: When income and output begin to fall in an economy.

5.      Slump: The lowest part of the business cycle.

6.      Recovery: When growth begins to increase as an economy comes out of a slump or recession.

7.      Exchange rate: The price of one currency in terms of another.

8.      Exchange rate depreciation: A fall in the exchange rate of a currency.

9.      Direct taxes: Paid directly from incomes.

10.  Indirect taxed: Taxes on goods and services.

11.  Import tariff: A tax on imported goods to discourage their sales.

12.  Import quota: A legal limit on the quantity of a product that may be imported.

13.  Consumer protection laws: Laws designed to protect consumers from unfair actions by producers or retailers.

14.  Monopoly: A business that has no competition in its market- it is the sole seller.

15.  Contract of employment: A legal agreement between workers and employers listing the rights and responsibilities of employees.

Forms of business organisation

1.      Limited liability: The liability of the owners for the debts of the business is limited to the owners’ investment.

Example: Shareholders in all companies have limited liability.

2.      Articles of Association: A legal document that must be completed before a business is given company status. It provides details of the internal rules of the company.

Example: The issuing of shares and the rights and duties of directors.

3.      Memorandum of Association: A legal document that must be completed before a business is given company status. It provides important information for shareholders.

Example: The name, address, registered office and issued capital of the business. The objectives of the business are also stated.

4.      Annual General Meeting (AGM): Companies must hold these each year.

Example: All shareholders have the right to attend and vote on which directors should run the company.

5.      Co-operative: An organisation runs by a group of people, each of whom has a financial interest in its success and a say in how it is managed.

6.      Franchise: A business that uses the name, promotional logos and trading methods of an existing successful business.

Purpose and types of business acitvity

Unit-1.             THE PURPOSE OF BUSINESS ACTIVITY

Definitions with examples

1.      Specialisation:- Where resources are used to concentrate on producing one particular product.

Example:- Countries specialise, eg Qatar in oil production. Labour within a firm can specialise, too.

2.      Division of labour:- Each worker does one specialised job.

Example:- In a computer assembly factory each worker will perform a specialist task.

3.      Business objectives:- The target or aims that a business is working towards.

Example:- Increase profits, increase sales, survive. Objectives can differ between businesses. The objectives of any one business can change over time. Eg. Survival at start-up and profits once it is established.

4.      Value added:- The difference between the selling price of a product and the cost of the bought-in materials needed to make it.

Example:- If a firm sells a product for £15, but the materials that were bought- in from other firms only cost £6, then the value added is£9

5.      Stake holders:- Groups of people with a direct interest in the performance of a business.

Example:- Workers, customers, consumers, shareholders, government, banks etc.

6.      Primary production:-Industries that extract and exploit the natural resources of the earth.

Examples: Mining, agriculture, forestry and fishing

7.     Secondary production:- Industries that manufactures goods made from the raw materials provided by the primary sector.

Examples: Car production, computer assembly, food canning and steel making.

8.      Tertiary production:- Industries that provide services to consumers and other sectors of industry.

Examples: Travel agents, banking, insurance, health services and transport.

9.      De-industrialisation:- Relative decline in the importance of a country’s secondary sector.

10.      Public sector:- The sector of the economy in which organisations are owned and controlled by the state (government).

Examples: In most mixed economies, health services and railway services are in the public sector.

11.      Private sector:- The sector of the economy in which organisations are owned and controlled by individuals.

Examples: In most mixed economies, retailing and farming businesses are in the private sector.

12.      Free market economy:- All resources are privately owned. Prices are determined by supply and demand.

13.     Planned economy or command economy:-An economic system in which the state is responsible for resource allocation.

14.      Mixed economy:- An economic system which allows both the state and the market mechanism to allocate resource.

15.      Privatisation:- The sale of state owned assets such as public corporations to the private sector.

16.      Capital intensive business:- Use a high proportion of capital equipment to produce their output.

17.      Labour intensive business:- Use a high proportion of labour to produce their output.

18.      Internal growth:- Business growth achieved by expanding the existing business.

19.      External growth:- Business growth achieved by merging with or taking over other business.