S-Cool Revision Summary

S-Cool Revision Summary

Asset

This is an item that a business owns - it can either be a fixed asset (owned for more than 12 months) or a current asset (owned for less than 12 months).

Assets employed

This is the present value of all the assets of the business minus current liabilities.

Balance sheet

This is a snapshot at a given point in time, showing the assets, liabilities and capital of a business. It essentially shows the net worth of a business

Capital employed

This is the total of all the long-term finance of the business. Essentially it shows where the business raised its money from (loans, share capital and reserves). Capital employed equals assets employed.

Capital expenditure

This is expenditure on items of capital and new fixed assets (e.g. land and buildings, vehicles, machinery).

Cash flow forecast

This is a Management Accounting document which outlines the forecasted future cash inflows (from sales) and the outflows (raw materials, wages, etc) per month for a business.

Cash flow statement

This is a Financial statement which shows the cash inflows and the cash outflows for a business over the past 12 months.

Cost of sales

This is often referred to as 'Cost of goods sold'. It represents the direct costs of manufacturing a given level of output.

Creditors

These are any monies which the business owes to its suppliers, which will be settled within the next 12 months (e.g. payment for raw materials purchased on credit).

Current asset

This is an item that a business owns for less than 12 months (e.g. cash, debtors, stock).

Current liability

This is an item that a business owes to an external body, which will be settled within 12 months (e.g. creditors, overdraft, corporation tax to the Inland Revenue).

Debtors

These are the people who owe the business money (e.g. customers who have purchased goods on credit).

Depreciation

This is the fall in the value of fixed assets, either due to their use, due to time, or due to obsolescence. Essentially, depreciation divides up the historic cost of a fixed asset over the number of expected years that it will be used by the business.

Dividends

This is the total amount of 'profit after tax' that the business will issue to shareholders at the end of the financial year. The remainder of the 'profit after tax' will be retained in the business for re-investment.

Fixed assets

Items of a monetary value which have a long-term function and can be used repeatedly. These determine the scale of the firm's operations. Examples are land, buildings, equipment and machinery. Fixed assets are not only useful in the running of the firm, but can also provide collateral for securing additional loan capital.

Gearing

This measures the proportion of capital employed that is funded by long-term liabilities (e.g. loans, mortgages, etc). It is calculated by dividing long-term liabilities by capital employed and multiplying by 100.

Gross profit

This is the sales revenue of a business minus the cost of sales (i.e. minus the direct costs incurred in manufacturing the products which have been sold).

Gross profit margin

This is the gross profit figure expressed as a percentage of the sales revenue figure. It shows the proportion of sales revenue that remains after all direct costs have been accounted for.

Historic cost

This is the original price which was paid for an asset.

Intangible assets

These are fixed assets which are not physical (e.g. brand names, goodwill, patents). They are of long-term value to the business and will exist for more than 12 months.

Liquidity

This is the ability of a business to meet its short-term debts. The current ratio and the acid-test ratio can measure this.

Liquidity crisis

This refers to a situation where a business does not have enough liquid resources (i.e. cash) to meet its current liabilities and short-term debts.

Net assets

This is fixed assets + current assets - current liabilities. It is often used instead of the term 'assets employed'.

Net current assets

This is also referred to as working capital and it is calculated by deducting current liabilities from current assets. It represents the finance that is available for the day-to-day running of the business.

Net profit margin

This is the net profit figure expressed as a percentage of the sales revenue figure. It shows the proportion of sales revenue that remains after all expenses have been accounted for.

Profit and loss account

This is a financial statement listing all the revenues and expenses of a business over a period of time (normally 12 months).

Reserves

These consist of retained profit from previous trading periods and any increase in the value of fixed assets such as land and buildings, which form part of the long-term capital of the business.

Revenue expenditure

This refers to any expenditure on all items other than fixed assets (e.g. raw materials, wages, utility bills, etc). These are usually day-to-day expenditure that the business incurs when it tries to create sales revenue.

Shareholders' funds

This is the capital invested by the shareholders plus the reserves which have been accumulated over the years. It represents the total capital which the shareholders have a claim on within the business.

Straight-line depreciation

This method of depreciating a fixed asset charges an equal amount to each year of its expected useful life.

Window-dressing

This is a form of creative accounting and it involves presenting the accounts of a business in such a way as to flatter its financial position.

Working capital

This is the day-to-day finance that is needed for running a business. It is also referred to as 'net current assets' and it is calculated by deducting current liabilities from current assets. Working capital is used to pay for expenses such as wages, raw materials and utility bills.