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HSC Business Studies - Finance Exam
Questions With Verified Answers
accounts payable - Answer the money a business owes to its suppliers and service providers. Also known as creditors or trade creditors
accounts receivable - Answer a current asset that represents money owed to the business in short term. Money is owed to the business by customers who are yet to pay for products they have already received. Also known as debtors.
accounts receivable turnover ratio - Answer ratio measures how long, on average, account customers take to pay the invoices sent to them by the business. It indicates how promptly customers who have been given credit, take to pay for products they have bought.
amortisation - Answer depreciation of intangible assets over time. Also = repayment of debt by a series of instalments
audit - Answer an independent check of the financial records of a business by a certified accountant. Can also be performed internally by managers
balance Sheet - Answer snapshot on a particular day (usually last day of the financial year) that shows the assets, liabilities and equity of the business. Gives an indication of the financial stability of a business. A=L+E
benchmarking - Answer process of measuring performance against established standards, such as a comparison of a firm's performance against standards set by competitors in same industry in domestic market
budget - Answer Tool to evaluate the performance of a business by comparing actual results with planned results. Usually drawn up as a spreadsheet illustrating the changes in data over time.
capitalised expenses - Answer the costs incurred when financing a non-current asset and added to the cost of the asset
cash-flow management - Answer management of cash flowing into business as revenue and cash outflow when expenses are paid by a business --> ensures that the business maintains its liquidity
cash-flow statement - Answer a financial report illustrating the movement of cash into and out of a business over time
cost centres - Answer the expenses associated with each key business function providing a product to consumers
credit policy - Answer conditions under which a business is willing to allow other businesses to postpone their payments for products they have bought from it; how many days are permitted to pass before payment is due
credit rating - Answer assessment of a business's ability to repay loans based on its past financial performance and repayment of past loans. Ratings are usually expressed as letter grades
creditors - Answer the businesses, financial institutions and individuals to which a business owes money. (accounts payable)
current assets - Answer assets (e.g. cash in bank, accounts receivable) that earn revenue for business in the short term --> usually fewer than 12 months
current ratio - Answer (also working capital ratio) measures a business's ability to pay its current liabilities from its current assets --> liquidity. Should be 2:1 or greater and expressed as percentage. Too much cash means it is not being invested, reducing profit
debentures - Answer type of long-term debt finance that a business can get by offering a prospectus to the general public of securities exchange. Business offers an investment opportunity to people who want a good return on risky investment.
debtors - Answer business or individuals that owe money to a business (accounts receivable)
depreciation - Answer (of assets) occurs where assets (e.g. motor vehicles, equipment) lose their value over time due to wear and tear and new tech. developments.
deregulation - Answer government's removal or reduction in controls and regulations on an industry or sector of the economy or market in order to achieve greater competition.
derivative - Answer special contract between global businesses. It is a type of hedging and is used to reduce financial risks, e.g. those created by appreciation and depreciation of currencies
dividend - Answer income earned from owning shares in a company. usually paid every 6 months and based on profits the company makes
grants - Answer financial gifts provided by government to assist businesses to expand or establish
gross profit - Answer Sales - COGS
gross profit ratio - Answer (PROFITABILITY) ratio measures a business's profitability before expenses. Higher the ratio the better, need to compare w/ industry standards and benchmarks. Express as %
hedging - Answer any strategy or financial tool used to reduce the risk of loss resulting from financial transactions - e.g. converting one currency to another
income statement - Answer summary of a business's revenue and expenses over a set financial period. completed in order to determine the business's profitability and efficiency. (Also called revenue statement, profit and loss statement)
insolvency - Answer when expenditure has exceeded income for an unacceptable length of time and firm is unable to pay debts
intangible asset - Answer asset that doesn't physically exist and is not written on a business's balance sheet unless business is sold. It is of value to the business because it can earn revenue from the asset - e.g. good rep., trademark, design, brand name.
invoice - Answer bill sent to a customer requiring payment by a specified date. invoices are primary documents in accounting because they are records of credit sales
leasing - Answer contract between user of an asset who pays the owners of the asset for use of the asset - e.g. equipment
leasing finance - Answer business 'hires' assets it needs for a period of time. business has the right to use the asset (e.g. car, machinery, building) without having to buy it. fee must be paid regularly which is a business expense
liabilities - Answer amounts of money owed to the individuals (suppliers, institutions like banks) that are part of the external environment
liquidation - Answer when all the assets of a business are sold to generate cash to pay liabilities and creditors
liquidity - Answer indicates how much ready cash is available in a business. current assets are listed in order of liquidity (how easily they can be turned into cash) savings in a business's bank account are most liquid as they are already cash
matching principle - Answer using the appropriate finance for purchasing an asset. current assets should be purchased with short-term finance, non-current assets should be purchased with long-term finance (e.g. 15 year mortgage loan). also relates to matching the recording of a transaction to the date it happened
monetary policy - Answer steps taken by the Reserve Bank of Australia (RBA) to affect the finance market and assist the federal government to achieve goal of low inflation and economic growth
working capital - Answer current assets used in the day-to-day running of a business
venture capital - Answer capital acquired from a specialist venture financial institution that seeks to become a part-owner in the business
variable costs - Answer costs that change when the business varies the amount of goods and services it produced. E.g. cost of raw materials
unit trust - Answer fund managed by a trustee (usually a company). it raises funds from investors which it holds in trust for them and invests those funds in various investments
retained profit - Answer net profit that is reinvested into the business. retained profit is
net profit ratio - Answer (PROFITABILITY) measure of a business's profitability after all expenses have been paid. Higher the ratio the better.
nominalised earnings - Answer earning adjusted to take into account cyclical upswings or downswings in the economy, or to remove one-time influences
on-costs - Answer additional costs to a business of employing staff
ordinary shares - Answer can be issued with or without the right to vote at the annual general meeting. ordinary shareholders receives dividends after preference shareholders.
productivity - Answer measure of how efficiently goods and services are produced
profit - Answer what remains from revenue after all expenses have been paid
profit and loss statement - Answer summary of a business's revenue and expenses over the financial year. completed in order to work out the business's profitability and efficiency.
COGS - Answer opening stock + purchases - closing stock
assets - Answer liabilities + owners equity
