← Lessons 05-Financial Management Techniques
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1. Introduction 2. Definitions of Key Financial Terms 3. Sources of Funds 4. Uses of Funds 5. Trading and Profit & Loss Accounts 6. Balance Sheet 7. Legal Requirements 8. Balance Sheet Terms and Ratios 9. Budgeting 10. Cash Flow 11. Cash Budgeting 12. Stock Control 13. Conclusion 14. Final Memory Checklist

2. Definitions of Key Financial Terms

  • Capital = money invested in a business so it can operate; it may come from owners, borrowing or shares.
  • Assets = resources owned/controlled by the business, such as buildings, equipment, vehicles and fuel stocks.
  • Fixed assets = resources normally kept for more than one year, e.g. buildings and vehicles.
  • Current assets = resources used in day-to-day trading, e.g. cash, fuel and spare parts.
  • Liabilities = amounts owed by the business.
  • Long-term liabilities = debts continuing beyond the financial year, e.g. bank loans and mortgages.
  • Current liabilities = amounts likely to be repaid within the financial year, e.g. creditors and overdrafts.
  • Debtors = people/customers who owe the business money.
  • Creditors = people/suppliers to whom the business owes money.
  • Profit = amount left when income from goods/services exceeds the cost of providing them.
  • Trading account = calculates gross profit from turnover less direct costs.
  • Profit & loss account = deducts indirect costs/overheads from gross profit to calculate net profit before tax.
  • Balance sheet = statement of assets, liabilities and capital at a given point in time.
  • Cash flow = actual movement of cash into and out of the business.
  • Budget = financial plan used to control future expenditure and plan ahead.
  • Liquidity = ability to meet debts from cash and other current assets that can quickly be converted to cash; stock is normally excluded from liquid assets.