Exam code: 0450, 0986 & 0264, 0774
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Define profit.
Profit is the difference between total revenue and total costs of a business.
What is the main objective of most businesses?
The main objective of most businesses is to make a profit.
True or False?
If business costs exceed revenue, the business makes a profit.
False.
If costs exceed revenue, the business makes a loss, not a profit.
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Define profit.
Profit is the difference between total revenue and total costs of a business.
What is the main objective of most businesses?
The main objective of most businesses is to make a profit.
True or False?
If business costs exceed revenue, the business makes a profit.
False.
If costs exceed revenue, the business makes a loss, not a profit.
Define gross profit.
Gross profit is the difference between sales revenue and the cost of sales.
Define net profit.
Net profit is the difference between gross profit and all other business expenses.
What are two main ways a business can increase its profit?
A business can increase profit by increasing sales revenue, reducing costs, or both.
Why is profit considered a reward for entrepreneurs?
Profit is a financial reward for the risks that entrepreneurs take when starting and running a business.
How can retained profit be used by a business?
Retained profit can be used to fund the purchase of assets, pay bills, and invest in research and development.
True or False?
Profit attracts new investors to a business.
True.
Increasing profit shows that a business is being run effectively and can be an attractive investment for new investors.
Do public sector organisations and social enterprises need to make a profit?
Yes, public sector organisations and social enterprises often need to make a profit, known as a surplus, to reinvest in services and support social objectives.
What is the statement of profit or loss?
A statement of profit or loss is a financial document that records the income and costs of a business over a period of time, usually one year.
Define sales revenue.
Sales revenue is the money generated by a business through selling goods and services, calculated as price × quantity.
Define cost of sales.
Cost of sales is the total cost of producing or buying the goods sold by a business during a time period, including raw materials, components, labour, and packaging.
Define expenses.
Expenses are all costs incurred by a business that are not directly related to each unit of output, such as rent, salaries, and utilities.
Define operating profit.
Operating profit is the profit made by a business after all costs, including expenses, have been deducted from revenue. It is calculated as gross profit minus expenses.
What are the five key items typically identified in a statement of profit or loss?
The five key items are revenue, cost of sales, gross profit, expenses, and operating profit.
Why do managers use a statement of profit or loss to make decisions?
Managers use the statement of profit or loss to assess if the business is making a profit or loss, compare performance to previous years or competitors, and make strategic decisions to improve future performance.
True or False?
If a business's profit is lower than last year, it is always due to decreased sales.
False.
Profit can also fall if costs increase, such as higher energy bills or increased salaries, even if sales remain the same.