Edexcel Business A Level Revision

When a business makes a profit it usually results in a similar cash inflow – but not always, and not straightaway! It is important to understand the basic reasons why net profit and net cash flow might not always be the same. Profit and cash flow are two different calculations – as shown above. There are two main ways in which net cash flow differs from net profit during any accounting period: (1) Timing differences These arise because a business may not received cash straightaway from a customer and it may also delay payment for its costs. For example, a customer may buy goods for £50,000 but be allowed to pay for those goods in 60 days. (2) The way that fixed assets are accounted for Fixed assets are the assets that a busines...

Break even - is the point at which a business is not making a profit or a loss i.e. it is just breaking even. Break even output - Is the number of items that a business must sell to reach this point. Contribution - The contribution is the difference between the sales revenue and the variable cost of each unit sold or made. SELLING PRICE - VARIABLE COSTS Margin of Safety - is how much actual/current output is above the break even level of output Profit - ( MAX OUTPUT - Break even) x contribution or TR - TC Loss - TC - TR At break even point total costs must be the same as total revenue TR = TC  Before reaching break-even, the business is performing at a loss . After reaching break even, each additional unit sold will contribute towards a profit . CONTRIBUTION When a sale comes in, the sales revenue will be the amount the item was sold at - selling price. This amount will then be used to cover its own variable costs that went in to making the pro...

Sales volume - The amount of sales expressed as a number of units sold Sales revenue - is the amount of sales expressed as the total sum of money spent by consumers. Revenue is the money coming in from the sale of goods and services. Fixed costs - Fixed costs do not change as output varies.  In other words, they are fixed even if output moves up or down from period to period. Variable costs - Costs which change when output changes are called “variable costs” Total costs - Fixed costs + Variable costs Sales volume =Sales revenue / Selling price Sales revenue = selling price x quantity sold Total variable costs = number of units sold x variable cost per unit Total costs = Fixed costs + variable costs     This is what fixed, variable, total costs and revenue would look like on a graph   1) Revenue  Increases with the amount of units sold and therefore starts at 0 and slopes upwards when shown on a graph. 2) Fixed Costs  Fixed ...