Question 1: Define the term 'revenue' and explain its importance for a business.

Answer: Revenue is the total amount of money received by a business from its sales of goods or services before any expenses are deducted. It is important because it indicates the business's ability to generate income and sustain operations.

Question 2: What is the difference between 'profit' and 'cash flow'? Provide a brief explanation for each.

Answer: Profit is the financial gain remaining after all costs and expenses are deducted from revenue, indicating the business's overall financial performance. Cash flow refers to the movement of money into and out of the business, reflecting its liquidity and ability to meet short-term obligations.

Question 3: Explain what is meant by 'fixed costs' with two examples.

Answer: Fixed costs are expenses that do not change with the level of production or sales, such as rent and insurance.

Question 4: Define 'break-even point' in a business context.

Answer: The break-even point is the level of sales at which total revenue equals total costs, resulting in neither profit nor loss.

Question 5: Describe what a 'profit margin' indicates about a business's financial health.

Answer: Profit margin shows the percentage of revenue that remains as profit after all expenses are deducted. A higher profit margin indicates better profitability and financial health.

Question 6: A business has total sales of £200,000 and total costs of £150,000. Calculate its gross profit and gross profit margin.

Answer: Gross profit = £200,000 - £150,000 = £50,000; Gross profit margin = (£50,000 / £200,000) x 100 = 25%

Question 7: Sketch a simple bar chart representing the following financial data: Year 1 revenue £50,000; Year 2 revenue £75,000; Year 3 revenue £100,000. Label the axes clearly.

Answer: A bar chart with the horizontal axis labeled 'Years' (Year 1, Year 2, Year 3) and the vertical axis labeled 'Revenue (£)'. The bars should increase in height from Year 1 to Year 3, representing the increasing revenue.

Question 8: Explain the purpose of a 'cash flow forecast' and how it benefits a business.

Answer: A cash flow forecast predicts the inflows and outflows of cash over a future period. It helps a business plan for shortages, avoid insolvency, and make informed financial decisions.

Question 9: Identify two financial documents a business uses to record its financial performance and briefly describe their purpose.

Answer: The two documents are the income statement (profit and loss account), which shows revenues and expenses to determine profit or loss; and the balance sheet, which provides a snapshot of assets, liabilities, and owner's equity at a specific point in time.

Question 10: Sketch a simple diagram illustrating the relationship between revenue, costs, and profit in a business. Include labels for each component.

Answer: A basic diagram with three boxes: Revenue at the top, subtracting Costs, resulting in Profit. Use arrows to show flow from Revenue to the subtraction of Costs, leading to Profit. Labels should clearly identify each term.