CBP Business Finance and Accounting Flashcards

What is the primary purpose of a budget in a business context?

Answer: To plan, allocate, and control financial resources

A business budget serves as a financial plan that helps allocate resources, set targets, and control spending to achieve organizational goals.

What does ROI stand for, and what does it measure?

Answer: Return on Investment; measures profitability relative to cost

ROI (Return on Investment) is a performance metric calculated by dividing net profit by the cost of investment, expressed as a percentage.

Which of the following best describes 'working capital'?

Answer: Current assets minus current liabilities

Working capital is calculated as current assets minus current liabilities, indicating a company's short-term financial health and operational efficiency.

What is the break-even point in business finance?

Answer: The point at which total revenue equals total costs

The break-even point is where total revenue equals total costs (fixed + variable), meaning the business earns no profit but also incurs no loss.

In financial analysis, what does 'liquidity' refer to?

Answer: How quickly assets can be converted to cash

Liquidity measures how easily a company can convert its assets into cash to meet short-term financial obligations without significant loss.

What is a 'variable cost' in business operations?

Answer: A cost that changes in direct proportion to production volume

Variable costs fluctuate directly with production or sales volume — examples include raw materials, direct labor, and sales commissions.