Glossary for CAIE Business AS Level

This Glossary has been updated according to the new syllabus

and is applicable for examinations in 2023, 2024 and 2025

Compiled by:

Sir Asad Kothari

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 Chapter 1 – Enterprise

Business Terms Definition

Consumer Goods The physical and tangible goods sold to consumers that are
not intended for resale These include durable consumer goods
such as cars and washing machines and non durable consumer
goods such as food, drinks, and sweets that can be used only
once.
Consumer Services The non-tangible products sold to consumers that are
not intended for resale these include hotel
accommodation, insurance services, and train journeys.
Capital Goods The physical goods used by industry to aid in the
production of other goods and services, such as machine
and commercial vehicles.
Factor of production The resources needed by business to produce goods or
services.
Added Value The difference between the costs of purchasing bought
in inputs (materials) and the selling price of the finished
goods.
Opportunity Cost The next most desired option that is given up.

Entrepreneur An individual who has the idea for a new business and
combines all factors of production to start it. He/she
carry most of the risks and benefits from the rewards.
Enterprise The action of showing initiative to take the risk to set up
a business.
Customer An individual consumer or organisation that purchases
goods or services from a business
Consumer An individual who purchases goods and services for
personal use.

Adding value Increasing the difference between the cost of bought in

inputs (materials) and the selling price of the finished
goods.
Multinational business Business orginisation that has its headquarters in one
country but with operating branches factories and
assembly plants in other countries.
Intrapreneur A business employee who takes direct responsibility for
turning an idea in to a profitable new product or
business venture.
Business plan A written documents that describe a business, its
objectives, its strategies the market it is in and its
financial forecasts.

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 Chapter 2 – Business Structure

Business Terms Definition

Primary sector business Firms engaged in farming fishing oil extraction and
activity all other industries that extract natural recourses so
that they can be used and processed.
Secondary sector business Firms that manufacture and process products from
activity natural resources including brewing, baking, clothes
making, and construction.
Tertiary sector business Firms providing services to consumers and other
activity businesses such as retailing, transport, insurance,
hotel, and tourism.
Command economy Economic resources are owned, planned, and
controlled, by the state.
Public sector Organisations accountable to and controlled by
central or local government (the state).
Private sector Businesses owned and controlled by individuals or
groups individuals.

Mixed economy Economic resources are owned and controlled by

both private and public sectors
Free-market economy Economic resources are owned largely by the
private sector with very little state intervention.
Sole trader A business in which one person provides the
permanent finance and in return has full control of
the business and is able to keep all of the profits.
Partnership A business formed by two or more people to carry
on a business together with shared capital
investment and usually shared responsibilities.
Limited liability The only liability or potential loss a shareholder has
if the company fails is the amount invested in the
company and not the total wealth of the
shareholder.

Private limited company A business that is owned by shareholders who are often
members of the same family this company cannot sell shares
to the general public.
Share A certificate conforming part ownership of a company and
entitling the shareholder owner to dividends and certain
shareholder rights.

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 Shareholder A person or institution owning share in a limited company
Public limited company(plc) A company whose shares are traded on a stock exchange and
can be bought and sold by the public.
Memorandum of association This states name of the company and the address of the
head office through which it can be contacted. It also
includes the maximum share capital for which the company
seeks authorisation and the declared aims of the business.
Articles of association This document covers the internal working and controls of
the business, the name of directors and the producers to be
followed at meetings.
Franchise The legal right to uses the name logo and trading systems of
an existing successful business

Initial public offering When a company becomes public limited and starts to sell
share on stock exchange.

Joint venture Two or more businesses agree to work closely together on a

particular project and create a separate business division to
do so.
Franchiser A person or business that sells the right to open stores and
sell products or services using the brand name and brand
identity.
Franchisee A person or business that buys the right from the franchiser
to operate the franchise.
Social enterprise A business with mainly social objectives that re – invests most
of its profits into benefiting society rather than maximising
returns to owners.
Cooperative A jointly owned business operated by members for their
mutual benefits to produce or distribute goods or services as
in consumer cooperatives or farmer’s cooperatives.
Quaternary sector business Business providing information services such as computing
activity web design ICT( information and communication
technologies) management consultancy and R&D(research
and development particularly in scientific fields)

Public corporation A business enterprise owned and controlled by the state also
known as a nationalised industry

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 Unlimited liability Business owners have full legal responsibility for the debts of
the business. In case of bankruptcy, owner’s assets might be
taken away as well to cover the loss.

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 Chapter 3 – Size of Business

Business Terms Definition

Revenue Total value of sales made during the trading period
=selling price*quantity sold.
Capital employed The total value of long term finance invested in the
business
Market capitalization The total value of company’s issued share
Market share Sales of the business as a proportion of total market
sales.
Organic growth Expansion of a business by means of opening new
branches shops and factories (also known as
internal growth)
External growth Business expansion achieved by integrating with
another business by either merger or takeover.

Merger An agreement by owner and managers of two

businesses to bring them together in a new
combined business. This is often referred to as a
friendly merger.
Take over When a company buys more than 50% of the shares
of another company and become its controlling
owner. It can be called an acquisition.
Horizontal integration Integration with a business in the same industry and
at the same stage of production.
Vertical integration Integration with a business in the same industry but
at the different stage of production.
Forward vertical Vertical integration with a retail business
integration

Backward vertical Vertical integration with a supplier business.

integration
Conglomerate Integration with a business in a different industry.
Synergy Literally means that the whole is greater than the
sum of parts. It is often assumed that the new
business will be more successful than the original
separate business
Strategic alliance Agreement between two orginisations to commit
resources to achieving a specific objective while
remaining independent.

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 Chapter 4 – Business Objectives

Business Terms Definition

Business objectives A stated measureable target that a business plans
to achieve.
Corporate social When business consider the interest of society by
responsibility taking responsibility of the impact of their decision
and activities on customer’s employee’s
communities and the environment.
Management by A method of coordinating and motivating all staff in
objectives an organisation by dividing its overall aim into
specific targets for each department manager and
employee.
Ethical code (code of A document detailing a company’s rules and
conduct) guidelines on staff behavior that must be followed
by all employees
Pressure group Organisation created by people with a common
interest or aim who put pressure on business and
governments to change policies so that an objective
is reached.
Triple bottom line The three objectives of social enterprises: economic
social and environmental.

SMART objectives Aims that are specific measurable achievable

realistic and time limited.
Business aims A long term goal that a business hopes to achieve.
Mission statement A brief statement of the business core aims phrased
in a way to motivate employees and to stimulate
interest from outside groups.
Annual (company) report A document that gives details of a company’s
activities over the year including its financial
accounts.
Business strategy A long term plan of action for a business designed
to achieve a particular objective.

Tactic A short term action as part of an overall strategy.

Target A short term goal that must be reached before an
overall objective can be achieved.

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 Chapter 5 – Stakeholders in a Business

Activity 1 – Match the terminology with the correct definition

Business Terms Definition
Stakeholders Individuals or groups who can be effected by and have an
interest in any action taken by an orginisation.
External stakeholders Individuals or groups who are separate from the business
but are effected by or interested in its operations
Internal stakeholders Individuals or groups who work with the business or own it
and are affected by the operations of the business.
Trade union An orginisation of working people with the objectives of
improving the pay and working conditions of its members
and providing them with support and legal working.
Stakeholder concept The view that business and their managers have
responsibilities to a wide range of groups not just
shareholder (also known as stakeholder theory)

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 Chapter 10 – Human Resource Management

Business Terms Definition

Human resources(HRM) The strategic approach to the effective
management of employees so that they help the
business gain a competitive advantage.
Workforce planning Forecasting the number of workers and the skills
that will be required by the organisation to achieve
its objectives.
Workforce audit A check on the skills and qualifications of all existing
workers/managers
Labour turnover Measures the rate at which employees are living an
organisation.
Recruitment The process of identifying the need for a new
employee, defining the job role to be filled, and the
types of person needed to fill it and attracting
suitable candidates for the job.
Selection The series of steps by which candidates are
interviewed tested and screened to choose the
most suitable person for a vacant post.

Recruitment agency A business that offers the service of recruiting

applicants for vacant posts.
Job description A detailed list of the key points about the job to be
filled stating all its key tasks and responsibilities.
Person specification A detailed list of the qualities skills and qualification
that a successful applicant will need to have.
Application form A set of question answered by a job applicant to
give potential employer information about the
applicant such as educational back ground and work
experience.
Curriculum vitae(CV) A detailed documents highlighting all of a person’s
professional and academic achievements work
experience and awards.

Resume A less detailed document than a CV which itemises

work experience educational background and
special skills relevant to the job being applied for.

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 Reference Comment from a trusted person about an
applicant’s character or previous work
performance.
Assessment center A place where a range of tests is used to judge job
applicants on their potential ability to perform a
particular role.
Internal recruitment When a business fill a vacancy from within its
existing workforce.
External recruitment When a business fill a vacancy with a suitable
applicant from outside of the business such as an
employee of another organisation.
Employment contract A legal document that set out the terms and
conditions governing a work’s job.
Redundancy When a job is no longer required the employee
doing this job becomes unnecessary through no
fault of their own.

Dismissal Being dismissed or fire from a job due to

incompetence or breach of discipline.
Unfair dismissal `Ending a workers employment contract for a
reason that the law regards as being unfair
Employee morale Overall outlook attitude and level of satisfaction of
employees when at work
Employee welfare Employee health safety and level of morale when at
work
Work life balance A situation in which employee are able to allocate
the right amount of time and effort to work and to
their personal life outside work.
Equality policy Practices and processes aimed at achieving a fair
organisation everyone is treated in the same way
without prejudice and has the opportunity to fulfill
their potential.
Diversity policy Practices and processes aimed at creating a mixed
workforce and placing a positive value on diversity
in the workplace.
Training Work related education to increase workforce skills
and efficiency.
Induction training Introductory training programme to familiarise new
recruits with the systems used in the business and
the layout of the business sites.

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 On the job training Instruction at the place of work on how a job should
be carried out.
Off the job training Training undertaken away from the place of work.
Multi skilling The training of an employee in several skills to allow
for greater flexibility within the business.
Employee appraisal The process of assessing the effectiveness of an
employee judged against pre-set objectives.
Industrial action Measure taken by the workforce or trade union to
put pressure on management to settle an industrial
dispute in favour of employees.

Collective bargaining The process of negotiating terms of employment

between an employer and a group of workers who
are usually represented by a trade union official.
Trade union recognition ` When an employer formally agrees to conduct
negotiations on pay and working condition with a
trade union rather than bargain individually with
each other.

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 Chapter 11 – Motivation

Business Terms Definition

Motivation The internal and external factors that stimulate the
desire in workers to be continually interested in
and command to doing a job well.
Price rate Payment to worker for each unit produced.
Self actualisation A sense of self-fulfillment reached by felling
enriched and developed by what one has learned
and achieved.
Motivators(motivating Aspect of a worker’s job that can lead to positive
factors) job satisfaction such as achievement recognition
meaning full and interesting work responsibility
and advancement at work.
Job enrichment Aims to use the full capabilities of workers by
giving them the opportunity to do more
challenging and fulfilling work.
Hygiene factors Aspects of a few worker’s job that have the
potential to cause dissatisfaction such as pay
working condition status and over supervision by
managers.

Time based wage rate Payment to worker made for each period of time
worked (e.g. one hour).
Salary Annual income that is usually paid on a monthly
basis.
Commission A payment to a salesperson for each sale made.
Bonus A payment made in addition to the contracted wage
or salary.
Performance related pay A bonus scheme to reward employees fore above
average work performance.

Profit sharing A bonus for employees based on the profits of the

business usually paid as a proportion of basic salary.
Performance related pay A bonus scheme to reward employees for above
average work performance.
Share ownership scheme A scheme that gives employees share in the
company they work for or allow them to buy those
shares at a discount.

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 Fringe benefits Benefits given separate from pay by an employer to
some or all employees.
Job rotation A non-financial motivator that allows that allows
employees to switch from one job to another.
Job enlargement An attempt to increase the scope of a job by
broadening the task undertaken.
Job redesign The restructuring of a job to make the work more
interesting and challenging.

Employee Promotion The advancement of an employee within a business

to a higher level of responsibility and status.
Employee status The level of recognition offered by an employer to a
worker in terms of pay level of responsibility and
benefits.
Development The gain of new or advanced skills and knowledge
as well as opportunities to apply what is gained.
Employee participation Active encouragement of employees to become
involved in decision making within an organisation.
Team working Production is organised so that groups of workers
undertake complete units of work.
Quality circle (QC) A voluntary group of workers who meet regularly to
discuss and try to resolve work related problems
and issues.
Empowerment The giving of skills, resource, authority and
opportunity to employees so that they can take
decision and be accountable for their work.

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 Chapter 12 – Management

Business Terms Definition

Manager The person responsible for setting objectives
organising resource and motivating workers so that
the objectives of the business are met.
Management The orginisation and coordination of activities in
order to achieve the defined objectives of the
business.
Autocratic management A management style where one manager takes all
decision with very little if any input from other.
Democratic management A management style that encourage the active
participation of workers in taking decisions.
Paternalistic management A management style based on the view that the
manager is in a better position that the workers to
know what is best for an orginisation.
Laissez management A management style that leaves much of the
business decision making to the workforce.

Theory X The view that some managers believe that

employee are lazy, fear-motivated and in need of
constant direction.
Theory Y The views that some managers believe employees
are internally motivated, enjoys their work and are
prepared to take on additional responsibilities.

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 Chapter 17 – The Nature of Marketing

Business Terms Definition

Marketing objectives The goals set for the marketing department to help
the business achieve its overall (corporate)
objectives.
Marketing The management task of identifying and meeting
the needs of customers profitably by getting the
right products at the right price to the right place at
the right time.
Corporate objectives Well defined and realistic goals that are set for the
whole company.
Marketing strategy A plan of action giving details of how a business
intends to achieve its marketing objectives by
creating competitive by creating competitive
advantage.
Equilibrium price The price level at which demand is equal to supply.
Demand The quantity of a product that consumers are willing
and able to buy at a given price in a specific time
period.

Supply The quantity of product that firms are prepared to

supply at a given price in a specific time period.
Market segment A subgroup of a whole market in which consumers
have similar characteristics.
Industrial market The selling of products by business to other business
also known as business to business or B2B
Consumer market The selling of products by business to the final and
user also known as business to consumer or B2C.
Customer (or market) An outward looking approach that bases product
orientation decision on consumer demand as established by
market research.
Product orientation An inward looking approach that focuses on making
products that can be made – or have been made for
a long time – and then trying to sell them.

Market size The total value (or quantity) of sales of all producers
within a market in a given time period.
Market growth The percentage change in the total size of a market
(volume or value) over a period of time.

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 Brand leader The brand with the highest share of the market.
Consumer product Goods or services sold to end users.
Industrial products Goods or services sold to businesses.

Mass marketing Selling standardised product or ranges of products

in the same way to the whole market.
Niche marketing Identifying exploiting a small segment of a larger
market by developing differentiated product to suit
that segment.
Market segmentation The identification of different groups of customer
with common needs within a market and the
marketing of different products or services to those
customer groups.
Consumer profile A quantified picture of a business’s consumers
showing data about their age groups income levels
location gender and social class.
Consumer relation Using marketing activities to build and establish
marketing (CRM) good customer relationships so that the loyalty of
existing customers can be maintained.

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 Chapter 18 – Market Research

Business Terms Definition

Market research The process of collecting recording and analysing
data about customers, competitors and the market.
Primary research The collection of first hand data that is directly
related to the needs of the business.
Secondary research The use of existing data that was originally collected
for another purpose.
Qualitative data Non-numerical data which provides insight into the
detailed motivations of consumers and help to
explain their buying behavior or opinions.
Quantitative data Numerical result from research that can be
statistically analysed.
Sample A group of people taking part in a market research
survey selected to be representative of the overall
target market.

Sampling The process of selecting a group of respondent from

a larger population.
Sampling bias When a sample is not a good representation of the
whole population because it is chosen in way which
give some people a greater chance of being
selected.

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 Chapter 19 – The Marketing Mix-Product and Price

Business Terms Definition

Marketing mix The four key decisions on product price promotion
and place that must be taken to enable the effective
marketing of a product.
Product Goods or services that are the end result of the
production process and are sold on the market to
satisfy customer needs.
Goods Products which have a physical existence such as
washing machines and chocolate bars.
Services Products which have no physical existence but
satisfy customer needs in other ways such as
hairdressing car repairs childminding and baking.
Brands An identifying symbol name image or trademark
that distinguished a product from its competitors.
Intangible attributes The subjective opinions of customers about a
product which cannot be measured or compared
easily.

Tangible attributes The measureable features of a product which can

be easily compared with other products.
New product The design creation and making of new goods and
development (NPD) services.
Unique selling point (USP) The special features of a product that makes it
different from competitors’ products.
Product differentiation The unique qualities of a product that lead to
difference between the product and competitors’
products.
Product positioning Consumer view of a product or service as compared
to its competitors.
Product portfolio analysis Analysing the range of existing products of a
business to help allocate resources effective
between them.

Product life cycle The pattern of sales for a product from launch to
withdrawal from the market.
Consumer durable A manufacture product that can be reused and is
expected to have a reasonably long life such as a car
or washing machine.

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 Extension strategy A marketing plan to extend the maturity stage of
the product before a completely new one is
launched.
Boston matrix A method of analysing the product portfolio of
business in terms of market share and market
growth.
Mark-up-pricing Adding a fixed mark-up for profit to the unit cost of
buying in a product.

Cost plus pricing Setting a price by calculating a total unit cost for the
product and then adding a fixed profit mark-up.
Contribution cost pricing Setting prices based on the variable costs of making
a product in order to make a contribution towards
fixed costs and profit.
Competitive pricing Making pricing decision based on the price set by
competitors.
Price discrimination Charging different groups of consumer different
prices of the same goods or service.
Dynamic pricing Offering products at a price that change according
to the level of demand and the customer’s ability to
pay.
Penetration pricing Setting a relatively low price to achieve a high
volume of sales.

Market skimming Setting a high price for a new product when a firm
has a unique or highly differentiated product with
low price elasticity of demand.
Psychological pricing Setting a price at a level with matches consumer
views about a products perceived value.

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 Chapter 20 – The Marketing Mix-Promotion and Place

Business Terms Definition

Promotion The uses of advertising, sales promotion, personal
selling, direct mail, trade fairs, sponsorship and
public relation to inform consumers and persuade
them to buy.
Advertising Paid for communication to inform and persuade
consumer using media such as TV, newspapers, and
cinema.
Direct promotion A range of promotional activities aimed directly at
target customers. It is also known as direct
marketing.
Sales promotion Incentives such as special offers or special deals
directed at consumers or retailers to achieves short
term sales increases and repeat purchases by
consumers.
Promotion mix The combination of promotional techniques that a
firm uses to sell a product.
Digital promotional The promotion of products using digital
technologies, mainly on the internet but also
including mobile (cell) phones.

E-commerce The buying and selling of goods and services by

businesses and consumers through an electronic
medium.
Channel of distribution The chain of intermediaries a product passes
through from producer to final consumer.
Online marketing Selling and marketing activities that use the
(e-commerce) internet, email and mobile communications to
encourage direct sales via electronic commerce.
Digital distribution The delivery or distribution of digital media content
such as audio, video, TV programs, films, software
and video games,
Physical distribution The activities that combine to achieve the efficient
movement of finished product from the end of the
production operation to the consumer.
Integrated marketing mix The key marketing decisions complement each
other to work together to give customers a
consistent message about the product.

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 Chapter 23 – The Nature of Operations

Business Terms Definition

Intellectual capital The intangible capital of a business that includes
human capital (well-trained and skilled employees),
structural capital (databases and informational
systems) and relation capital (good links with
supplier and customers).
Transformational process An activity or group of activities that transforms one
or more inputs, adds value to them, and produces
outputs for customers.
Productivity The ratio of outputs to inputs during production
(e.g. output per worker per time period).
Level of production The number of units produced during a time period.
Production The process that transforms inputs into outputs.
Efficiency Producing output at the highest ratio of output to
input.

Effectiveness Meeting the objectives of the business by using

inputs productively to meet customers’ needs.
Sustainability of operation Business operation that can be maintained in the
long term, for example, by protecting the
environment and not damaging the quality of life
for future generation.
Labour intensive Involving a high level of labour input compared to
capital equipment.
Capital intensive Involving a high quantity of capital equipment
compared with labour inputs.
Job production The production of a one of item specially designed
for the customer.
Batch production The production of a one limited number of identical
products-each item in the batch passes through one
stage of production before passing on to the next
stage.

Flow production The production of items in a continually moving

process.
Mass Customisation The use of flexible computer-aided technology on
production lines to make products that meet individual
customers’ requirements for customized products.

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 Chapter 24 Inventory Management

Business Terms Definition

Lead time The time between ordering new supplies and their
delivery.
Re-order quantity Number of units ordered each time.
Buffer inventory The optimum or least- cost quantity of stock to re-
order taking into account delivery costs and stock
holding costs.
Economic order Minimum inventory level that should be held to
ensure that continuous production is possible
should delivery delays occur or output increase.
Inventory management The process of ordering, storing and using a
company’s inventory.
Inventory Materials and goods held by a business and
required to allow for the production of products
and their supply to the customer.

Re-order level The level of inventory that triggers a new order to

be sent to suppliers.
Just in time (JIT) inventory Aims to avoid holding inventories by requiring
management supplies to arrive just as they are needed in
production and completed products are produced
to order.
Just in case (JIC) Aim to reduce the risk of running out of inventory to
inventory management the minimum by holding high buffer inventory
levels.

Supply chain materials The network of all the business and activities
involved in creating a product for sale, starting with
the delivery of raw materials and finishing with the
delivery of the finished product.

Supply chain Handling the entire production flow of a product

(from raw materials to finished product) to
minimized costs but improved customer service.

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 Chapter 25 Capacity Utilization and Outsourcing

Business Terms Definition

Maximum (full) capacity The highest level of sustained output that can be
achieved.
Capacity utilisation The proportion of maximum output capacity
currently being achieved.
Outsourcing Using another business (a third party) to undertake
a part of the production process rather than doing it
within the business using the firm’s own employees.
Excess capacity This exists when the current levels of output are less
than the full –capacity output of a business; also
known as spare capacity.
Rationalisation Reducing capacity by closing factories production
units.
Capacity shortage When demand for business’s products exceeds
production capacity.

Business process A form of outsourcing that uses specialist contractor

outsourcing (BPO) to take responsibility for certain business functions,
such as human resources and finance.

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 Chapter 29 Business Finance

Business Terms Definition

Start-up-capital The capital needed by an entrepreneur to set up a
business.
Working capital The capital needed to pay for raw materials, day-to-
day running costs and created offered to customers.
Short-term finance Money required for short periods of time of up to
one year.
Long term finance Money required for more than one year
Profit The value of goods sold (revenue) less costs.
Liquidity The ability of business to pay its short terms debts.

Administration When administrators manage a business that is

unable to pay its debts with the intention of selling
it as a going concern.
Bankruptcy When a business ceases trading and its assets are
sold for cash to pay suppliers and other creditors
Liquidation The legal procedure for liquidating a business (or
property owned by sole trade) which cannot fully
pay its debts out of its current assets.
Current assets Assets that either are cash or likely to be turned into
cash within 12month (inventory and trade
receivables o debtors).
Current liabilities Debts that usually have to be paid within one year.
Capital expenditure The purchase of non-current assets that are
expected to last for more than one year, such as
building and machinery.

Revenue expenditure Spending and all costs and assets other than non-
current assets, which includes wages salaries and
inventory of materials.
Internal sources Raising finance from the business’s own assets or
from profit left in the business (retained earnings)
External sources Raising finance from sources outside the business,
for example banks.
Non-current assets Assets kept and used by the business for more than
one year.

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 Overdraft A credit that a bank agrees can be borrowed by a
business up to an agreed limit as and when
required.
Factoring Selling of claims over trade receivables (debtors) to
a specialist organisation (debt factors)

Hire purchase A company purchases an asset and agrees to pay

fixed repayments over and agreed time period. The
asset belongs to the purchasing company once the
final payment has been made.
Leasing Obtained the use of an asset and paying a leasing
charge over a fixed period, avoiding the need to
raise long-term capital to buy the asset. The asset is
owned by the leasing company.
Long term loans Loans that do not have to be repaid for at least one
year.
Debentures Long-term bonds issued by companies to raise debt
finance, often with the fixed rate of interest.
Share (or equity) capital Permanent finance raised by companies through the
sale of shares.
Business mortgages Long term loans to companies purchasing a
property for business premises with the property
acting as collateral security on the loan.

Venture capital Risk capital invested in business start-ups for

expanding small business that have high profit
potential but do not find in easy to gain finance
from other sources.
Collateral security An asset which a business pledges to a lender and
which must be sold off to pay a debt if the loan is
not repaid.
Rights issue Existing shareholders are given the right to buy
additional shares at a discounted price.
Microfinance Providing financial services for poor and low-income
customers who do not have access to the banking
services, such as loans and over drafts, offered by
traditional commercial banks.
Crowd funding The uses of small amounts of capital from a larger
number of individuals to finance a new business
venture.

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 Retained earnings Profit after tax retained in a company rather than
paid out to shareholders as dividends.

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 Chapter 30 Forecasting and Managing Cash Flows

Business Terms Definition

Cash flow The sum of cash payments to a business less the
sum of cash payments from the business.
Insolvent When a business cannot meets its short-term debts.
Cash flow forecast An estimate of the future cash inflows and outflows
of a business.
Cash inflow Cash payments in to a business.
Cash outflow Cash payments out of business.
Net cash flow Estimate difference between cash inflows and cash
outflows for the period (for example one month).

Opening cash balance Cash held by the business at the start of the month.
Closing cash balance Cash held by the business at the end of the month,
which becomes next month’s opening balance.
Credit control Monitoring of debts to insure that credit period are
not exceeded.
Bad debts Unpaid customers’ bills that are now very unlikely
to ever be paid.
Overtrading Expanding a business rapidly without obtaining all of
the necessary finance, resulting in a cash flow
shortage.

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 Chapter 31 Costs

Business Terms Definition

Break-even point The level of output at which total costs equal total
revenue, when neither a profit nor a loss is made.
Costs centre The section of a business, such as department or a
product that incurs the costs.
Direct costs These costs can be clearly identified with each unit
of production and can be allocated to a cost centre.
Indirect costs Costs that cannot be identified with a unit of
production or allocated accurately to a cost centre.
Fixed costs Costs that do not vary with output in the short run.
Variable costs Costs that vary with output.

Total costs Variable costs plus fixed cost.

Profit centre A section of a business to which both costs and
revenues can be allocated, so profit can be
calculated.
Average cost Total costs divided by the number of units
produced.
Full costing A method of costing in which all indirect and direct
costs are allocated to the products, services or
divisions of a business.
Contribution costing Costing method that allocates only direct costs to
cost centres and profit centres, not overhead costs.
Marginal cost The additional cost of producing one more unit of
output.

Break-even analysis Uses cost and revenue data to determine the break-
even point of production.
Contribution per unit The price of product less the direct (variable) costs
of producing it.
Margin of safety The amount by which the current output level
exceed the break-even level of output.

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 Chapter 32 Budgets

Business Terms Definition

Budgeting Planning future activities by establishing
performance targets, especially financial ones.
Budget holder The individual responsible for the initial setting and
achievement of a budget.
Variance analysis Calculation of the differences between budget and
actual figures, and analysis of the reasons for such
differences.
Delegated budget Budget for which junior managers have been given
some authority for setting and achieving.
Incremental budgeting Uses last year’s budget as a basis and an adjustment
is made for the coming year.
Zero budgeting Sets budgets to zero each year and budget holders
have to argue their case for target levels and to
receive any finance.

Favourable variance A change from the budget that leads to higher than
planned profit.
Flexible budgeting Cost budgets for each expense are allowed to vary if
sales or output vary from budgeted levels.
Adverse variance A change from the budget that leads to lower than
planned profit.

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