ENTREPRENEURSHIP
BUSINESS FINANCE AND ARITHMETIC
FACTS THAT MATTER -
❖ Transactions are of two categories: Cash and Credit transactions.
❖ Type of Cost are Start up Cost, Fixed Cost and Variable Cost.
❖ Cash Register: It is a book in which all cash transactions are to be recorded.
Cash Register records cash and bank transactions.
❖ Inflow is receipts of money in a business referred as inflow.
❖ Outflow is payments made in the business referred as outflow.
❖ Direct Taxes are taxes paid directly by the person to the government
(The entrepreneur may be collection agent).
❖ Indirect Taxes: It is the amount paid indirectly by the person to the government
like while purchasing a product, etc.
❖ Depreciation: Reduction in the balance of fixed asset (except land) due to wear
and tear and obsolescence.
❖ Credit Transactions are Credit Sales and Credit Purchases.
❖ Credit Sales: When products are sold on credit which means that
the buyer does not pay the money immediately.
❖ Credit Purchases: When products are purchased on credit and the amount
will be paid at a later date.
❖ Unit of Sale: It is defined as the measure of what products are sold.
❖ Unit cost: Cost of unit can be defined as the cost incurred by a company to
produce, store and sell one unit of sale of a particular product or service.
❖ Unit Price is the price at which one unit of sale is sold.
❖ Gross Profit.
❖ Excess of Unit Price over Unit Cost is known as the Unit Gross
Profit or Unit Gross Margin.
❖ Gross profit per unit = unit price – unit cost,
❖ Expenses: An expense is the value of the resource that was used up, or
was necessary in order to earn the revenues during the time period.
❖ Start-up cost: It is the cost which is incurred initially a business is started.
❖ Operational Costs: These costs are for carrying out the day-to-day operations
of the business or enterprise.
❖ Fixed costs are the ones which has to incur by virtue of the fact that one has
started a business and are operating it.
❖ Variable costs are those which vary as a total cost to the organization when
output (number of items-goods or services-produced) varies.
❖ Profit is a financial benefit that is realized when the amount of revenue gained
from a business activity exceeds the expenses, costs and taxes needed to sustain the activity.
❖ Profit = Total Sales Revenue — Total Sales Expense
❖ Gross Profit = Total Sales — Total Cost of goods sold
❖ Profit before tax = Gross Profit — Fixed Expenses
❖ Cash Flow: Cash flow refers to the movement of money in and out of a
business during a specific period of time.
❖ Cash Flow Projection: It shows how cash is expected to flow in and
out of your business.
❖ Gestation Period: It is the period of not making any profit.
❖ Break-even point: It is a neutral point where there is no profit
nor loss occurs. Break-even point is expressed as quantity for a
period (day, week, month, etc.)
❖ Direct tax: It is a kind of charge, which is imposed directly on the taxpayer
and paid directly to the government by the persons (legal or natural)
on whom it is imposed.
❖ Income tax is an annual tax on income (profit). Rates and other details
vary from person to person based on whether sole proprietor, partnership
or corporation, income statement.
❖ Corporation tax is a tax levied on the Income (Profit) of the Domestic
Company or Foreign.
❖ Property tax or house tax: If tax is levied on the price of a goods or service,
then it is called an indirect tax, like service tax, sales tax or VAT, central excise
tax, custom duty, etc.