AP®︎ Business with Personal Finance: Topic 3.6 Flashcards

A financial statement comparing revenue with costs over a specified period to determine net profit or loss

Income generated by a business’s core activities before costs are deducted

The direct costs associated with producing the goods sold or delivering services

Profit after direct costs are deducted; gross profit = revenue − COGS.

Indirect costs of running a business, including selling, general and administrative, and research and development expenses

Operating expenses associated with marketing and selling products, such as advertising and salespeople’s salaries

Operating expenses for administering the business, such as office salaries, office rent, insurance, supplies, and utilities

Operating spending intended to create or improve products, services, or production processes

Profit before interest and taxes; operating profit = gross profit − operating expenses

The cost of borrowing money through loans, including bonds, but not repayment of loan principal

Income before taxes; pretax income = operating profit − interest expense

Taxes owed on positive pretax income and reported as an expense on the income statement

An unusual or one-time expense identified separately so it is not mistaken for a normal recurring cost

The final profit earned for owners during the period; net profit = pretax income − taxes

Gross profit ÷ total revenue × 100; evaluates pricing and management of direct costs

Operating profit ÷ total revenue × 100; evaluates selling, administration, and control of operating expenses

Net profit ÷ total revenue × 100; measures overall profitability and the percentage of revenue flowing to owners as income

Comparing financial results with projections, past performance, and competitors or industry performance to assess whether expectations are being met

Percent change = [(current value − initial value) ÷ initial value] × 100

The arithmetic difference between two percentages, unlike percentage change, which divides that difference by the initial percentage

An income statement using estimated future revenues, costs, interest, and taxes to predict profit or loss for a future period

A financial plan estimating a business’s revenues and expenses and guiding spending for a future period

A plan allocating expected net pay among savings, expenses, debt payments, and other financial goals

Income remaining after taxes and other payroll deductions