Contract law
A legally enforceable agreement between two or more parties
What are the four types of business entities?
Sole trader, partnership, trust, company
What is a business analysis/decision-making tool you can use to evaluate a business? What is its purpose?
SWOT analysis - Strengths, weaknesses, opportunities, threats
Helps you evaluate internal and external factors
What is insolvency?
The financial state in which an individual or business is unable to pay their debts as they fall due, often leading to formal legal proceedings.
What is the name of the report which provides a summary of a business’s financial performance?
A Profit and Loss Statement
What are the three elements of a contract?
Intention to be legally bound, agreement, and consideration
Which business entities have unlimited liability?
Sole traders and partnerships
If you wanted to buy a business, what should you do? Explain.
Perform due diligence - Investigate financial records and legal records
Give an example of cash receipts and an example of cash payments
Cash receipts = cash sales, collection of accounts receivable, etc.
Cash payments = raw materials/inventory, payroll, marketing, etc.
Which business entities are not legally required to prepare a Profit and Loss Statement?
Sole traders, partnerships, and small proprietary companies. Many do it anyway as it is a good financial record.
What is an example of invitation to treat?
- Goods displayed in a shop
- Advertisements
- Displays or cards with price listings
- Auction announcements
Who are three main roles in a trust?
Settlor, beneficiary, trustee
What is goodwill?
Goodwill is the amount a buyer is willing to pay for the business above the value of its net assets. It represents non-physical elements that make the business attractive, such as reputation, strong customer relationships, brand recognition, or exclusive rights to sell a product.
What is a cash surplus and a cash deficit?
Cash surplus or deficit is calculated by taking “total cash” minus “total cash payments” (for the relevant month
Surplus = in positive, extra money
Deficit = in negative
What is COGS? Give an example.
Cost of Goods Sold (COGS): Includes all costs cost incurred to bring inventory to its present location and condition of sale.
- Labour, raw materials, packaging, shipping, insurance on shipping, etc.
When can the remedy of specific performance be awarded?
- If there are no other people available
- If it is not a personal service
What is the difference between public companies and proprietary companies?
A public company is larger than a proprietary company and has no limit on the number of shareholders. It can raise capital from the public by selling shares on the stock market. A proprietary company, often abbreviated to Pty, is the most common type of company in Australia. These companies are generally smaller and commonly used by family-run or small to medium-sized businesses. A proprietary company is limited to a maximum of 50 shareholders and must have at least one director who lives in Australia.
What are the two types of costs?
Fixed costs - A fixed cost is a business expense that generally remains constant, regardless of changes in the level of output or sales revenue.
Variable costs - A variable cost is a business expense that will fluctuate depending on the level of output or sales.
What is a bank reconciliation statement and why is it used by businesses?
It is the process used to ensure that a business’s internal financial records match the transactions shown on its bank statement. It is a key part of maintaining accurate accounting records - verifies business records are accurate, confirms bank's records are accurate
What is the formula for calculating Gross Profit?
Gross Profit = Sales revenue – Cost of Goods Sold
What is the difference between a breach of warranty and a breach of condition?
Warranties = terms less important when compared to contracts, can sue for damages. Conditions are terms fundamental to heart of contract, can sue for breach of contract.
What is the name of the term which describes owing duties of good faith and acting in somebody else's best interest?
Fiduciary duty
What tool can you use to calculate how changes in sales volume, costs and prices affect a business’s profit? What is the formula?
Cost-Volume-Profit Analysis (CVPA):
Profit = (Selling price – Variable cost) x Quantity of products sold – Total fixed costs
What do you do in a bank reconciliation?
1. Identify outstanding items - Find transactions which don't appear on the bank statement. These are either outstanding deposits (expecting money) or outstanding withdrawals)
2. Start with bank balance and the date
3. Adjust the balance by adding outstanding deposits and subtracting outstanding withdrawals
4. Show the final balance
What is the formula for calculating Net Profit?
Net Profit = Gross Profit – Expenses