This document provides definitions for over 100 key business terms. It is intended as a reference guide for GCSE Business Studies students. The terms are presented alphabetically and include short explanations. The document is copyrighted by AQA and outlines rules for photocopying portions for internal educational use.

1. Teacher Support Meeting
GCSE Business Studies B
(3133/3139)
Key Business Words
Version 1.0
Spring 2006

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4. GCSE Business Studies B
Key Business Words
Accounts The financial records of a firm’s transactions.
Acid test ratio This measures the liquidity of a business and is calculated by the ratio of current
assets minus stock to current liabilities.
Annual general meeting A legal requirement to hold a meeting once a year for all shareholders to vote in
directors and discuss and vote on key issues.
Appropriation account The section of the profit and loss account showing what happens to any net
profit that is made.
Arbitration Both sides in a dispute agree to abide by the decision of the arbiters who are
independent and listen to both sides before making a decision.
Articles of Association A document which outlines the internal rules of a company.
Assets Everything that a company owns and has a money value.
Assisted areas Large areas or parts of a region that are identified for assistance by the
Government because they have high unemployment and need help to keep and
attract new business and industry.
Authoritarian This style of management means that one person makes the decisions.
Balance of payments A record of the UK’s trade with the rest of the world that includes all
transactions and movements of money.
Balance sheet An account that gives a statement of a firm’s wealth on a particular date and
shows its assets, liabilities and capital.
Barriers to trade Ways to discourage or stop the import of goods including tariffs and quotas.
Batch production The production of a similar or identical good in batches with production stopped
to allow changes before the next batch is made.
Board of directors Appointed by shareholders to decide policy and run the company.
Bonuses Additional amounts of money above normal pay as a reward for good work.
Borrowed funds Money that is borrowed in some way and will have to be repaid, usually with an
interest charge.
Branding Identifying a product by giving it a unique brand name and making it special in
the eyes of the consumer by giving it a brand image that distinguishes it from
those of competitors.
Break even point The level of sales at which total costs equal total revenue.
Business plan A detailed outline of a business’s intention over a period of time.
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Capital employed This is the total amount of capital or money put into the business.
Cash deficit A situation where a firm finds itself short of cash because the outflow is greater
than the inflow.
Cash flow forecast A prediction of future flows of cash into and out of a business set out in a chart
or graph.
Cash inflow A flow of cash into the business.
Cash outflow A flow of cash out of the business.
Cash surplus A situation where the cash inflow is greater than the cash outflow.
Chain of command A structure within a firm allowing instructions to be passed downwards through
the organisation.
Chain of production The stages through which a product will pass during production.
Channel of distribution The way in which goods get from the manufacturer to the producer.
Collective bargaining Negotiations on industrial relations matters with all sides represented.
Commission Payment relating to the number of sales made, often calculated as a percentage
value of sales.
Competitive pricing Companies base their prices according to competitors’ prices.
Conciliation An independent person listens to both sides in a dispute and tries to find a way
to help re-start negotiations.
Conglomerate A business that operates in many different markets.
Consultation Involving others in decision making.
Consumer A person who uses goods and services.
Contract of Employment A written document detailing an employee’s terms and conditions of
employment.
Contribution The sales revenue of an item (its price) minus the variable cost of making and
selling that item.
Co-operative An enterprise where a group of people either work together or buy or sell
goods/services for the group’s shared benefit.
Corporation Tax The tax paid by businesses on their profits.
Costs of production Payments for buying or hiring the resources needed to make a product, sell
goods or provide a service.
Cost of sales The cost of goods made or bought by a business. It is calculated by taking
opening stock + purchases – closing stock.
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Cost plus pricing The cost of making the product plus a percentage for profit mark up.
Creditors These are people or organisations who have supplied goods or services to a firm
but have not yet been paid for them.
Current assets These are assets which can be easily turned into cash such as stock and debtors.
Current liabilities These are debts which the firm has to repay within one year.
Current ratio This measures a firm’s ability to pay short term debts by comparing its current
assets with its current liabilities.
Debtors These are people or organisations who have bought goods or services from a
firm but have not yet paid for them.
Deed of partnership This is a legal document which shows how responsibilities, profits and workload
are to be shared.
Delayering The removal of a layer of management in an organisation.
Delegation Giving others the authority to undertake a task.
Democratic leadership This style of management allows employees to take part in decision making.
Depreciation The method of lowering the value of fixed assets for ‘wear and tear’.
Desk research This is data which has been previously gathered for another purpose. It can also
be called Secondary data.
Direct costs Costs which are directly related to a production process.
Disciplinary matters Problems with workers who have broken the rules and need to be seen by the
personnel department.
Diseconomies of scale These disadvantages arise when a firm becomes too large to manage effectively
and will often result in a rise in unit costs.
Disposable income The money available for use by a consumer after taxes, national insurance and
other deductions have been made.
Diversification This is when a business expands by moving into new markets. This might be
achieved by a merger.
Dividend Payments made to shareholders from the profits of a company.
Division of labour When the production process is split up into different tasks and each worker
performs one of those tasks. This can be called specialisation.
Economies of scale These are the advantages of producing large quantities of output. These should
help the firm to reduce unit costs.
Employers’ association A group of employers who join together to give benefits to their members.
Enterprise zone A small area usually with high unemployment given special help by the
government to attract new business and industry to locate there.
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Entrepreneur A person who is willing to take a risk by investing money into a business,
organising the resources and hoping to make a profit.
Equal opportunities Treating all employees equally regardless of race, gender or disability.
Exchange rate The price or value of one currency compared to another.
Expenses All the operating costs of a firm, sometimes called overheads.
Exports Goods and services sold to other countries.
External benefits Benefits to the community when some sort of productive activity or
development takes place. The producer of the benefit does not directly gain
from this.
External costs These are costs suffered by the community when a productive activity or
development takes place.
Factoring Selling debt to a third party, who will then collect the debt.
Factors of production These are the resources needed to produce goods or services.
Field research Data collected for a specific purpose at the time it is required and usually
involves surveys or interviews. This can also be called Primary Data.
Finance – long term Money borrowed for at least ten years which will be used to start up larger
businesses, to buy lifelong assets such as buildings and to pay for large scale
expansion.
Finance – medium term Money borrowed for between three and ten years which may be used to buy
assets such as machinery, to set up the business and to pay for small scale
expansion.
Finance – short term Money borrowed for between one day and three years. It is mainly needed to
help cash flow, to buy assets such as vehicles and to buy in additional stocks of
materials.
Fiscal policy The use of government spending and taxation to control the state of the
economy.
Fixed assets Assets which are used to help production take place.
Fixed costs Costs which do not change as output changes.
Flow production The manufacturing of identical goods in large numbers on a continuous
production line, sometimes called mass production.
Franchise The right to trade under an established name.
Franchisee The person or organisation buying the right to operate a franchise outlet.
Franchisor The person or organisation selling the right to operate a franchise.
Fringe benefits (perks) Non monetary rewards given as incentives to employees.
Globalisation The increase in worldwide competition between businesses.
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Go slow A form of industrial action when the employees do their normal tasks more
slowly than usual.
Grievance Possible disputes caused by workers having a grievance with the firm.
Grants Money given to a firm to help it to operate and expand. This does not have to be
paid back.
Gross profit The difference between sales revenue and cost of sales.
Gross profit to sales A comparison of the Gross Profit of a firm with its sales revenue calculated as a
revenue ratio percentage.
Health and safety Regulations to ensure the health and safety of employees.
Herzberg’s theory Motivation of employees through pay and hygiene factors.
Hierarchy An organisation in which power and responsibility are built up in layers with the
most powerful at the top.
Hire purchase The buying of equipment by paying in instalments, usually including interest.
Horizontal integration One firm merging with another in the same industry at the same stage of
production.
Imports The purchase of goods or services from overseas.
Indirect costs Costs which cannot be related to a particular product, often called overheads.
Induction training For new staff, an introduction to the company, its organisation, its rules and
regulations and to the job.
Industrial action The action taken by employees to slow down or halt the production of goods or
services.
Industrial tribunal A legal meeting which considers workers’ complaints of unfair dismissal or
discrimination at work.
Inflation A rise in average price levels of goods and services measured by the retail price
index.
Infrastructure Transport and communication networks.
Invisibles Earnings and payments for trade in services such as banking, travel and tourism
and shipping.
Job description A document which outlines the responsibilities and duties expected of an
employee.
Job enlargement Similar extra tasks are added to a worker’s job description.
Job enrichment Adding tasks which require more skill and/or responsibility.
Job production Producing a single one-off product or service to meet the individual
requirements of the customer.
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Job rotation Changing the work of employees on a regular basis to give them more
experience.
Job satisfaction Enjoyment from completing a job.
Job specification Document which outlines the requirements, qualifications and expertise required
from a person to do a specific job.
Just in time (JIT) A strategy involving the supply of stocks to the producer just in time for their
use in the production process.
Kaizen A method of continuous improvement within a workplace.
Kanban A system of stock control using a data card as a visible record of the flow of
stock.
Labour turnover The number of employees leaving a firm over a period of time.
Laissez faire leadership Employees are left to make many of the decisions rather than receiving clear
instructions.
Lateral integration A firm expands by moving into a smaller, but different, area of production eg
building society buys an estate agent.
Lean production A method of being efficient and cutting out waste in a production system.
Leasing To buy or borrow for a fixed period of time.
Liabilities The debts of a business both long and short term.
Limited companies A business structure which has a separate legal identity to its owners known as
shareholders.
Limited liability Responsibility for debt is limited to the amount of money put into a business.
Line manager A worker’s immediate superior.
Liquidity The ability of a business to obtain cash to pay back its short term debts.
Loans A specific sum of money borrowed for a fixed period of time with interest
charged by the lender.
Long term liabilities Capital borrowed for use in a business to be repaid in a time period of longer
than one year.
Loss leader A product that is deliberately sold for less than its cost price to attract customers.
Market Where buyers and sellers come together to exchange goods or services for
money.
Market leader The number one firm in the market for a particular product measured by its
percentage share of the market.
Market research The data collected about existing and potential markets.
Market segment The market is divided into groups of consumers who have similar needs.
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Market segmentation The methods used to divide up consumers eg age, income.
Market share The proportion of the total sales of a product that has been gained by a brand or
company.
Maslow’s theory The motivation of employees through the hierarchy of needs.
Maximisation Making the most of something.
McGregor The theory of management in which workers are defined as theory X or
theory Y.
Mediation An independent person who listens to both sides in a dispute and proposes a way
to settle it.
Merger The owners of two businesses agree to join their firms together to make one
larger business.
Memorandum of The document which outlines the external information of the company.
Association
Minimum wage The lowest sum an employer can legally pay an employee.
Monetary policy Controls on the amount of money available in the economy and on interest rates.
Monopoly A business which controls the market for a product.
Motivation Encouragement of employees to work successfully.
Multinational A firm that operates in more than one country.
Needs Goods or services essential for living.
Net assets employed This is the total of Fixed Assets and Net Current Assets.
Net cash flow The difference between inflows and outflows.
Net profits The difference between Gross Profit and Expenses.
Net profit to sales This compares Net Profit with sales revenue calculated as a percentage.
revenue ratio
Non price competition This is where firms compete on product, promotion and place but not using
price.
No-strike agreements Trade unions and management agree to have pay disputes settled independently
instead of taking strike action.
Objectives Targets for a business to judge its success over a period of time.
Off the job training Training methods taking place away from the production line so that the trainee
is not involved in producing the good or providing the service.
On the job training Methods of training that involve a worker learning the job as he or she works on
the actual production line.
Opportunity cost The cost of the alternative that has to be given up when a choice is made.
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Organisational structure The levels of management and division of responsibilities within an
organisation.
Overdraft A means of taking more money from a bank account than is in the account,
usually with interest charged.
Overtime ban A form of industrial action when employees refuse to work longer than their
normal working hours.
Owners’ funds Money put into the business by the owner. The money will stay in the business
as long as it continues to operate.
Packaging The physical container or wrapping for a product also used for promotion.
Partnership An agreement between two or more people to jointly run a business and to share
profits and risks.
Payment by results A payment system based on the quantity and perhaps quality of work completed.
Penetration pricing A pricing strategy when pricing is set lower than competitors’ prices to enter a
new market.
Performance related pay Pay related to the effectiveness of the employee.
Picketing Employees support industrial action by protesting outside their work place.
Point of sale (POS) The actual place where the product is being sold.
Predator pricing Setting a price low enough to drive competitors out of the market.
(destroyer)
Price leader The major firms in the market set the price most others follow.
Primary sector Industries which extract natural resources.
Private Limited Company A company that is owned by shareholders but shares are not for sale to the
(Ltd) general public.
Private sector Businesses not owned by the state but by individuals or groups of individuals.
Product differentiation Making products different.
Product range The different types of product that a firm produces to try to reach different parts
of the market.
Productivity A measure of the efficiency or work rate of the workforce.
Productivity deal An increase in wage rate is linked to an increase in output,
Product life cycle The stages a product will pass through during its ‘lifetime’.
Profit after tax Net profit minus tax paid to the government.
Profit and loss account An account showing the revenue, costs and profit of a business over a period of
time.
Promotional pricing Pricing to attract customers away from competitors.
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Public relations Keeping the product in the public eye in ways other than promotion.
Public Limited Company A company where shares may be sold to the general public through the stock
(plc) exchange.
Public sector Organisations where the activities are carried out either by national or local
government.
Quality assurance Quality is checked both during and at the end of production.
Quality control Checks are made on the final products for possible defects.
Quota sample People are selected on the basis of certain characteristics as a source of
information for market research.
Random sample People are selected at random as a source of information for market research.
Recruitment An attempt to increase the number of employees.
Redundancy When an employee loses their job because they are no longer needed.
Research and Trying out new ideas and developing new technology to come up with better
development products.
Retailer An outlet selling goods directly to the consumer.
Retained profit Profits kept back in the company as a reserve or for re-investment.
Return on capital This measures the firm’s ability to measure the capital invested into it. Net
employed (ROCE) profit is calculated as a percentage of total capital employed.
Revenue Income from the sale of goods and services over a period of time.
Running costs Costs paid out at regular intervals to keep the business running.
Salary A system of pay based on an annual income, paid monthly or weekly, that may
not lay down the number of hours to be worked.
Secondary sector Industries which manufacture, assemble, process and construct goods.
Selection A process of choosing the best person for a job.
Share capital The value of the shares when they were first issued which is invested
permanently in the company.
Single status All workers, managers etc are treated the same.
Single union agreement A firm will only deal officially with one recognised trade union.
Sleeping partner A partner who puts in finance but does not take part in running the business.
Skimming (Creaming) Setting a high price for new products to help recover development costs. Prices
are lowered when competitors come onto the market.
Sole proprietor A business owned by one person.
Span of control The number of people or departments that a person has under their command.
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Start up costs Costs paid out when setting up a new business or when expanding an existing
one.
Stock control A method of assessing when stock has to be re-ordered.
Stocks A mixture of raw materials, components, parts and finished goods.
Stock turnover The time that it takes for goods to be sold and replaced.
Strikes Industrial action where employees refuse to work.
Subsidy An amount granted to a business to help them keep trading or to keep prices
down.
Suppliers Individuals and organisations that sell goods and services to a business.
SWOT An analysis of the strengths, weaknesses, opportunities and threats of a business.
Target market A group of people for whom a particular product is designed.
Targeted sampling A specific age, gender or socio-economic group is identified for sampling.
Team working A firm uses production teams to make part or all of a specific product. It is
sometimes called cell production because they are self sufficient.
Tertiary sector Industry which provides services both to individuals and other sectors of
industry.
Time rates Any payment system that pays workers by the amount of time worked.
Total costs The combined total of fixed costs and variable costs for any level of output.
Total quality Everyone in the workplace is encouraged to aim for higher quality in everything
management they do.
Trade credit Arrangements with a supplier to delay payments for goods and services received
until a due date.
Trademarks A symbol, name or logo which is registered and protected by law.
Trade union A group of workers who join together to ensure that their interests are protected.
Trading account A summary of a firm’s trading activities showing how gross profit is calculated.
Training The teaching of skills and the application of knowledge for work.
Unemployment People who are willing and able to work but cannot find a job.
Unit costs The average cost of making a single item.
Unlimited liability Responsibility for the debts of a business extends to a person’s personal wealth.
Value added The difference between the value paid for the inputs used in production and the
value of a firm’s output.
Variable costs Costs which vary with the number of items sold or produced.
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Vertical integration One firm merges with another at a different stage in the production chain.
Visibles Trade in actual physical goods.
Wage Payment for work usually paid weekly.
Wants Goods or services which people would like to have but which are not essential
for living.
Wholesaler A business that buys in bulk from the manufacturer and sells in smaller
quantities to retailers or direct to consumers.
Work to rule Industrial action where rules are strictly obeyed to slow down work.
Working practices The expected way for workers to carry out a job, possibly written down in
formal rules and regulations.
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