AQA · GCSE · Business
Course version: 8132 · Version from Sept 2017
Financial terms and calculations: Basic financial terms
Basic financial terms are the vocabulary used to describe money flowing into and out of a business and the resulting positions.
Checked against the AQA 8132 specification (opens in a new tab) on .
- Point 1 of 10
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
Basic financial terms are the vocabulary used to describe money flowing into and out of a business and the resulting positions. Revenue is the total income from sales, calculated as selling price × quantity sold. Costs are the expenses of operating; fixed costs do not change with output, while variable costs change directly with output. Total costs are fixed costs plus variable costs. Profit is what remains when total costs are subtracted from revenue; a negative result is a loss. These terms allow a business to judge viability and performance. For example, a café selling 200 lunches at £6 each earns revenue of £1,200; if fixed costs are £700 and variable costs are £2 per lunch, total costs are £700 + £400 = £1,100, giving profit of £100. Understanding each term is essential before performing calculations.
What earns the marks
- Revenue is the total income generated from selling goods or services, calculated as selling price × quantity sold.
- Fixed costs are expenses that do not vary with the level of output in the short term, such as rent or insurance.
- Variable costs are expenses that change directly with the level of output, such as raw materials or packaging.
- Total costs are the sum of fixed costs and variable costs: total costs = fixed costs + variable costs.
- Profit is the surplus when total costs are subtracted from revenue: profit = revenue − total costs.
- A loss occurs when total costs exceed revenue, giving a negative profit figure.
Common mistakes and how to put them right
Confusing revenue with profit.
Put it right: Identify whether the question asks for income or surplus.
Treating all costs as variable.
Put it right: Classify each cost as fixed or variable before calculating total costs.
Forgetting to include fixed costs when calculating total costs.
Put it right: Write total costs = fixed costs + variable costs before substituting figures.
Exam tips
- Learn the exact definitions and formulas for revenue, fixed costs, variable costs, total costs and profit, as these terms are frequently tested.
- When a question gives a scenario, underline the figures and label each one as revenue, fixed cost, variable cost or profit before calculating.
Try the lesson
The start of the Financial terms and calculations: Basic financial terms lesson, made from checked teaching notes for this specification point.
Have a go first
A bakery sells cakes and receives £4 000 in total from customers during the month. Which basic financial term describes this £4 000?
Listen
Basic financial terms are the vocabulary used to describe money flowing into and out of a business and the resulting positions. Revenue is the total income from sales, calculated as selling price × quantity sold. Costs are the expenses of operating; fixed costs do not change with output, while variable costs change directly with output. Total costs are fixed costs plus variable costs. Profit is what remains when total costs are subtracted from revenue; a negative result is a loss. These terms allow a business to judge viability and performance. For example, a café selling 200 lunches at £6 each earns revenue of £1,200; if fixed costs are £700 and variable costs are £2 per lunch, total costs are £700 + £400 = £1,100, giving profit of £100. Understanding each term is essential before performing calculations. A strong answer earns marks for these points. Revenue is the total income generated from selling goods or services, calculated as selling price × quantity sold. Fixed costs are expenses that do not vary with the level of output in the short term, such as rent or insurance. Variable costs are expenses that change directly with the level of output, such as raw materials or packaging. Total costs are the sum of fixed costs and variable costs: total costs = fixed costs + variable costs. A common slip: Confusing revenue with profit: revenue is total income before any costs are deducted, whereas profit is what remains after total costs are subtracted. Instead, identify whether the question asks for income or surplus. Exam tip: Learn the exact definitions and formulas for revenue, fixed costs, variable costs, total costs and profit, as these terms are frequently tested.
See it
Key words
Say what each word means before you turn the card.
Revenue
Try answering aloud or in your head before turning the card.
Fixed costs
Try answering aloud or in your head before turning the card.
Variable costs
Try answering aloud or in your head before turning the card.
Profit
Try answering aloud or in your head before turning the card.
See every definition
- Revenue
- The total income from sales, calculated as selling price × quantity sold.
- Fixed costs
- Expenses that do not change with output.
- Variable costs
- Expenses that change directly with output.
- Profit
- What remains when total costs are subtracted from revenue; a negative result is a loss.
Label the diagram
Some boxes have lost their names. Pick the right name for each number.
1Box 1
2Box 2
There is more to this lesson
The full lesson goes on to check your understanding and help you earn the marks. Create a free account to carry on, with your progress saved.
A week of Premium from your first lesson · Then the free plan continues · No card, no charge
Test your understanding of Financial terms and calculations: Basic financial terms
Active recall beats re-reading. Take an instant quiz now to test what you’ve learned and lock it into long-term memory.
A week of Premium from your first lesson · Then the free plan continues · No card, no charge