NCEA L1 Commerce cheat sheet

Business structures: sole trader (one owner, unlimited liability), partnership (2-20 owners, unlimited liability unless limited partnership), company (separate legal entity, limited liability, registered under the Companies Act), and co-operative (owned and controlled by member-users).

Limited liability means shareholders lose only their invested capital if the business fails; sole traders and general partners are personally liable for business debts.

Business objectives usually fall into: profit maximisation, sales/revenue growth, market share, survival, social/ethical goals, or shareholder value; objectives guide decisions when resources are scarce.

The marketing mix (4 Ps): Product (features, quality, branding), Price (skimming, penetration, cost-plus, competitive), Place (distribution channel), Promotion (advertising, sales promotion, publicity, personal selling).

Product life cycle stages: introduction, growth, maturity, decline; strategies change at each stage (e.g. penetration pricing at introduction, extension strategies at maturity).

Market segmentation divides customers by demographic, geographic, psychographic, or behavioural factors so the mix can target a specific group.

Stakeholders include owners/shareholders, employees, customers, suppliers, creditors, community, and government; each has different interests and can influence or be affected by the business.

Operations decisions: production method (job, batch, mass/flow), quality control, stock/inventory management, capacity, and location; these affect cost, quality, and flexibility.

Business success indicators: profit, return on investment, market share, productivity, customer satisfaction, and cash flow; profit is not the same as cash.

Accounting equation: Assets = Liabilities + Equity (Owner's equity). Every transaction keeps it balanced, so at least two accounts change.

Double-entry rule: every transaction has equal debits and credits. Debits increase assets and expenses; credits increase liabilities, equity, and income.

Income statement (profit and loss): Revenue − Cost of goods sold = Gross profit; Gross profit − Operating expenses = Net profit (before/after tax).

Cost of goods sold = Opening stock + Purchases − Closing stock (for a trading business).

Balance sheet reports assets, liabilities, and equity at a point in time; classified as current (within 12 months) and non-current.

Depreciation allocates the cost of a non-current asset over its useful life; straight-line = (Cost − Residual value) ÷ Useful life.

Cash flow vs profit: profit is revenue minus expenses on an accrual basis; cash flow tracks actual money in and out. A profitable business can still run out of cash.

Trial balance lists all ledger balances; total debits must equal total credits. It detects arithmetic errors but not all errors (e.g. errors of principle, compensating errors).

Key ratios: Gross profit margin = Gross profit ÷ Sales × 100; Net profit margin = Net profit ÷ Sales × 100; Mark-up = Gross profit ÷ Cost of goods sold × 100.

Scarcity: unlimited wants vs limited resources; economics studies how individuals, firms, and governments allocate scarce resources.

Opportunity cost is the value of the next best alternative forgone when a choice is made.

Demand law: as price rises, quantity demanded falls (ceteris paribus). Supply law: as price rises, quantity supplied rises. Equilibrium is where demand = supply.

Demand shifters: income, tastes, prices of substitutes/complements, population, expectations. Supply shifters: costs of production, technology, taxes/subsidies, number of suppliers, weather.

Price elasticity of demand = % change in quantity demanded ÷ % change in price. Elastic if >1 (luxuries), inelastic if <1 (necessities); affects pricing and tax revenue.

Market structures: perfect competition (many sellers, homogeneous product), monopoly (single seller, barriers to entry), oligopoly (few large firms), monopolistic competition (many differentiated products).

Economic cycle: expansion (growth, low unemployment, rising inflation), peak, contraction/recession (falling output, rising unemployment), trough.

Government roles: provide public goods (non-excludable, non-rival), correct market failure (externalities, pollution), redistribute income, and manage the economy via fiscal and monetary policy.

Inflation is a sustained rise in the general price level; measured by the Consumers Price Index (CPI). It erodes purchasing power and affects interest rates.

Budget rule: Income − Fixed expenses − Variable expenses = Surplus (or deficit). Track spending and adjust to reach savings goals.

Compound interest: A = P(1 + r/n)^(nt), where P = principal, r = annual rate, n = compounding periods per year, t = years. Compound interest grows faster than simple interest.

Simple interest: I = P × r × t. Use for short-term loans and simple savings calculations.

Risk–return relationship: higher expected return usually requires accepting higher risk. Diversification (spreading investments) reduces unsystematic risk.

Savings vs investment: savings are low-risk, accessible funds (e.g. savings accounts, term deposits); investments aim for higher returns (shares, property, managed funds) with higher risk.

Credit costs: interest is charged on outstanding balances; minimum repayments extend repayment time and increase total interest. Compare effective interest rates, not just headline rates.

Insurance transfers risk for a premium; the insured accepts an excess. Key terms: premium, excess, cover, exclusions, sum insured.

Consumer rights under the Consumer Guarantees Act and Fair Trading Act: goods must be fit for purpose, acceptable quality, match description; misleading claims are prohibited.

Financial goals should be SMART (specific, measurable, achievable, relevant, time-bound); emergency funds typically cover 3–6 months of essential expenses.