6.2.2 Costs, Liabilities and Assets

Revision Time: 4 minutes

Costs are the money a business spends.

Liabilities are the money that a business owes (needs to pay out).

Assets are what a business owns/ possesses.

Remember for the exam:


Costs are the expenses incurred when producing goods or services, such as the Cost of materials, labour, and rent. There are three types of costs:

Start-up costs: These are the expenses you have when you first start a business, like buying a building or equipment.

Fixed costs: These are regular expenses that don’t change much, like rent or salaries. For example, if you own a retail store, your rent will be the same whether you sell 10 items or 100 items.

Variable costs: These are expenses that change depending on how much you sell, like materials or commission. For example, if you own a manufacturing company, your cost of raw materials will increase if you produce more products.


Start-up CostsFixed CostsVariable Costs
Business plan
Market research
Legal and accounting fees
Equipment and supplies
Rent or lease/ purchase
Marketing and advertising
Property taxes
Loan repayments
Equipment leases
Marketing and advertising
Cost of goods sold (COGS) (cost to make a Product/service)
Direct labor
Direct materials
Warranty costs


Liabilities are the financial obligations that a business or individual owes to others, such as debts, loans, and taxes owed.

Current liabilities: These are debts that need to be paid within a year, like bills or taxes.

Non-current liabilities (long-term): These are debts that don’t need to be paid back for over a year, like loans or mortgages.


Assets are the resources that a business or individual owns, such as Cash, property, and equipment, which can be used to generate income or add value.

Current assets: These are things a business owns that can easily be turned into cash, like money in a bank account or inventory.

Non-current assets (fixed): These are things a business owns that are more permanent, like buildings or machinery.

6.2.1 Financial terms and calculations

6.2.3 Break-Even Chart