Accounts Payable: Obligations owed to others; list of outstanding bills.
Accounts Receivable: Obligations owed to your company by others; a list of outstanding invoices.
Accumulated Depreciation: The amount of depreciation a company has already taken in the form of tax deductions; such accumulated depreciation must be accounted for when selling fixed assets.
Appraisal: Evaluation of a specific piece of personal or real property. The value placed on the property evaluated
Annual report: The yearly report made by a company at the close of the fiscal year, stating the company’s receipts and disbursements, assets and liabilities.
Assets: Anything the company owns having a positive monetary value.
Audit: An examination of accounting documents and of supporting evidence for the purpose of reaching an informed opinion concerning their propriety
Balance Sheet Balance sheet: An itemized statement that lists the total assets and total liabilities of a given business to portray its net worth at a given moment in time
Bankruptcy: the condition of being unable to pay debts, with liabilities greater than assets
Bill of sale: Formal legal document that conveys title to or interest in specific property from the seller to the buyer
Bookkeeping: The process of recording business transactions into the accounting records. The “books” are the documents in which the records of transactions are kept.
Bottom line: The figure that reflects company profitability on the income statement. The bottom line is the profit after all expenses and taxes have been paid.
Break-even: The point of business activity when total revenue equals total expenses. Above the break-even point, the business is making a profit. Below the break-even point, the business is incurring a loss.
Budget: An estimate of the income and expenditures for a future period of time, usually one year
Capital appreciation: the increase in a company’s or individual’s wealth.
Capital asset: an asset that is difficult to sell quickly. for example, real estate.
Capital budget: a budget for the use of a company’s money
Capital: Money available to invest or the total of accumulated assets available for production
Cash: money immediately available in the form of currency, checks, or bank deposits.
Cash flow: The actual movement of cash within a business; the analysis of how much cash is needed and when that money is required by a business within a period of time
Cash Sales: Sales made for immediate payment or prepayments.
Collateral: property or goods used as security against a loan and forfeited to the lender if the borrower defaults.
Collections: Income collected from sales made in a previous period.
Co-signers: Joint signers of a loan agreement who pledge to meet the obligations of a business in case of default.
Cost of Goods: Actual payments made on items in this category. (Cash and accrual accounting methods treat this line differently; consult your accountant.)
Cost of Goods: Expenses associated with producing and making a specific sale. Companies differ as to which expenses they attribute to cost of goods, but generally items such as sales commissions, direct materials, direct labor, and freight are included.
Current Assets: Assets that can be converted quickly, with relative ease to cash; these assets are designed to be turned over in the normal course of doing business, such as bank deposits, inventory, and accounts receivable.
Current Liabilities: Any bills, debts, or obligations occurring during the course of business; any debt due within the next year. Includes accounts payable, accrued payroll, and loans and credit lines with less than one year’s maturity date.
Credit: Another word for debt. Credit is given to customers when they are allowed to make a purchase with the promise to pay later. A bank gives credit when it lends money.
Credit line: The maximum amount of credit or money a financial institution or trade firm will extend to a customer.
Debt: An ongoing obligation of the company, such as a bank loan.
Deficit: The excess of liabilities over assets; a negative net worth
Depreciation: The wear and tear on fixed assets – not a cash expenditure, but an ongoing expense of the business as equipment wears down. A tax deduction.
Distribution channel: All of the individuals and organizations involved in the process of moving products from producer to consumer. The route a product follows as it moves from the original grower, producer or importer to the ultimate consumer.
Earnings: a sum of money gained from employment, usually quoted before tax, including extra reward such as fringe benefits, allowances, or incentives. In business, income or profit from a business, quoted gross or net of tax, which may be retained and distributed in part to the shareholders
Equity: A financial investment in a business. An equity investment carries with it a share of ownership of the business, a stake in the profits and a say in how it is managed. Equity is calculated by subtracting the liabilities of the business from the assets of the business.
Equity capital: Money furnished by owners of the business.
Expenses: personal costs incurred by an employee in carrying out activities for an organization that are reimbursed by the employer
Fixed Assets (or Property, Plant, and Equipment): Assets that are the ongoing means of doing business; such assets are generally cumbersome to turn into cash; includes buildings, land, and equipment.
Fixed Costs: The ongoing operating expenses and overhead costs of a business. These expenses usually include items such as rent, utilities, salaries, insurance, etc.
Gross Profit: Percentage of income your company realizes on each sale before administrative expenses.
Gross Sales: Total sales from all product line categories.
If you are in business, or thinking about developing a business you should have a good working knowledge of these terms.
Guarantee: A pledge by a third party to repay a loan in the event that the borrower defaults.
Guarantor: a person or organization that guarantees repayment of a loan if the borrower defaults or is unable to pay.
Holding company: a parent organization that owns and controls other companies.
Indirect cost: a fixed or overhead cost that cannot be attributed directly to the production of a particular item and is incurred even when there is no output.
Insurance: Insurance premiums such as those for liability, malpractice, auto, or equipment insurance. Excludes insurance included in Employee Benefits line.
Interest Income: Income paid from bank and other interest-bearing accounts.
Insolvency: the inability to pay debts when they become due. Insolvency will apply even if total assets exceed total liabilities, if those assets cannot be readily converted into cash to meet debts as they mature. Even then, insolvency may not necessarily mean business failure. Bankruptcy may be avoided through debt rescheduling or turnaround management.
Inventory: A list of assets being held for sale, The stock of finished goods, raw materials, and work in progress held by a company
Interest rate: the amount of interest charged for borrowing a particular sum of money over a specified period of time.
Joint ownership: ownership by more than one party, each with equal rights in the item owned. Joint ownership is often applied to property or other assets.
Keystone: Setting a retail price at twice the wholesale price.
Liabilities: Any outstanding obligation or debt of the company.
Loan Proceeds: Money from bank loans and other credit lines.
Long-Term Liabilities: Loans and other debts that come due in more than a year’s time. This year’s interest payments on such loans, or debt service, are included in Current Liabilities.
Merchandise: Goods bought and sold in a business. “Merchandise” or stock is a part of inventory.
Market forecast: An anticipated demand that results from a planned marketing expenditure.
Market share: A company’s percentage share of total sales within a given market
Markup: the difference between the cost of a product or service and its selling price.
Micro business: An owner-operated business with few employees and less than $250,000 in annual sales.
Management: the use of professional skills for identifying and achieving organizational objectives through the deployment of appropriate resources. The art of conducting and supervising a business
Net Cash Flow: Money left over after all disbursements have been deducted from all cash received.
Net Profit: Amount of income after deducting all costs of doing business, including administrative overhead and other fixed costs.
Net Worth: Value of a company after deducting liabilities from assets.
Net operating income: the amount by which income exceeds expenses before considering taxes, depreciation, amortization and interest
Net profit: gross profit minus costs.
Net worth: The total value of a business in financial terms. Net worth is calculated by subtracting total liabilities from total assets.
Niche: A well-defined group of customers for which what you have to offer is particularly suitable.
Note: A document that is recognized as legal evidence of a debt
Office Supplies: Usual office or business supplies, rather than the materials necessary to produce the item for sale.
Opening Cash Balance: Amount of money in the bank at the beginning of the month being evaluated; should be the same as the previous month’s ending cash balance. Complete the following cash-flow analysis, on a monthly basis for the first year (or two) and quarterly for the next year.
Operating Expenses: Actual payments made on items in this category, minus depreciation (as depreciation is not an actual cash payment). Since cash and accrual accounting methods treat this line differently; consult your accountant.
Other Assets: Aspects of your company that have value not easily interpreted in specific monetary terms or directly convertible to cash; assets such as a popular trademarked name and the good-will a company has built up over time.
Owner’s Draw: Money paid to owner in lieu of salary in a proprietorship, or money otherwise distributed to owners (except for expense reimbursement). In a corporation it is called a dividend and paid from after-tax income. Since this income to the owner is subject to federal and state taxes, your accountant may suggest that you add a provision for taxes to the income tax line on the cash-flow form.
Pro forma: Financial statements based on projected future performance rather than actual historical data.
Professional Services: Attorney’s, accountants, and consultant’s fees.
Profit: Amount a company earns after expenses.
Reserve: Money put into accounts for future, unanticipated expenses.
Retained Earnings: Net worth amount the company keeps internally for ongoing development of the business rather than distributing to shareholders.
Tax: a governmental charge that is not a price for a good or service
Taxable: subject to tax.
Tax bracket: a range of income levels subject to marginal tax at the same rate.
Tax incentive: a tax reduction afforded to people for particular purposes, for example, sending their children to college
Tax refund: an amount that a government gives back to a taxpayer who has paid more taxes than were due.
Tax return: an official form on which a company or individual enters details of income and expenses, used to assess tax liability.
Tax shelter: a financial arrangement designed to reduce tax liability.
Tax subsidy: a tax reduction that a government gives a business for a particular purpose, usually to create jobs.
Trade credit: an open credit account with a supplier of goods or services.
Year-end: relating to the end of a financial or fiscal (tax) year.
Yield: a percentage of the amount invested that is the annual income from an investment
Venture capital: money used to finance new companies or projects, especially those with high earning potential and high risk and a global market. Those providing the capital become owners of the company.
Wholesale price: a price charged to a retail customers who buy large quantities of an item for resale in smaller quantities to others.