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Terminology

Glossary of financial terms

As an entrepreneur, it is likely you will be more interested in developing and selling your products or services online, than worrying about the financial jargon. However, financial jargon will be difficult to avoid as understanding this will provide you with greater understanding of your financial position - a critical part of running a business; as well as the ability to have better conversations with your bookkeeper and accountant.

To help, we have compiled the following Glossary.

It will also be found at the bottom of each page throughout the course - just refer back to it any time you are unsure of a term.


Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z</h3></p>

A

Accounting
</br>The process of identifying, measuring, recording and communicating, economic information to permit informed judgments and decisions by users of the information

Accounts Payable
</br>Money that is yet to be paid for invoices, bills and other liabilities

Accounts receivable
</br>Money that is yet to be collected by a company from its customers

Assets
</br>Resources that are owned by the business and can be measured and shown as money

Audit
</br>A physical review of financial records performed by a tax official or auditor to ensure that all costs are accounted for

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B

Bad Debts
</br>Money that is owed to a company without likelihood of being repaid

Balance Sheet
</br>Also known as a statement of financial position, the balance sheet is a snapshot of what the business owns and or controls, what it owes and the invested amount in the business by way of equity at a particular point in time. It is usually produced on a monthly and annual basis

Benchmark
</br>A standard which a product or company is measured

Bookkeeping
</br>Recording the financial activities of a business

Break-even analysis
</br>Used to calculate the units of sales required to cover your costs and determine the price of your products

Break-even point
</br>The exact point where a business' income is equal to their expenses

Budget
</br>An estimate of future transactions, either in terms of quantities, or money values or both designed to provide a plan for and control over future operations and activities

Business angels
</br>A person who provides starting or growth capital in promising ventures and helps with advice and contacts

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C

Capital
</br>The amount of what the owner has contributed to the business

Cash
</br>Includes all money that can be immediately available including bank notes, coins, petty cash, specific cheques and money in savings and debit accounts

Cashflow Statement
</br>A cashflow statement records the money coming in and out of your business for a set period of time. cashflow statements can be done daily, weekly, monthly, quarterly or annually.

Closing balance
</br>The amount that is recorded at the end of an accounting period

COGS
</br>The expenses that are directly related to your sales, such as purchase of stock, freight costs for delivery of your stock and any import or, customs duty.

Company or Corporation
</br>A company is a separate legal entity that owned by shareholders and managed by directors

Credit
</br>A loaning term used when a customer takes ownership of a product or service with an agreement to pay for it at a future date.

Crowdfunding

Financing a business idea with public donations usually via an online crowd funding website

Current Asset
</br>Cash or an asset that can be turned into cash within the next 12 months

Current Liability
</br>A liability that must be paid in the next 12 months

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D

Debt
</br>An amount that is payable such as bills, taxes and loan repayments

Default
</br>Failure to pay a debt or loan obligation

Depreciation
</br>A decrease in the value of an asset (usually by wear and tear) over a specified period of time

Drawings
</br>Personal expenses paid by a business account

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E

Expenses
</br>A loss or outgoing incurred by the business during the reporting period

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F

Finance
</br>Money used to support a business or purchase an asset

Financial Statement
</br>Summary of business' financial situation, can include a profit & loss statement, balance sheet and cashflow statements

Fixed Asset
</br>A physical asset used in the day-to-day operations of a business. This includes the business’s property, platn and equipment eg. Car, land, buildings, office equipment, and computers.

Fixed costs
</br>Fixed costs are costs that remain the same regardless of the number of units you sell

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G

Gross income
</br>The total money earned before expenses are paid

Gross profit
</br>The difference between income less your Cost of Goods Sold (COGS)

Gross profit margin
</br>Includes the amount of money remaining upon calculating the COGS

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H

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I

Income Statement
</br>Also known as a profit and loss statement, The income statement summarises the income and expenses of the business for a period of time. It is usually produced monthly and annually. The difference between the income and the expenses results in either a profit or loss for the business. Businesses may also produce this report with a comparison against a budget

Intangible assets
</br>Assets that are not physical, however can contribute to the success of a business. Includes patents, trademarks, goodwill, brand recognition

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J

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K

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L

Liabilities
</br>Obligations by the business, these are the amounts that are owed by the business

Liquidity
</br>The speed of which assets can be turned into cash

Loss or Net Loss
</br>When total expenses exceeds total revenues for the business over the reporting period.

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M

Margin
</br>The difference between the cost of production and the selling price

Markdown
</br>Marking down is discounting your selling price. Slow moving stock takes up valuable space in your store or warehouse, which means there’s less room for other stock that may be in more demand. Marking down your slow moving stock hopefully moves that stock off your shelves.

Markup
</br>Markup is a simple calculation using a percentage to add to the cost price of your products, based on a consideration of fixed costs, desired profit/salary and return on investment.

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N

Net Assets
</br>The total assets less the total liabilities

Net Income
</br>The total money earned after tax and other contributions

Net profit margin
</br>The net profit margin allows you to identify your profit after covering the cost of the goods sold and other expenses of the business as a percentage

Non-current Asset
</br>Assets of the business which would not be expected to be converted to cash, sold or consumed by the business within 12 months after the end of the last financial year.

Non-current Liability
</br>Obligations of the business that do not require payment within 12 months after the end of the last financial year.

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O

Opening balance
</br>The amount that is carried forward into a new accounting period

Overdraft
</br>A facility arranged with a bank to be able to overdraw your bank account

Overhead
</br>The total fixed costs associated with running a business

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P

Partnership
</br>a partnership is a number of two or more people who operate a business together

Petty cash
</br>Cash used for various non-specific purchases such as postage, milk etc.

Plant and Equipment
</br>A collection of fixed assets used throughout the business including furniture, machinery, computers, telephones

Profit or Net Profit
</br>When total income exceeds total expenses for the business over the reporting period

Profit & Loss Report
</br>Also known as an income statement, the profit and loss report summarises the income and expenses of the business for a period of time. It is usually produced monthly and annually. The difference between the income and the expenses results in either a profit or loss for the business. Businesses may also produce this report with a comparison against a budget

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Q

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R

R & D
</br>Businesses undergo research and development (R&D) for a number of reasons including development of new products, new market, innovations etc.

Refinance
</br>Taking out a new loan to repay an existing loan, can help to reduce fees, extend the original loan, change the parameters of the loan etc.

Return on equity
</br>Identifies the return you are getting on your investment

Return on investment
</br>Calculated as a percentage ROI determines a companies profitability by dividing net profit by cost of investment

Revenue
</br>Money earned before tax, expenses and other deductions

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S

Sales
</br>Income derived by the business from the sale of goods or service during the reporting period.

Sole Trader
</br>A form of business structure operated by a single person

Statement of financial position
</br>Also known as a balance sheet, the statement of financial position is a snapshot of what the business owns and or controls, what it owes and the invested amount in the business by way of equity at a particular point in time. It is usually produced on a monthly and annual basis

Stock
</br>Goods or materials that a business has on hand for the purposes of resale

Stocktake
</br>A physical count of stock on hand at the end of a reporting period

Superannuation
</br>Compulsory savings for retirement

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T

Tax invoice
</br>A valid invoice required for the sale of goods or services over a set price.

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U

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V

Variable costs
</br>Variable costs are costs that are directly related to your products

Variable interest rate
</br>An interest rate that changes with market conditions for the time of the loan

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W

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X

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Y

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Z

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This article is from the free online course:

Online Business: Pricing for Success

RMIT University