© RMIT University 2016
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
A
Accounting
The process of identifying, measuring, recording and communicating, economic information to permit informed judgments and decisions by users of the information
Accounts Payable
Money that is yet to be paid for invoices, bills and other liabilities
Accounts receivable
Money that is yet to be collected by a company from its customers
Assets
Resources that are owned by the business and can be measured and shown as money
Audit
A physical review of financial records performed by a tax official or auditor to ensure that all costs are accounted for
B
Bad Debts
Money that is owed to a company without likelihood of being repaid
Balance Sheet
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
A standard which a product or company is measured
Bookkeeping
Recording the financial activities of a business
Break-even analysis
Used to calculate the units of sales required to cover your costs and determine the price of your products
Break-even point
The exact point where a business' income is equal to their expenses
Budget
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
A person who provides starting or growth capital in promising ventures and helps with advice and contacts
C
Capital
The amount of what the owner has contributed to the business
Cash
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
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
The amount that is recorded at the end of an accounting period
COGS
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
A company is a separate legal entity that owned by shareholders and managed by directors
Credit
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
Cash or an asset that can be turned into cash within the next 12 months
Current Liability
A liability that must be paid in the next 12 months
D
Debt
An amount that is payable such as bills, taxes and loan repayments
Default
Failure to pay a debt or loan obligation
Depreciation
A decrease in the value of an asset (usually by wear and tear) over a specified period of time
Drawings
Personal expenses paid by a business account
E
Expenses
A loss or outgoing incurred by the business during the reporting period
F
Finance
Money used to support a business or purchase an asset
Financial Statement
Summary of business' financial situation, can include a profit & loss statement, balance sheet and cashflow statements
Fixed Asset
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
Fixed costs are costs that remain the same regardless of the number of units you sell
G
Gross income
The total money earned before expenses are paid
Gross profit
The difference between income less your Cost of Goods Sold (COGS)
Gross profit margin
Includes the amount of money remaining upon calculating the COGS
H
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Income Statement
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
Assets that are not physical, however can contribute to the success of a business. Includes patents, trademarks, goodwill, brand recognition
J
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Liabilities
Obligations by the business, these are the amounts that are owed by the business
Liquidity
The speed of which assets can be turned into cash
Loss or Net Loss
When total expenses exceeds total revenues for the business over the reporting period.
M
Margin
The difference between the cost of production and the selling price
Markdown
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
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.
N
Net Assets
The total assets less the total liabilities
Net Income
The total money earned after tax and other contributions
Net profit margin
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
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
Obligations of the business that do not require payment within 12 months after the end of the last financial year.
O
Opening balance
The amount that is carried forward into a new accounting period
Overdraft
A facility arranged with a bank to be able to overdraw your bank account
Overhead
The total fixed costs associated with running a business
P
Partnership
A partnership is a number of two or more people who operate a business together
Petty cash
Cash used for various non-specific purchases such as postage, milk etc.
Plant and Equipment
A collection of fixed assets used throughout the business including furniture, machinery, computers, telephones
Profit or Net Profit
When total income exceeds total expenses for the business over the reporting period
Profit & Loss Report
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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R & D
Businesses undergo research and development (R&D) for a number of reasons including development of new products, new market, innovations etc.
Refinance
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
Identifies the return you are getting on your investment
Return on investment
Calculated as a percentage ROI determines a companies profitability by dividing net profit by cost of investment
Revenue
Money earned before tax, expenses and other deductions
S
Sales
Income derived by the business from the sale of goods or service during the reporting period.
Sole Trader
A form of business structure operated by a single person
Statement of financial position
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
Goods or materials that a business has on hand for the purposes of resale
Stocktake
A physical count of stock on hand at the end of a reporting period
Superannuation
Compulsory savings for retirement
T
Tax invoice
A valid invoice required for the sale of goods or services over a set price.
U
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Variable costs
Variable costs are costs that are directly related to your products
Variable interest rate
An interest rate that changes with market conditions for the time of the loan
W
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