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.
The process of identifying, measuring, recording and communicating, economic information to permit informed judgments and decisions by users of the information
Money that is yet to be paid for invoices, bills and other liabilities
Money that is yet to be collected by a company from its customers
Resources that are owned by the business and can be measured and shown as money
A physical review of financial records performed by a tax official or auditor to ensure that all costs are accounted for
Money that is owed to a company without likelihood of being repaid
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
A standard which a product or company is measured
Recording the financial activities of a business
Used to calculate the units of sales required to cover your costs and determine the price of your products
The exact point where a business' income is equal to their expenses
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
A person who provides starting or growth capital in promising ventures and helps with advice and contacts
The amount of what the owner has contributed to the business
Includes all money that can be immediately available including bank notes, coins, petty cash, specific cheques and money in savings and debit accounts
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.
The amount that is recorded at the end of an accounting period
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
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.
Financing a business idea with public donations usually via an online crowd funding website
Cash or an asset that can be turned into cash within the next 12 months
A liability that must be paid in the next 12 months
An amount that is payable such as bills, taxes and loan repayments
Failure to pay a debt or loan obligation
A decrease in the value of an asset (usually by wear and tear) over a specified period of time
Personal expenses paid by a business account
A loss or outgoing incurred by the business during the reporting period
Money used to support a business or purchase an asset
Summary of business' financial situation, can include a profit & loss statement, balance sheet and cashflow statements
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 are costs that remain the same regardless of the number of units you sell
The total money earned before expenses are paid
The difference between income less your Cost of Goods Sold (COGS)
Gross profit margin
Includes the amount of money remaining upon calculating the COGS
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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
Assets that are not physical, however can contribute to the success of a business. Includes patents, trademarks, goodwill, brand recognition
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Obligations by the business, these are the amounts that are owed by the business
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.
The difference between the cost of production and the selling price
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 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.
The total assets less the total liabilities
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
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.
Obligations of the business that do not require payment within 12 months after the end of the last financial year.
The amount that is carried forward into a new accounting period
A facility arranged with a bank to be able to overdraw your bank account
The total fixed costs associated with running a business
A partnership is a number of two or more people who operate a business together
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.
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
Money earned before tax, expenses and other deductions
Income derived by the business from the sale of goods or service during the reporting period.
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
Goods or materials that a business has on hand for the purposes of resale
A physical count of stock on hand at the end of a reporting period
Compulsory savings for retirement
A valid invoice required for the sale of goods or services over a set price.
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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
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