Financial Terms Glossary

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A record of financial transactions. Businesses that extend credit to their customers maintain an account of their transactions.
Accounts Payable
Amounts owed by a business that are payable within one year. These are listed in the current liabilities section of a balance sheet.
Accounts Receivable
Money owed to a business for goods and services the business has sold. These are listed in the current assets section of a balance sheet.
A long term expense calculated on a monthly or periodic cost basis. A payment process by which the borrower gradually writes off the initial cost of an asset through payments of principal and interest.
A rise in value of your business's goods or services. Represented as a credit on your balance sheet.
Everything a business owns. These include cash, equipment, securities, accounts receivable, merchandise as well as intangible assets such as trademarks and patents.
Balance Sheet
A financial statement that shows what a business owns and what it owes at a certain date. Also called a statement of financial position.
Book Value
The value of a business as presented by the excess of the total assets over the total liabilities. Factors such as depreciation will affect book value.
Business Plan
A plan detailing the setting up, operation and direction your business will take. A business plan is a management tool used to focus on objectives as well as a resource when looking for financing.
Money available for investment. The amount of money owners have invested in their business.
Money on hand and deposits in banks. Cash is a business asset.
Cash Equivalents
Short term, temporary securities that can be quickly converted to cash. Included in the assets of a business.
Cash Flow
The flow of cash in and out of a business. Positive cash flow means having enough cash to meet your operating needs and to pay your bills on time. It is an important sign of a healthy and stable business.
Cash Reserve
Money set aside for unexpected or unbudgeted expenses. Usually the equivalent of 3 to 6 months net income. Also called contingency.
A legally binding agreement between parties (individuals, businesses, governments, organizations, etc.) for goods or services at a specified price.
Corporation A form of business organization having a legal entity independent of its owners. The corporation's owners (shareholders) have no liability for its debts.
Current Assets Assets a company can liquidate to cash within one year.
Current Liabilities Obligations a company has to others, payable within one year.
To place an entry on the debit side of an account. A debit is a record of a sum owing.
Money a business has borrowed and must repay, usually with interest.
A decrease in value of an asset due to age or wear. Depreciation affects the book value of assets of a business. It is a non-cash expense.
To expand your product line, services and/or your range of investments.
The portion of a company's profits paid to its shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.
The part of a business's assets owned by the stockholders. In other words, the money left over if a company sold all of its assets and paid off its liabilities.
Equity Capital
Capital invested in a business.
The operating costs of a business. These include rent, salaries and taxes, for example.
Fixed Assets
Property and equipment owned by a business and used for more than one year. These include anything businesses use to display, ship or store products.
Fixed Expenses
Costs which don't vary from one accounting period to the next.
Generally Accepted Accounting Principles (GAPP)
A set of guidelines and rules for financial reporting. A company must follow these to prepare and present financial statements.
An intangible asset of a business. Examples are knowledge and reputation.
Gross Income
The total income of a company for a set period, before deductions and expenses. Also called gross profit.
Raw materials, items available for sale or in the process of being made ready for sale. Inventory can be individually valued by several different means, including cost or current market value.
The ratio by which debt exceeds equity. The use of debt instead of equity to support assets and growth.
A legal claim over an asset.
Limited Partnership
A type of business where owners assume responsibility for only up to the amount they invested.
Line of Credit
Money lent at interest. Discretionary money lent by a bank for operating expenses.
Convert an asset to cash or settle a debt.
Market Value
The value of something in the market-place, determined by an agreement between two disinterested parties.
All activities involved in creating an interest or desire for your product or service.
  Money Markets
Part of stock markets in which short term financial obligations are bought and sold. These include treasury bills and other federal government debts of up to three years.
Net Earnings
The total earnings of a company for a set period, minus deductions and expenses. Also called net profit or net income.
Net Sales
The total sales of a company minus returned merchandise and discounts.
Operating Income
ny minus the cost of the sales and operating expenses.
Operating Loans
A loan to assist in coverage of current business expenses.
A business entity of two or more people who share the responsibilities, profits and liabilities of that entity.
The legal right to ownership of an invention issued, in Canada, under the Patent Act. To protect an invention, the maker should obtain patenting from the government patent office.
Preferred Shares
Preferred shares give investors a fixed dividend from the company's earnings. Preferred shareholders get paid before common shareholders.
A capital sum placed at interest, due as debt.
Profit & Loss Statement
A list detailing the total amount of revenue and total liabilities for a set period of time. The difference between the two is either profit or loss.
Profit Margin
The difference between the price you charge for goods or services and the costs to produce these goods and services.
Money owed to a business during the current year for goods and services the business has sold. These are listed in the current assets section of a balance sheet.
The total income of a business.
Certificates or book entries representing ownership in a corporation or similar entity.
A stock represents the ownership of a portion of a corporation's assets and earnings.
A person who owns stocks in a business; also called a shareholder.
Tangible Asset
Usually refers to something which can be seen and evaluated such as property.
Terms of Sale
The conditions concerning payment for a purchase.