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Glossary
Account: A record of transactions between
parties.
Accounting records: Documents of all
business transactions. They may be
documents recorded in a computer or
in ledgers or journals, and any other
supporting documents.
Accounts payable: A list of current business
debts or liabilities that must be paid in the
future (usually within one year).
Accounts receivable: A list of the amounts
a firm is owed by others for merchandise
or services sold on credit. Even though a
business does not have the money in hand,
the money owed is considered an asset,
part of the value of the business. Once
collected, it becomes working capital.
Asset: Anything of worth that is owned.
Assets may include cash on hand or in
the bank, accounts receivable, securities,
property or buildings, equipment, fixtures,
merchandise inventory and supplies.
Balance sheet: A report that shows what
a business owns and owes. Typically,
business assets and their cost are listed
on one side and liabilities and owners’
equity (investment in the business) on the
other. Liabilities include everything the
business owes. If the balance sheet is
figured correctly, total assets will equal total
liabilities plus owners’ equity.
Budget: A plan of financial operations
embodying an estimate of projected
expenditures for a given period and the
proposed means of financing them.
Capital: Money available to invest; the
total of accumulated assets available for
production; the total of property and money
resources the business owner can make
available for business.
Cash: Money in hand or readily available,
including currency and checks, that can be
drawn on demand.
Cash discount: A deduction or allowance
that is given if payment is completed within
a stated period of time.
Cash flow statement: A report that shows
how much of the cash generated by the
business remains after operating, investing
and financing activities.
Collateral: Property or other assets pledged
by a borrower to secure a loan. In the event
of default, the lender has the right to use
proceeds from the sale of the collateral to
obtain repayment of the loan.
Contingency: A possible future event or
condition arising from currently known or
unknown causes, the outcome of which
cannot be determined at the present time.
Contract: A legally binding agreement
regarding mutual responsibilities between
two or more parties. Generally in business,
a contract exists when there has been a
meeting of the minds, and it sometimes
need not be in writing. Many sales and
order forms are binding contracts and
should only be signed when the terms of
the agreement are well understood.
Co-op advertising: Advertisements in
which the message and the cost are shared
with others, often between a supplier and
one or more retailers.
Corporation: A legal entity, created by
a state charter, that can do business the
same as individuals in a sole proprietorship
or partnership. The corporation acts on its
own through its officers and is empowered
to make contracts and carry out business
activities like an individual business owner.
Unlike other types of ownership, the shares
of a corporation may be owned by a
number of persons. (Compare with limited
liability company, partnership, and sole
proprietorship. See also S. corporation.)
Credit: Permission to pay in the future for
goods or services received now. Credit is
used to increase trade and sales.
Current assets: All those assets that are
available without restriction to meet current
financial responsibilities, such as cash,
government securities, marketable securities,
notes receivable (other than from officers or
employees), accounts receivable, inventories,
prepaid expenses, and any other item that
can be converted to cash in the normal
course of business within one year.
Current liabilities: Liabilities of a company
that will mature within one year or within
the normal operating cycle of the business,
whichever is longer, such as accounts
payable, notes payable, accrued expenses
such as wages, salaries, and taxes payable.
Debt: That which is owed as an obligation
resulting from the borrowing of money or
from the purchase of goods and services.
Depreciation: Expiration in the service life
of fixed assets; a decrease in value through
age, wear or deterioration charged as an
expense for tax and accounting purposes.
Direct mail: Sales letters, postcards, leaflets,
folders, booklets and catalogues delivered
through the mail to attract new customers
and encourage purchases.
Disbursement: Process of sending payment
to a specified person or organization.
Dissolution: The voluntary or involuntary
termination of a partnership, corporation or
contract.
Double entry: A system of bookkeeping
that requires an entry for a corresponding
amount to the credit (right) side of an
account for every entry made to the debit
(left) side of an account.
Equity capital: Money put into a business by
investors.
Financial statements: Documents that
show a financial situation. The three basic
statements needed to document the
information necessary to run a business
and get financing are the income statement,
balance sheet statement and cash flow
statement.
Fiscal year: A period of 12 months
designated as a year for accounting
purposes. It does not have to correspond to
the calendar year.
Fixed assets: Land, buildings, machinery,
furniture and other items that have an
expected useful business life measured
in years and are not converted into cash
during a normal fiscal period. Depreciation
is applied to those fixed assets that (unlike
land) will wear out.
Fixed costs: Expenses or costs that do
not vary from one period to the next in
proportion to the rate of activities of the
business, such as depreciation, interest,
insurance or rent.
Franchise: An exclusive right or privilege to
deal in a certain line or brand of goods or
services.
Gross: Overall total before deductions.
Gross Profit: Overall total earned after
operating expenses are deducted.
Income: Accounting term used to represent
the excess of revenues earned over
expenses incurred in conducting business
operations.
Income statement: A report that shows the
total amount of sales (revenue) and total
costs (expenses) of a business that result in
a net profit or loss.
Income taxes: Taxes owed to federal,
state or local government based on the
profits made by a business. Income taxes
represent a cost to the business and are
shown on the income statement.
Intangible assets: Assets of a business
that may be of value but that can not be
measured or objectively evaluated, such as
patents, copyrights and trademarks.
Interest: The additional amount paid for
borrowing money.
Invoice: A bill sent to a customer is called a
sales invoice. A bill received from a supplier
is called a vendor invoice or purchase
invoice.
Inventory: Raw materials, work in process
and finished goods available for sale;
supplies used to carry on a business and
not purchased for resale. Both manufactures
and retailers have inventory.
Lease: A rental agreement.