GLOSSARY OF FINANCIAL TERMS
Money owed to a company by customers who purchased goods or services on credit.
An accounting method in which income is reported when earned and expenses when incurred. See Cash basis accounting.
The gradual reduction of an obligation, for example a loan, through regular payments over a specified period of time.
Any item that has economic value, i.e. which can be converted to cash.
Accounts Receivable that appear uncollectible and will be deducted from net income, or written off.
A statement of a company’s financial position at a particular point in time, summarizing the company’s assets, liabilities, and owner’s equity.
The exchange of goods or services without using money.
A calculation of the sales volume required to cover costs. Sales above this level are profitable, and below this level are unprofitable.
The total amount of a company’s long-term debt, stock and retained earnings.
An accounting method that reports income when received and expenses when cash is paid. See Accrual basis accounting.
The difference between a company’s cash receipts and cash disbursements in a particular period.
Assets pledged as security for a loan, which can be claimed by the lender if the borrower defaults.
of goods sold
The direct costs of a given product, for example wholesale cost of the clothing sold by a retailer in a particular period.
An assessment of a company’s ability to repay its obligations, based on a detailed assessment of its financial history.
Assets such as cash, accounts receivable, inventories, and marketable investments that can be converted to cash in less than one year.
Obligations such as salaries, accounts payable, loans, and other debts that are due within one year.
Unsecured debt backed only by the integrity of the borrower, i.e. without the use of collateral. The terms of a debenture are documented by an indenture.
The amount by which the cost of an asset is allocated over time; it is used in part to prepare financial statements and calculate tax liabilities.
A payment towards the discharge of an obligation, such as accounts payable or a loan.
A one-time event that significantly affect’s a company’s finances, such as the purchase or sale of a major asset.
in, first out (FIFO)
An accounting method for cost of goods sold that uses the oldest items in inventory first. See Last in first out (LIFO).
A period of any consecutive 12 months used for accounting purposes. A fiscal year may or may not correspond to a calendar year.
Business expenses that don’t vary depending on production or sales levels; examples might include rent, property taxes, insurance, or interest expenses. See Variable expenses.
Sales minus the cost of goods sold.
in, first out (LIFO)
An inventory accounting method that ties the cost of goods sold to the cost of the most recent purchases. See First in first out (FIFO).
In accounting, the debts your business owes; may include accounts payable, taxes owed, long-term loans, etc.
A legal claim against an asset used to secure a loan; a lien generally must be paid when the property is sold.
An asset that can easily and inexpensively be turned into cash, such as cash itself, money market funds, treasury bills, or bank deposits.
accelerated cost recovery system (MACRS)
The rate at which the value of a fixed asset is depreciated for tax purposes.
Total income minus expenses; generally translates to a company’s profit.
Expenses associated with running a business, which may not be directly applicable to current products or services being sold; examples might include sales and marketing, research and development, or administrative costs.
A company’s profit or loss before taking into account deductions of interest payments and income taxes; also called earnings before interest and taxes, or EBIT.
The amount of a loan borrowed, or the part of the loan that remains unpaid, on which interested is owed.
A type of financial statement that has assumptions or hypothetical conditions built into the data; often used for projected balance sheets or income statements.
The positive difference between revenue minus cost.
A financial ratio that measures a company’s liquidity, it is calculated by dividing current assets less inventories by current liabilities. The optimal quick ratio is 1 or higher. Also called the acid test ratio.
A form of financing in which a company sells its accounts receivable at a discount to a third party (see factoring), or uses them as collateral against a loan.
Earnings that are not paid out as dividends but are instead reinvested into the business or used to pay off debt.
The income that a particular investment provides.
An estimate of the amount of sales over a specific period of time.
The number of times a given asset is replaced during an accounting period; often used to measure inventory or accounts receivable
Business costs that fluctuate from period to period based on sales volume; might include material or labor needed to manufacture a product. See fixed expenses.
Current assets minus current liabilities; it is used to measure the assets a company needs to carry on its work.
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