Financial Terms Glossary

Listed below are some everyday financial projection terms that I was requested to define in common terms during a recent business financial event. For more information on business financial planning be sure to join Small Business Thoughts for  free and search the Library at

accounts payableMoney owed to others for goods and services received
accounts receivableMoney owed from customers for goods and services sold
additional inventoryRaw materials or finished goods that are ready or will be ready for sale, which are purchased to replenish existing inventory
amortizationThe paying off of debt in regular installments over a period of time
assetsAll resources owned by the business
balance sheetA financial statement that shows the company’s financial position at a moment in time—all assets, all liabilities, and all equity
benchmarkingComparing company’s results to the experiences of others of similar size and within the same industry
benefitsCosts paid by company for employee-related items, such as Social Security, worker comp, health insurance, vacations, sick days, etc.
book valueSum of all assets, minus all liabilities = equity.  The intrinsic value of the business owned by the stockholders
breakeven pointPoint at which total sales for a period of time = total expenses for that period of time (in other words, there is neither a profit nor a loss)
business conceptAn idea which can be used for commercial purposes
C-corp.A limited liability legal structure in which the company is taxed separately from its shareholders
capitalLong term money held in the business that is used to create profit
cash flow statementAn analytical tool that demonstrates the short-term viability of a company, particularly its ability to pay bills
collateralProperty and goods used to secure repayment of a loan
cost of goods sold (COGS)Also called cost of sales or variable costs. The costs associated with a specific product, not including overhead costs, such as payroll or office supplies.
currentWill occur within 12 months of the financial statement date
debt capitalDebt raised by the business by taking out a loan
depreciationCost of expensing a fixed asset over its estimated useful life; Many people use “Straight Line” depreciation, equal amounts over the life of the asset, for management planning and reporting purposes. “Accelerated” depreciation might be used for tax reporting purposed. Consult your accountant for advice.
direct costCost that can be directly traced to producing specific goods or services
disbursementsMoney paid out
dividends paidMoney paid to shareholders
equity (see book value)
expenseOperating costs the business incurs through its efforts to earn revenue
financial projectionEstimate of future financial outcomes (see forecast)
fixed expenseBusiness expenses which must be paid every month, even if you have no customers (for example: rent, utilities, telephone, loan payments)
forecastMaking statements about events which have not yet been observed
fringe benefits(see benefits)
funds managementManagement of cash flow
gross profitRevenue minus the cost of making a product or providing a service, but before deducting overhead, payroll, taxes and interest payments
gross profit margin %Gross profit divided by total sales
incomeRevenue produced through sales of goods and services
income statementAnalysis of financial performance over a period of time (also called the Profit and Loss statement, or ‘P&L’)
indirect costCosts that are not directly accountable to a unit of production, also called overhead (such as taxes, administration, personnel, and security)
industry comparison(see benchmarking)
liabilitiesWhat the business owes to others
line of creditThe maximum credit a customer is allowed; This is usually arranged with a bank, and the borrower is allowed to borrow up to a pre-defined amount. This is generally used to maintain a certain minimum cash balance for the business.
long termOccurs later than 12 months from the financial statement date
modelComputer program that uses facts and assumptions to simulate financial operations of a business
net profitSum of total revenue and gains, less all expenses (including taxes) for a reporting period
net profit before taxesSum of total revenue and gains, less all expenses except for income taxes for the reporting period
net profit margin %Net profit divided by total sales
operating expenseExpenditures incurred in the normal course of business
overhead(see indirect cost)
owners distribution A payment of earnings to owners of a business
payment termsConditions under which a seller completes a sale, including the time the customer has to pay off the amount due
profit & loss statement(see income statement)
profitableExcess of purchase price over the costs of bringing product or service to market
projectedEstimated or forecast
ratiosCalculations used to make numerical comparisons
receipts (see income)
revenue(see income)
S-corp.A limited liability legal structure in which the corporation’s income or losses are divided among and passed through to its shareholders who then report the income or loss on their own individual income tax returns
sales(see income)
sales forecastEstimated sales for a time period
sales unitAs used in the SCORE model, it is a product or service, or a group of products or services, regarded as a single line-item entry in the sales forecast
short termOccurs within 12 months of the financial statement date
sole proprietorshipA business entity that is owned and run by one individual in which there is no legal distinction between the owner and the business
sources of fundsTypical sources include profit from operations, debt from money borrowed, and sale of equity interest to shareholders
spreadsheetsAn interactive computer application use for analysis of information in a tabular form. These are frequently used for financial information because of their ability to re-calculate the entire sheet automatically after a change to a single cell is made.
subcontractIndividual or business who signs a contract to perform part or all of the obligations of another’s contract

For more information about financial statement terminology, you may like the free video The Financials – Managing Your Business Session 1 Understanding Key Concepts.

Copyright ©John Trenary 2021

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