Financial Terms Definitions

Financial Terms Explanation

Account Assets, liabilities, income and expenses as represented by individual ledger pages to which debit
and credit entries are chronologically posted to record changes in values. Examples are cash,
accounts receivable, accrued interest, sales, and personal sala
Accounts Payable List of debts currently owed by a person or by a business. These are debts incurred mainly for the
purchase of services, inventory, and supplies. The accounts normally do not include accrued salaries
payable, accrued interest payable , or rent payable
Accounts Receivable List of money owed on current accounts to a creditor. Accounts receivable normally arise from the
sale of a company’s product to services to its customers
Accrual Amount of money accrued
Accrue To include and event on the accounting records regardless of whether any cash changed hands.
For example, at the end of a fiscal year a company may accrue its income tax expense for that
year, even though the money will not be paid for several months
Accumulated Depreciation In accounting is the amount of depreciation expense that has been claimed to date
Added Value In a product manufacturing cost it typically represents everything but purchasing (i.e. raw materiel)

Annual Report Formal financial statement issued yearly. The annual report of publicly owned corporations must
comply with reporting requirements of the Security and Exchange Commision, which include
Balance Sheet, Income Statement and cash-flow reports audited by an in
Assets Anything owned that has a value
Balance Amount shown in an account, difference between debits and credits in an account. If credits
exceed debits, it is called a credit balance
Balance Sheet Financial statement that gives an accounting picture of property owned by a company and of
claims against the property on specific date. The left side (debit) of a balance sheet states assets,
the right side (credit) shows liabilities and owner’s equity.
Capital Assets Property with a relatively long life, fixed assets in a trade or business
Capital Budget Program for evaluating proposed plant expansion, research and development and advertising.
Among the sophisticated methods used in arriving at a capital budget are NPV and IRR

Capital Expenditures An acquisition or an improvement (as distinguished from a repair) that will have a life of more than
one year
Capital Structure Corporation’s financial framework, including long-term debt, preferred stock, and net worth. It is
distinguished from financial structure, which includes additional sources of capital, such as short-term
debt, accounts payable, and other liabilities
Cash-Flow Analysis of all changes that affect the cash amount during an accounting period
Contingency fund Amount reserved for a possible loss, such as caused by a business setback

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 Financial Terms Definitions

Creditors One to whom money is owed by the debtor, one to whom an obligation exists, in its strict legal sense,
a creditor is one who voluntarily gives credit to another for money or property. In its more general
sense it is one who has right by law to demand and r
Current assets Cash, accounts receivable, inventory, and other assets that are likely to be converted into cash,
sold, exchanged, or expensed in the normal course of business, usually within a year
Current Liability Debts incurred by the reporting entity as part of the operations and that are expected to be repaid
during the following twelve months. Exemples are Accounts Payable, short-term loans, and that
portion of long-term loans due in one year
Depreciation It represents the loss in value of an asset, whether due to physical changes, obsolesce, or factors
outside of the asset. This loss is charged to the P & L statement. The charge is made to allow realistic
reduction in the value of productive assets and to
Dividend Earnings and profits of a corporation appropriated for distribution among shareholders, usually paid
yearly or quarterly
Equity Paid-in capital plus retained earnings or losses
Expenses Costs Business costs incurred in operating and maintaining property. For purposes of information and in
reporting to shareholders of publicly held corporations, expenses are calculated as the cost of goods
and services used in the process of profit-directed bus
Fixed assets(in general) In accouting, property used for production of goods and services , such as plant and machinery,
buildings, land, and mineral resources
General Expenses Expenses incurred for operations other than selling, administrative, or cost of goods sold
Gross Profit Difference between revenue (sales) and the cost of goods sold. The gross profit as a percentage of
revenue is termed the gross profit margin. Gross profit is different from Operating Profit, which is gross
profit less operating expenses and operational in
Income Economic benefit, money or value received
Intangible Assets Right or non-physical resource, including copyrights, patents, trademarks, goodwill, computer
programs, capitalized advertising costs, organization costs, licences, leases, franchises, exploration
permits, and import and export permits
Interest Cost of using credit or another’s money, expressed as rate per period of time, usually one year, in
which case it is called an annual rate of interest
Interest Rate Percentage of a sum of money charged for its use
Internal Rate of Return (IRR) True annual rate of earnings on an investment. It equates the value of cash returns with cash
invested, considers the application of compound interest factors, and requires a trial-and-error
method for solution
Inventory Value of a firm’s raw material, work in process, supplies used in operations, and finished goods.
Financial statements usually indicate the basis of inventory valuation, generally the lower figure of
either cost or market price

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 Financial Terms Definitions

Investments Purchases of stocks, bonds, mutual fund shares, real property, annuity, collectible, etc..., with the
expectation of obtaining income or capital gain, or both, in the future
Liabilities Money owed
Loan Transaction wherein an owner of a property, called the lender, allows another party, the borrower, to
use the property. The borrower customarily promises to return the property after a specified period
with payment for its use, alled interest. The documen
Net Present Value (NPV) Today’s value of a future payment, or stream of payments, discounted at some appropriate
compound interest, or discount, rate. The NPV method is widely used in corporate finance to
measure the return on a capital investment project
Net Profit Difference between total sales and total costs and expenses. Total costs comprise cost of goods sold
including depreciation, total expenses comprise selling, general, administrative expenses plus
income deductions. Net income after taxes is the bottom lin
Operating Profit (loss) Difference between the revenures of a business and the related costs and expenses, excluding
income or expenses from sources other than its regular activities and before income deductions. It
does not reflect financing expenses, income taxes, or certain o
Overhead Indirect expenses of running a business not directly associated with a particular item or service sold.
For example, wages paid to factory workers and the cost of production materials are direct costs.
Building depreciation, insurance, taxes, building mai
Profit and Loss (P&L) Summary of the revenues, costs, and expenses of a company during an accounting period... Also
called Income Statement
Reserve 1. Segregation of retained earnings to provide for such payouts as dividends, contingencies,
improvements, restructuring 2. Valuation reserve, also called allowance, for depreciation, bad debt
losses, shrinkage of receivables because of discounts taken, a
Revenue Amount earned. It generally denotes a gross figure such as sales from a business, taxes collected by
a government, or an amount received for performing a service
Transfert Price Price charged by individual entities in a multientity corporation on transactions among themselves.
This concept is used where each entity is managed as a profit center and must therefore deal with
the other internal parts of the corporation on an arm’s l
Variance In accounting,is the difference between actual cost and standart cost in the categories of direct
material, direct labour, and direct overheads. In finance, is the difference between corresponding
items on a comparative balance sheet and profit & loss sta
Working capital Funds invested in a company’s cash, account receivable, inventory, and other current assets (gross
working capital). It usually refers to net working capital, that is , current assets minus current liabilities.
Working capital finances the cash conversion