Account balance refers to the amount of money available in a financial account at a given point in time. It is an essential concept in personal and business finance, indicating the net value of the account.
The accounting cycle is the sequence of steps in accounting for a financial transaction entered into by an organization. It involves recording transactions in the books of account and aggregating them in financial statements for a financial period.
A critical tool for analyzing the quality of a company's receivables, the aging schedule classifies trade accounts receivables by their date of sale and reveals patterns of delinquency.
Annual earnings represent the amount of profit a business or individual realizes in one fiscal year. The concept is crucial for financial performance assessment, taxation, and strategic planning.
Average Revenue is the amount of money received by a firm per unit of output sold. It is calculated by dividing the total revenue by the quantity of goods sold.
A Bad-Debt Reserve is an offset to Accounts Receivable, with amounts that can be expected to be uncollectible. Businesses use this reserve to account for receivables that are not likely to be collected.
Before-Tax Cash Flow (BTCF) represents the cash generated by an asset or a business before deducting income tax payments or adding income tax benefits. It's a critical measure for assessing an investment's or business's potential earnings and operational efficiency.
Borrowed capital refers to funds obtained by a firm through loans or other forms of debt to finance its operations or investments. Compared to equity financing, borrowed capital involves a fixed cost in terms of interest payments.
A bridge loan, also known as a swing loan, is a short-term loan used to bridge the gap between the need for immediate cash flow and the securing of intermediate or long-term financing.
Cash equivalents are highly liquid investments that are readily convertible into a known amount of cash and are subject to an insignificant risk of changes in value.
Cash flow refers to the movement of cash into and out of a business, reflecting the inflows and outflows of capital within a specified period. It is a critical indicator of a company's financial health and sustainability.
Cash Throw-Off, often used interchangeably with Cash Flow, refers to the net amount of cash generated and available for use after accounting for cash outflows.
A charge buyer is an individual or entity that makes a purchase on credit, with the understanding that the amount owed will be billed and must be paid at a later date. This concept is closely related to credit buyers and credit orders.
A contingency fund is an amount reserved for a possible loss, such as those caused by a business setback. Contingency funds and other reserves set aside are not deductible for tax purposes.
Contribution to capital refers to the funds or assets provided by shareholders or owners to a company, which increases the company's equity but does not constitute income for tax purposes.
Debt financing is the process of raising capital through borrowing, typically via the issuance of bonds. It contrasts with equity financing, where capital is raised through the sale of ownership stakes in the company (stock).
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the asset's usage, wear and tear, or obsolescence.
Earned Surplus, also known as Retained Earnings, represents the portion of net income that is retained by a company rather than distributed to its shareholders as dividends. These retained earnings are reinvested in the business or used to pay off debt.
Economic Life refers to the period during which a machine or other property is expected to generate more revenue than operating expenses, thereby staying profitable and justifying its use.
Understanding the elements of cost is fundamental for businesses to ensure efficient production and optimal pricing strategies. The three primary cost elements in a production process include material, labor, and expenses.
End of Month (EOM) refers to a specific point in time that typically marks the conclusion of a financial or accounting period. At the EOM, businesses finalize their accounts by reconciling all transactions, completing tasks like issuing invoices, and addressing outstanding receivables and closing inventory.
A UK government scheme designed to encourage bank lending to smaller enterprises by providing a 75% guarantee on company overdrafts, while the borrower remains liable for 100% of the loan amount. It is available to UK companies with a turnover of no more than £41M.
An expense account is crucial for recording the costs incurred by an organization, documenting specific expenditure headings before transferring totals to the profit and loss account. It can also refer to the allocated funds certain staff members can use for necessary expenditures.
An integral part of financial analysis, financial modelling involves creating representations of the financial performance of a business or project over time. These models aid in decision-making by simulating different scenarios and outcomes based on historical data and assumptions.
A fixed charge is the portion of an expense that remains constant, regardless of the amount of a commodity or service used or consumed.
A fixed cost (also known as a fixed expense) is an item of expenditure that remains unchanged in total, irrespective of changes in the levels of production or sales. Examples include business rates, rent, and some salaries.
The Fixed-Asset to Equity-Capital Ratio is a financial metric used to assess a business's ability to satisfy long-term debt by comparing the value of its fixed assets to its equity capital.
A golden handshake, also known as a golden good-bye, is an ex gratia payment made by an employer to an employee upon termination of employment, such as in the event of a company takeover. Certain conditions may allow such payments to be partially or fully tax-free.
A period of time provided in most loan contracts and insurance policies during which default or cancellation will not occur even though payment is past due.
Gross Revenue, also known as Gross Sales, refers to the total sales revenue of a company at invoice values, before any deductions for customer discounts, returns, allowances, or other adjustments.
Implicit cost elements refer to the costs associated with missed opportunities in the utilization of a company's resources. These costs are not directly compensated through cash transactions but reflect the opportunity cost of applied resources.
An indirect cost centre refers to a division or department within an organization that incurs costs but does not directly generate revenue. These centres typically support the production of goods or services.
Investment demand refers to the desire and willingness of firms and individuals to invest in various projects and financial assets under given economic conditions.
Invoice Discounting is a financial practice wherein a business sells its invoices to a third party, typically a factoring house, at a discount to obtain immediate cash. It differs from traditional factoring in that it does not typically include sales accounting and debt collecting services.
A Leveraged Employee Stock Ownership Plan (ESOP), also known as a Leveraged ESOP, is a type of ESOP that borrows money to purchase employer stock directly from the company.
Long-term liabilities are any financial obligations or debt that are not payable on demand or within one year. These can include loans, bonds payable, mortgages, and other financial obligations.
In accounting, a loss is the amount by which the expenses of a transaction or operation exceed the income produced.
The margin of profit is a financial metric that reveals the relationship between gross profits and net sales. It is used to evaluate a company's profitability by expressing gross profit as a percentage of net sales.
MACRS is a depreciation method introduced in 1986 to calculate tax depreciation for property placed in service after its inception. It allows businesses to recover the cost basis of certain property more quickly, by assigning longer lives for personal property and offering conventions for calculation.
Monetary assets and liabilities represent specific sums of money that are either receivable or payable, captured in a company's financial statements, including cash, bank balances, loans, debtors, and creditors.
Negative cash flow is a crucial financial metric that indicates an excess of cash outflows over cash inflows for a company during a specific period.
Negative working capital occurs when a company's current liabilities exceed its current assets, raising concerns about its ability to meet short-term obligations and threatening its operational viability.
Net loss occurs when a company's total expenses exceed its total income for a specific period, such as a fiscal quarter or year.
Net Working Capital (NWC) is a financial metric that represents the difference between a company's current assets and its current liabilities. It highlights a firm's short-term financial health and operational efficiency.
A note or note payable is a written document that acknowledges a debt and contains a promise to pay a specified sum to a certain party by a certain date. Maturity terms can be definite or become definite over time.
The operating cycle is the average period of time between acquiring inventory and receiving cash from its sale, reflecting the time required for a business to turn its investments into cash flows.
Operating profit (loss) is the difference between the revenues of a business and the related costs and expenses, excluding income or expenses from sources other than its regular activities and before income taxes; synonymous with net operating profit (loss) and operating income (loss).
Operating statements are financial reports detailing the cash flow of a business or property. These reports are crucial for understanding the financial performance and health of the entity.
A Partner's Drawing is the amount withdrawn by a partner from the firm for personal use. These drawings are typically made against the partner’s share of profit or capital in the business.
Period costs are expenses that are incurred over a specific period of time and are not directly tied to a specific product or production activity. These costs are typically fixed, such as rent, insurance, and business rates.
Positive cash flow refers to the amount of cash that a business generates from its operations, which exceeds the cash outflows. It is a critical indicator of financial health, showing that a company is capable of meeting its obligations, reinvesting in its operations, and paying dividends.
Pretax income, also known as earnings before tax (EBT), represents the amount of income earned from business or investments before the deduction of any applicable income taxes.
The amount of money utilized to acquire a business or investment, irrespective of the source.
Rate of Return on Equity (ROE) measures the profitability of an investment, focusing on net income generated by shareholders' equity. It provides insights into how efficiently a company uses its equity base to generate profits.
Releveraging refers to the process of increasing the level of debt in the capital structure of a business. This financial strategy is often used to enhance returns on equity by leveraging borrowed funds.
Return on Investment measures the profitability of an investment. It is a ratio that compares the gain or loss from an investment relative to its cost.
Revenue and Expense Accounts are fundamental components in accounting that track the income and expenditures of a business over a specific period. These accounts help determine the net profit or loss and are essential for financial reporting and analysis.
A transaction that is generally of a short-term nature and is only expected to benefit the current period. Revenue transactions appear in the profit and loss account of the period.
A revolving line of credit is a flexible borrowing option that allows individuals or businesses to access and repay funds on an as-needed basis up to a specified credit limit.
The sales ledger, also known as the debtors' ledger, is an accounting record that tracks the sales transactions and amounts owed by customers.
Short-term debt, also known as short-term liabilities, refers to debt obligations that are due for payment within one year from the date of the balance sheet. These are recorded under current liabilities, showcasing the financial obligations a company needs to settle in the near term.
A static budget is a type of budget that remains unaltered even as the activity levels or revenue and expense volumes change throughout the budget period. It is commonly used for fixed costs and for assessing management performance.
Tax liability refers to the total amount of tax debt owed by an individual, organization, or corporation to a tax authority. It includes both current taxes due and any unpaid taxes from prior periods.
A till is a cash register, drawer, or any location where money is kept or stored for business purposes.
Times Fixed Charge is a measure of a company's ability to meet its fixed financial obligations, commonly evaluated through the Fixed-Charge Coverage Ratio.
Total cost refers to the sum of all costs incurred by a business in the production of goods or services, combining both fixed and variable costs.
Total cost represents the comprehensive expenses incurred by a firm to produce a specific level of output, encompassing both fixed and variable costs.
Total cost of production is a term used to refer to the overall expense incurred by a company to manufacture a product or provide a service. It includes both fixed and variable costs.
Trade creditors refer to suppliers or vendors to whom a business owes money for goods or services delivered but not yet paid for. These obligations are part of trade payables on a company's balance sheet.
Trade debtors, also known as trade receivables, represent amounts owed to a business by its customers for goods or services delivered or used but not yet paid for. It is a key component in the working capital of a business.
Unappropriated retained earnings refer to the portion of a company's retained earnings that have not been earmarked for any specific purpose and can be used for general business activities. This is akin to regular retained earnings unless a portion has been set aside for particular uses.
Wages costs are expenses incurred by businesses to compensate employees for their labor. These are a critical part of operating costs in any organization.
Withholding refers to the portion of an employee's wages retained by the employer for the purpose of paying various taxes, insurance plans, pension plans, union dues, and other deductions.
