Accounts Payable: Listing of debts owed by the company mainly for purchases of services, supplies, or inventory.
Accounts Receivable: Amounts owed to your business that represents unsettled claims and transactions. Accounts receivable mainly arise from the sale of a company’s products or services.
Accrual Method of Accounting: Accounts for income and expenses that are earned or incurred within the 12-month period, which is not necessarily when it is received or paid.
Actuals: The budgeted expenses and revenues of the base year adjusted to reflect those actually experienced during a fiscal year.
Allocation: The distribution of revenue or expenses across various entities – departments, divisions, regions, etc.
Allocation Basis: The distribution of resources within a service or operating department of a company that correlates with its base level of overhead costs. When resources such as man hours, operating space, or energy usage are increased or decreased in a properly allocated base, its overhead costs will correspond proportionately.
Amortization: The systematic write-off of costs incurred to acquire an intangible asset, such as patents, copyrights, goodwill, organization and expenses.
Assets: Anything owned by the company having a monetary value; eg, ‘fixed’ assets like buildings, plant and machinery, vehicles (these are not assets if rented and not owned) and potentially including intangibles like trade marks and brand names, and ‘current’ assets, such as stock, debtors and cash.
Balance Sheet: A financial statement showing the financial position of a business entity in terms of assets, liabilities and capital at a specified date.
Budget: A formal quantitative expression of management’s plans or expectations. Master budgets are the forecast or planned Profit and Loss Account and Balance Sheet. Subsidiary budgets include those for sales, output, purchases, labor, cash etc.
Breakeven point: The level of activity (e.g. level of sales) at which the business makes neither a profit nor a loss i.e. where total revenues exactly equal total costs.
Business Performance Management (BPM): An advanced performance measurement and analysis approach that embraces planning and strategy.
Capital: An imprecise term meaning the whole quantity of assets less liabilities owned by a person or a business.
Cash Equivalents: Short term, highly liquid investments held in place of cash and readily convertible into cash.
Cash Method of Accounting: Accounts for income and expenses when actually received or paid.
Cash flow: The movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments.
Cash flow forecast: A document detailing expected or planned cash receipts and outgoings for a future period.
Cash flow statement: A formal financial statement showing a summary of cash inflows and outflows under certain required headings.
Chart of accounts: A list of all accounts set up to handle a company’s accounting transactions. The accounts are numbered in order, usually starting with 1000 (assets) and continuing through to 9000 (miscellaneous gains and losses).
Consolidation: The aggregation of the financial statements of the separate companies of a group as if they were a single entity.
Cost of Goods Sold (COGS): The directly attributable costs of products or services sold, (usually materials, labour, and direct production costs). Sales less COGS = gross profit. Effectively the same as cost of sales (COS).
Current Assets: Cash and anything that is expected to be converted into cash within twelve months of the balance sheet date.
Current Ratio: The relationship between current assets and current liabilities, indicating the liquidity of a business, ie its ability to meet its short-term obligations. Also referred to as the
Liquidity Ratio: Ratio of balance sheet items which measure a firm’s ability to meet maturing short-term obligations.
Dashboard: A visual presentation of critical data for executives to view. It allows executives to see hot spots in seconds and explore the situation.
Data Cube: A two-dimensional, three-dimensional, or higher-dimensional object in which each dimension of the data represents a measure of interest.
Depreciation: The apportionment of cost of a (usually large) capital item over an agreed period, (based on life expectancy or obsolescence).
Double-entry (dual-entry) Accounting: A system of accounting that records each business transaction twice, once as a debit and once as a credit.
Drill-down: The investigation of information in detail (e.g., finding not only total sales but also sales by region, by product, or by salesperson). Finding the detailed sources.
Driver-based planning: The process of planning based on the key activities or measures that drive revenue, gross margins, and cash flow.
Expense: Money spent or cost incurred in an organization’s efforts to generate revenue, representing the cost of doing business.
FICA: The federal law which requires employers to withhold a portion of employee wages and pay them to the government trust fund which provides retirement benefits.
Fiscal Year (Financial Year, FY): Accounting period that can start on any day of a calendar year but has twelve consecutive months (52 consecutive weeks) at the end of which account books are closed, profit or loss is computed, and financial reports are prepared for filing.
Financial Statements: Balance Sheets, Profit and Loss Account, Income and Expenditure Accounts, Cash Flow Statements and other documents which formally convey information of a financial nature to interested parties concerning an enterprise. In companies, the financial statements are subject to audit opinion.
Fixed Assets: Business assets which have a useful life extending over more than one year. Examples are land and buildings, plant and machinery, vehicles.
Fixed Cost: A cost in the short term, remains the same at different levels of activity. i.e. rent
Forecast: The act of predicting business activity for a future period of time. Typically, a projection based on specific assumptions, such as targeted prospects or defined sales strategy.
FUTA: Employees put a portion of taxes towards funding programs for individuals who are unemployed or disabled.
FTE: Full-time equivalent. A measure of hours paid to employees on the payroll. One person working full time for a year uses one FTE, including vacation and sick leave. It does not include overtime and other “premium” pay.
General Ledger (G/L): Central repository of the accounting information of an organization in which the summaries of all financial transactions during an accounting period are recorded.
GAAP: Generally accepted accounting principles. The rules financial accountants have to follow when handling accounting transactions and preparing financial statements. The Financial Accounting Standards Board (FASB) is the private-sector body that establishes GAAP for all non-governmental entities.
Gross Profit: Sales revenue less cost of sales but before deduction of overhead expenses. In a manufacturing company it is sales revenue less cost of sales but before deduction of non-manufacturing overheads.
Gross Margin %: (or gross profit ratio), gross profit expressed as a percentage of sales. Sales, less direct costs, divided by sales.
Intangible Asset: Assets that are not physical in nature. The most common form of intangible asset is called Goodwill. This is the customer base that the business has built up and is the principal reason that a business might sell for more than the value of the tangible assets.
Inventory: Goods held for sale to customers. Inventory can be merchandise you buy for resale, or it can be merchandise you manufacture or process, selling the end product to the customer.
Liabilities: What your business owes creditors. Liabilities are balance sheet accounts. Examples are accounts payable, payroll taxes payable, and loans payable.
Long-term liabilities: Liabilities not due within one year. An example would be a mortgage payable, or accrued expenses.
Net Income: Gross income less expenses; represents a business’s profit for a given year.
Profit and Loss Account (P&L): One of the three principal business reporting and measuring tools (along with the balance sheet and cashflow statement). The P&L shows profit performance, which often has little to do with cash, stocks and assets (which must be viewed from a separate perspective using balance sheet and cashflow statement). The P&L typically shows sales revenues, cost of sales/cost of goods sold, generally a gross profit margin (sometimes called ‘contribution’), fixed overheads and or operating expenses, and then profit before tax figure.
Profit and Loss Statement: Also called an income statement or “P&L.” Lists income, expenses, and net profit (or loss). The net profit (or loss) is equal to your income minus your expenses..
Return on Sales: The ratio of profit to sales expressed as a percentage.
Revenue: Amounts charged to customers for goods or services rendered.
Variable Cost: A cost which varies with sales or operational volumes, eg materials, fuel, commission payments.
Trial Balance: A trial balance is prepared at the end of an accounting period by adding up all the account balances in your general ledger. The debit balances should equal the credit balances.
Unearned Revenue: Also called prepaid income, it represents money you have received in advance of providing a service to your customer. It is actually a liability of your business because you still owe the service to the customer.
Variance Reporting: Monitoring actual income and expenditures against the Budget, Forecast, or prior year.
What If Scenario: Analysis of the economic effect of possible future situations i.e. economic downturns, loss of customers, changes in interest rates, new competitors or technologies.
Working Capital: Current assets less current liabilities, representing the required investment, continually circulating, to finance stock, debtors, and work in progress.
Zero Based Budgeting: Method for preparing cash flow budgets and operating plans which every year must start from scratch with no pre-authorized funds. Unlike the traditional (incremental) budgeting in which past sales and expenditure trends are assumed to continue, ZBB requires each activity to be justified on the basis of cost-benefit analysis, assumes that no present commitment exists, and that there is no balance to be carried forward.