Glossary of financial terms
Below is a simple glossary of commonly used financial terms.
Asset - anything that your business owns that has a cash value, such as:
- machinery and equipment
- cash itself
- non-tangible assets such as intellectual property and trademarks.
Balance sheet - a list of all the assets and liabilities in your business.
Cash - the money you have in your business. The term is used to distinguish money in the business, but not necessarily in physical form (i.e. notes), from non-liquid assets such as machinery and equipment.
Cash flow - the movement of money in and out of your business.
Closing stock - the stock you have in your business at the end of the trading period.
Gross profit - the difference between sales revenue and the cost of making a product, before subtracting overheads, labour costs, taxes and interest payments.
Gross profit margin - the percentage of sales that is gross profit. It tells you what percentage of your sales is available to cover your expenses and give you a profit.
Liability - anything that you owe to another individual or business. This can be in the form of a straightforward IOU, or money owed on a loan or mortgage.
Loans - money borrowed from financial institutions, such as banks or credit unions, or from investors. In some cases the owners, shareholders or proprietors of the business may also lend money to the business.
Mark-up - the amount added to the buying price to determine the selling price. Mark-up can be expressed as a dollar amount or as a percentage of your buying price.
Opening stock - the stock you have in your business at the start of the trading period.
Operating expenses - the costs of production such as materials used to make goods and the wages of your employees.
Owner's capital - the money you or your partners invest in the business with the aim of making a profit. Accountants usually call this proprietor's capital.
Purchases - the value of the stock you have bought or manufactured during a period. In businesses where goods are manufactured, this value amount may include:
- raw materials
- manufacturing expenses
- manufacturing labour.
Sales - the money you receive from selling your goods or services.