Glossary of Business Terms
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accountant:
a qualified person who is skilled at managing and analysing business financial records.
account:
a record of a business transaction. When
you buy something on credit, the company you are dealing with sets up
an "account". This means it sets up a record of what you buy and what
you pay. You will do the same thing with any customers to whom you
extend credit.
account payee only:
words often written on crossed cheques, which direct the bank to pay the cheque only to the bank account of the payee.
accounts payable:
is
money you owe to suppliers and other business creditors as a result of
purchases of stock and other expenses such as overheads and taxes.
accounts receivable:
a
record of what is owed to you. All of the credit "accounts" - the
record of what each customer owes you - taken together are your
"accounts receivable".
acquisitions:
in
relation to the GST, acquisitions include the things you buy (goods,
services and anything else) for your business. They also include many
other transactions, such as obtaining advice or information, taking out
a lease of business premises or hiring business equipment.
actuary:
a mathematician whose work is mainly concerned with insurance and finance.
ad valorem:
according
to value. Applied to customs duty, it means a percentage charge on the
value, rather than the weight or quantity of goods.
affidavit:
a declaration in writing on oath, made before a person legally qualified for the purpose.
amortise:
the
gradual process of writing off the cost of an asset, or paying off a
liability by means of a sinking fund, over a period of time.
articles of association:
the
basic document of a registered company defining its internal
organisation. It is one of two fundamental documents on which the
registration of a company is based. See memorandum of association.
asset:
anything
of worth that is owned. The assets of a business are money in the bank,
accounts receivable, securities held in the name of the business,
property or buildings, equipment, fixtures, merchandise for sale or
being made, supplies and all things of value that the business owns.
audit:
detailed
checking of the financial records of a business by an independent
qualified person (auditor) in order to verify their correctness or to
detect errors or fraud.
Australian Business Number (ABN):
an
identifier for dealings with the Australian Taxation Office and for
future dealings with other government departments and agencies.
authorised capital:
the
total amount of capital which a company, by its memorandum of
association, is authorised to offer for subscription. See also, paid up
capital.
award:
an agreement having the force of law, which sets out working conditions and wages for certain types of employment.
bad debts:
money owed to you that you can't collect
balance:
the amount of money remaining in an account. The total of your money in the bank after accounting for all transactions (deposits and withdrawals) is called a "balance".
balance sheet:
an
important business document that shows what a business owns and owes as
of the date shown. Essentially a "balance sheet" is a list of business
assets and their cost on one side and a list of liabilities and owners'
equity (investment in the business) on the other side with the amount
for each. The liabilities include all that the business owes.
bank draft:
a
written instruction to a bank’s agent to pay a sum of money to the
person specified on the draft. A safe and convenient way of remitting
money overseas.
bank reconciliation:
a
comparison between the bank’s record of transactions and the record of
the firm’s cash book. After taking into account such items as
unpresented cheques and bank charges etc., the two records should show
an identical balance.
bankrupt:
a
debtor, who has volunteered or been forced to appear before a
Bankruptcy Court and has been judged insolvent, because s/he has
insufficient assets to meet the demands of all creditors.
bill of sale:
a
document under seal, which formally transfers ownership of property
specified in the document from the borrower to the lender, until such
time as the debt has been paid in full.
bona fide:
in good faith, honestly, without fraud, collusion or participation in wrong doing.
bond:
payment
by a tenant to a landlord before the tenant takes over the premises and
from which the landlord may be able to deduct arrears of rent or the
cost of rectifying damage.
bookkeeping:
the process of recording business transactions in the accounting records
break-even point:
the point at which volume of sales is enough to cover all costs.
bridging loan:
a
loan to provide short-term finance, usually to buy property or land,
where the loan is to be cleared by longer-term borrowing, or the sale
of assets.
budget:
an estimate of expenses and revenue required.
Business Activity Statement:
a
single form used to report business tax entitlements and obligations,
including the amount of GST payable and your input tax credits.
business name:
the name of a business officially listed in the state or territory Register of Business Names.
capital:
the total owned and borrowed funds in a business.
capital gain:
a
financial gain made from selling fixed assets such as land, buildings,
or a business at a price above the original purchase price.
capital requirement:
a
list of expenses that must be met to establish a business. Even before
a business is started, the owner should start keeping records.
cash:
includes
all money in the bank, in the cash drawer and in petty cash. Banknotes,
coins, bills and negotiable securities (like cheques) is cash. But so
is the money you can draw on demand - your bank accounts or savings
accounts also represent "cash".
cash book:
a record of cash payments and receipts, showing these under various categories.
cash discount:
a deduction that is given for prompt payment of a bill.
cash flow:
the
flow of internal funds generated within the business as a result of
receipts from debtors, payments to creditors, drawings and cash sales.
cash receipts:
the money received by a business from customers
caveat emptor:
let the buyer beware. The condition of sale is that the purchase is at the buyer’s risk.
collateral:
security provided by a borrower to cover the possibility that the loan will not be repaid.
company:
a business owned by a group of people called shareholders, which has its own legal identity separate from its owners.
consumer price index (CPI):
a
measure of the aggregate rise or fall in prices of commonly used goods
and services, published by the Commonwealth Government as a basis,
among other things, for deciding what overall increases should be made
to wages and salaries.
contingent liability:
a
liability which will only arise upon the happening of a certain event,
for example, the guarantor of a loan being asked to honour the
guarantee if the borrower defaults.
contract:
a legally binding agreement between two or more parties.
controllable expenses:
those expenses that can be controlled or restrained by the businessperson.
copyright:
a
type of property right which protects the expression of ideas such as
literary or dramatic works, television productions, drawings etc., from
being used for commercial gain without permission of the copyright
owner. Registration is not a prerequisite for protection.
co-signers:
people whom together share responsibility on behalf of a business by jointly signing documents or cheques.
cost of goods sold:
the
total cost to the business of the goods sold during an accounting
period. In its simplest form this is the sum of the opening stock plus
all purchases less the closing stock.
cover note:
a
temporary certificate of insurance issued by an insurance company to
give immediate insurance cover until a formal document is prepared and
issued.
credit:
an entry made on the right hand side of an account and indicating a gain to a liability, owner’s equity or revenue account.
credit application:
a
form to be completed by an applicant for a credit account, giving
sufficient details to allow the seller to establish the applicant’s
creditworthiness.
credit control:
any policy designed to increase or decrease credit.
credit limit:
the upper limit of credit that a business will allow a customer to have.
creditor:
a person or business to whom money is owed.
crossed cheque:
a
cheque across which two parallel lines have been drawn. The effect of
crossing a cheque is to direct your bank to pay the cheque only through
another bank account.
current assets:
includes
cash, short-term deposits, customers’ accounts, stock (includes work in
progress, raw materials and finished goods), that will be converted
into cash during the normal course of business, within a year.
current liabilities:
short-term
debts such as bank overdraft, creditors and provisions set aside to pay
taxation and other commitments (for example, holiday or long service
leave) and expected to come due within one year of the Balance Sheet.
debenture:
a
fixed interest investment in a company, which has priority for interest
payments, generally redeemable after the lapse of a specified time
debit:
To
debit is to place an entry on the left-hand side of an account. A debit
in a liability account makes it smaller. A debit in an asset account
makes it larger.
debt:
that
which is owed. If you borrow money, buy something on credit or receive
more money on an account than is owed, you have a "debt.
debt capital:
money from external sources used to finance a business. See also equity capital.
debtor:
a person or business who owes money
default:
to fail to meet an obligation when due, such as paying a debt.
demand:
an
order to comply with an obligation. In business, paying on "demand"
means that the obligation must be satisfied immediately when requested.
depreciation expense:
gradual
reduction of the value of a fixed asset and gradual application of this
cost to the expenses of a business over the useful life of the asset.
depreciation schedule:
a
table showing depreciable assets, the year each was purchased, its
cost, the percentage by which it is depreciated each year and written
down current value.
direct costs:
the
costs incurred, in addition to fixed costs, as a result of
manufacturing a product or providing a service. Direct costs are made
up of direct material, direct labour and direct manufacturing or
servicing costs.
director’s guarantee:
a
personal guarantee given by a director of a company that s/he will be
personally responsible for a debt or other liability of the company.
Usually requested in credit applications, leases, loans and hire
purchase agreements.
disbursements:
funds paid out of a business in settlement of obligations.
discount:
a deduction made from the normal cost or purchase price.
dishonoured:
the word used to describe a cheque, which the bank will not pay, because the customer’s account lacks sufficient funds.
dividend:
a distribution of the profits of a company among its members or shareholders.
drawer:
the person who writes a cheque in payment for goods or services.
drawings:
withdrawals of assets (usually cash) from a business by a sole proprietor or a partner.
entity:
an
individual (sole trader), partnership, a body corporate, a corporation,
an incorporated association or body of persons, a trust or
superannuation fund.
entrepreneur:
a
person who organises and manages a business, but usually only applied
to people who have shown exceptional ability and imagination in
launching and succeeding with new business ventures.
equities:
stocks and shares invested in a business and not bearing fixed interest.
equity capital:
money provided by the business owner/s to finance the business.
excess:
in
an insurance policy, excess clauses specify that the policyholder will
be responsible for a portion of claims under certain conditions.
expenses:
costs incurred by a business in earning income, for example, rent, advertising, wages etc.
factoring:
involves
the cash purchase of a business’ sales invoices at a discount, after
which, the factoring company collects the invoiced amounts from the
business’ customers. Factoring is used where the business needs
immediate cash.
feasibility study:
an
examination of a particular project or business to assess its chances
of operating successfully, before committing large amounts of money to
it.
fidelity guarantee insurance:
insurance against losses resulting from the dishonesty of employee/s.
finance:
money resources
financing:
obtaining money resources. Businesses usually have to obtain finance at some time, either to go into business or expand operations.
financial statements:
formal reports prepared from accounting records describing the financial position and performance of the business.
financial year:
an accounting period of 12 months, often coincident, for convenience, with the fiscal year (1 July to 30 June).
fixed costs:
costs,
which are incurred by a business whether it is operating to generate
income or not and which do not necessarily increase or decrease as a
total volume of production, increases or decreases. Rent, for example,
must be paid whether or not any business is accomplished.
fixed assets:
the
land, buildings, vehicles, materials and equipment owned by a business,
which are used to earn revenue rather than being for sale.
franchise:
a
business arrangement in which knowledge, expertise and often a trade
mark or trade name are licensed to an operator, generally for an
initial fee and a yearly payment.
franchisee:
the purchaser of a franchise licence who operates one or more outlets of the franchise business.
franchisor:
the owner of a franchise system
fusion insurance:
covers loss caused by damage to an electric motor by an electric current, and is particularly important for refrigerated stocks.
gearing:
the ratio between the business’s debt and equity finance.
goodwill:
the
excess price asked for the sale of a business over the value of its
physical assets; an intangible asset, the price of which represents a
payment for the existing client base and future profits.
GST-free:
some
supplies are GST-free, which means you do not charge GST for them but
you are entitled to claim input tax credits for anything acquired or
imported to use in your business.
gross:
the
total overall amount. For example, gross profit is the trading profit
of a business without any deductions for business expenses.
gross profit:
the excess of net sales over cost of goods sold usually expressed as a percentage.
hire purchase:
system
for financing the purchase of plant and equipment, where the ownership
is vested with the lender until the final payment is made. The borrower
is required to place a deposit and make periodic (usually monthly)
repayments at a flat rate of interest.
income:
money that is being earned by the business.
income statement:
a
financial document that shows how much money (sales) came in and how
much money (costs) was paid out. Subtracting the costs from the sales
gives you your profit and all three are shown on the income statement.
indemnity insurance:
risk
protection for actions for which a business is liable. Insurance that a
business carries to cover the possibility of loss from lawsuits in the
event the business or its agents were found at fault when an action
occurred.
induction training:
training
for new employees regarding conditions of service, physical layout of
the workplace, safety rules, local conventions and customs and
supervisory procedures.
input taxed:
some
supplies are input taxed, which means you do not charge GST for them
but neither are you entitled to input tax credits for anything acquired
or imported to make the supply.
input tax credits:
you
are entitled to an input tax credit for the GST included in the price
you pay for an acquisition or the GST paid for an importation if it is
for use in your enterprise.
intangible assets:
those
assets of a business, which cannot be assigned a firm, fixed value,
such as leases, franchises, goodwill and patent rights.
interest:
the cost of borrowing money.
inter-firm comparison:
a comparison between the financial and productive performance of a business with the industry averages.
inventory:
the
value of all the stock of physical items that a business uses in its
production process or has for sale in the ordinary course of doing
business.
investment:
money used to purchase any capital items for the business and expected to yield an income.
invoice:
document which shows the customer charges for goods delivered or work done.
invoice financing:
see factoring
lay-by:
an
arrangement where the customer in a retail store makes a deposit on an
article and pays the amount owing in instalments, while the retailer
stores the article until the last payment has been made.
lease:
a
legal contract covering the possession and use of property, plant or
equipment between the owner (lessor) and another person (lessee) at a
given rent, for a stated length of time.
leasing finance:
a
method of acquiring business equipment without capital outlay. the bank
or finance company buys the equipment and leases it to the customer, in
return for regular rental payments for the duration of the lease period.
lessee:
a person who enters into a lease contract as the user of the land, buildings, plant or equipment.
lessor:
an owner who allows his/her land, buildings, plant or equipment to be used under a lease contract.
limited partnership:
a legal partnership where some owners are allowed to assume responsibility only up to the amount invested.
liquidate:
to settle a debt or to convert to cash. This literally means to do away with.
liquidator:
a
qualified person appointed by a court to close down a business that is
a proprietary company and realise and distribute its assets in payment
of its liabilities.
liquidity ratio:
a comparison of two accounts in a Balance Sheet, current assets divided by current liabilities.
loan:
money lent at interest. A
lender makes a "loan" with the idea that it will be paid back as agreed
and that interest will be paid for the use of the money.
loss of profits insurance:
insurance
to cover loss of profits incurred by the policyholder in the event of
some calamity overtaking the policyholder’s business, so that trading
has to cease.
management:
the role of conducting and supervising a business.
margin:
the
difference between the selling price and the purchase price of an item
usually expressed as a percentage of the selling price. Compare mark-up.
marketing:
finding
out what customers want, then setting out to meet their needs, provided
it can be done at a profit. Marketing includes market research,
deciding on products and prices, advertising promoting distributing and
selling.
marketing plan:
details
of specific tasks worked out by and for a business concerning how
market research, product choice and pricing, advertising, promotion and
distribution will be done.
marketing strategy:
a
business’ approach to marketing its products/ services expresses in
broad terms, which forms the basis for developing a marketing plan.
market segmentation:
the
division of a market into segments. Each segment consists of a group of
consumers with similar requirements, which can be distinguished from
the requirements of other consumers in the market. There will be
distinct differences between the goods and services needed to meet the
requirements of each segment.
mark-up:
the
price increase between buying at wholesale and selling at retail often
expressed as a percentage of the wholesale or cost price. Compare
margin.
memorandum of association:
a
legal document that lays down the objects of a registered company and
details of the regulation of the company’s business dealings. It is one
of the two fundamental documents upon which registration of any company
is based. See articles of association.
merchandise:
goods that may be sold or traded.
merchandising:
trading in a range of goods. Promoting the whole range of goods that are sold in a business.
mortgage:
the
transfer of right of ownership of a property from a debtor to a
creditor as security for a debt, with the proviso that once the debt is
paid ownership is transferred back.
mortgagee:
the organisation or person to whom the property is mortgaged. In the case of a bank loan, the organisation is usually the bank.
mortgagor:
a person who mortgages a property.
negative gearing:
is
when an investment is purchased with the assistance of borrowed funds
and where the income from that investment (after the deduction of
expenses) is less than the interest commitment in the course of a year
net:
what is left after deducting all charges (see gross).
net profit:
the remainder after all expenses of an accounting period are deducted from all revenue of the same period.
net worth:
the owner/s’ interest in a business, calculated by subtracting all liabilities from the assets of the business.
niche:
a small specialised segment of a total market.
not negotiable:
words often written on crossed cheques, which do not prevent the cheque from being transferred. See account payee only.
official receiver:
a person appointed to investigate and manage the affairs of a company in receivership
operating expense:
all the expenses normally incurred in running a business, during an accounting period, excluding the cost of goods sold.
option:
an
agreement, often for a consideration, which permits the purchase or
sale of something within a stipulated time, in accordance with the
terms of the agreement. For example, a right by a tenant to take up a
further lease of premises, usually under conditions outlined in the
original lease.
overdraft:
a
form of loan by which a person with a trading bank current account is
given permission to continue making drawings on the account up to an
agreed limit, after the balance has been reduced to nil.
overhead:
expenses
which are incurred in producing a commodity or rendering a service, but
which cannot conveniently be attributed to individual units of
production or service. Examples are heating, lighting etc.
paid-up-capital:
the total capital of a company. It comprises both shares issued for cash or for acquisition of assets and bonus shares.
partnership:
a legal business relationship of two or more people who share responsibilities, resources, profits, and liabilities.
patent:
the
granting by a government of monopoly rights to the owner of an
invention to manufacture and sell it for a certain number of years,
conditional on the owner being willing to immediately reveal the ideas
incorporated in the invention, so that they can be published for the
advancement of knowledge of the general public.
payable:
ready to be paid.
Pay As You Go (PAYG) instalments:
are
the amounts you pay directly to the Commissioner of Taxation to meet
your income tax and other liabilities and are usually paid each quarter.
payee:
person to whom money is paid
personal assets:
the
money you have in the bank, whatever is owed to you, any securities
(shares) that you own, the property you own, whatever part of your home
that you own, your furniture and appliances and all the miscellaneous
things that you personally own.
personnel:
persons collectively in the employ of a business.
petty cash:
a small amount of money kept for minor purchases for the business, which do not warrant writing a cheque.
posting:
making entries in an account system or book from original documents such as invoices and receipts.
power of attorney:
power to act on behalf of another person for specified purposes.
premium:
consideration paid for an insurance policy.
principal:
in the case of a loan, refers to the actual amount borrowed and on which interest is paid.
profit:
total revenue less total expenses for a period of time calculated in accordance with generally accepted accounting principles.
profit and loss statement:
statement of revenue and expenses showing the profit or loss for a certain period of time.
profit margin:
the amount that the price of a product or service is raised above its cost in order to provide a gross profit.
pro-forma invoice:
a
document giving all the details of a proposed transaction, but not
committing either the sender or recipient until the recipient pays the
sender the amount shown. Commonly used by wholesalers for the first
transaction with new customers.
projection:
a forecast of future trends in the operation of a business.
promotion:
a means of increasing the public’s or industry’s awareness of a business and its services or goods.
proprietorship:
the value of the proprietor’s assets in a business less any external liabilities.
proprietary company:
a
business which is owned by not less than two persons and not more than
50 persons and which restricts the right of the shareholders to
transfer shares. Such a business is a separate legal entity and must
use the words Proprietary Limited (Pty Ltd) after it name.
pro rata:
in proportion.
rate of stock turnover (stock turn):
the
ratio of cost of goods sold over average stock (at cost). This
indicates how many times, on average, the entire inventory (stock) was
sold and replaced during the year.
ratio:
the proportional relationship of one thing to another
receipt:
a written acknowledgement of having received money or goods specified
receivership:
the legal condition a company is placed in when an official receiver is appointed to investigate and manage its affairs.
residual:
the pre-agreed estimated value at the end of a leasing period of an item subject to a leasing agreement.
retail:
to sell directly to the consumer, usually in small quantities in comparison with the total level of sales.
return on investment (ROI):
the ratio of net profit after income tax, over owner’s equity. Usually expressed as a percentage.
right of assignment:
in
relation to business premises, a right given in the lease agreement for
a tenant to assign the lease to another tenant when the business is
sold.
sales:
the total value of goods sold or revenue from services rendered.
secured:
protected
or guaranteed as in the case of a loan where the lender holds the title
of some asset until the borrower has repaid the loan in full.
service business:
a business that deals in service activities such as a retailer, tourism business, banking, education provider, etc
sole trader:
a
person who trades by himself/herself without the use of a company
structure or partners and bears alone full responsibility for the
actions of the business.
solvent:
the condition of a business when all debts can be paid as they come due.
stock:
physical
items (inventory) that a business uses in its production process or has
for sale in the ordinary course of doing business.
stock control:
the
method of determining how much stock should be held and how much needs
to be reordered and when, with the aim of controlling stock holding
costs while maintaining efficient operation of the business.
stock turnover:
the
ratio of cost of goods sold over average stock (at cost). This
indicates how many times, on average, the entire inventory (stock) was
sold and replaced during the year.
stock at valuation (SAV):
stock valued at wholesale or cost price.
supplies:
in
relation to the GST, supplies include the goods and services you sell
through your enterprise and many other transactions such as providing
advice or information, leasing out commercial premises or providing
hire equipment.
supply:
for GST purposes, supply is defined as..
-
supply of goods and services;
-
provision of advice or information;
-
a grant, assignment or surrender of real property;
-
a creation, grant transfer, assignment or surrender of any right;
-
a financial supply; and
-
entry into or release from an obligation to do anything, to refrain from an act or to tolerate an act or situation.
tangible asset:
something substantial or real that is capable of being given an actual or approximate value.
tax invoice:
a
document generally issued by the supplier. It shows the price of
a supply, indicating whether it includes GST, and may show the amount
of GST. It must show other information, including the ABN of the
supplier. You must have a tax invoice before you can claim an
input tax credit on your activity statement (except for purchases of
$50 or less).
tender:
an
offer in writing to carry out work, which has been specified by another
person. The offer quotes a fixed price, which will be charged for doing
the work.
term loan:
a loan for a fixed period of more than one year and repayable by regular instalments.
trade credit:
an arrangement to buy goods or services on account, that is, without making immediate cash payment.
trade discount:
an
allowance made by a seller to a buyer at the time of purchase, for the
deduction of a percentage of the price, provided the payment is made
within agreed terms.
trade mark:
can
be a letter, number, word, phrase, sound, smell, shape, logo, picture,
aspect of packaging or any combination of these, which is used to
distinguish goods and / or services of one trader from those of another
trial balance:
a list of all balances in the ledger at a given time.
undercapitalisation:
insufficient investment of funds in a business.
unsecured loan:
a loan that is not backed up by any collateral, such as a home or an automobile offered as security.
valuation:
the process of appraising the worth of property according to some recognised criteria.
variable costs:
the costs additional to fixed costs of running a business, that can vary depending on the level of demand and activity.
vendor:
a seller of goods or of a business.
venture capital:
capital invested in a business where the chances of success are uncertain.
volume:
an amount or quantity of business activity.
walk in, walk out (WIWO):
an
expression normally used in its abbreviated form, regarding a business
for sale. It indicates that the business is for sale as a going concern
and may be purchased without interruption to trading.
wholesale:
selling in large quantities to businesses which will then resell to consumers in smaller quantities.
workers’ compensation:
money
paid to an employee to compensate for injuries received in connection
with their work. All employers must insure against claims for this kind
of compensation.
working capital:
the excess of current assets over current liabilities of any business at any time.
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