Financial Glossary

Here is a financial glossary explaining terms referred to throughout the pages on Small Business Finance Tips. If we're doing our job right, then these should clarify your understanding without being too technical or confusing you further.

Asset - In it’s purest form an asset is something that provides you with a financial return. For example, a tenanted property. See also fixed asset

Capital - the amount of money invested in the business. This can take the form of investors capital (equity), loans, issued debt, etc. It’s long term in nature.

Cost of Sales - the costs associated with making a sale. They vary directly with the amount of items produced. In a retail business this might just be the purchase price of the product. In a manufacturing business, this can include materials, labour, power etc

Creditor - a person or business who you owe money to in respect of goods or services you received.

Current Assets - the assets of a business that are cash, or can be readily turned into cash. For example, debtors, inventory(stock), work-in-progress, marketable securities such as stocks, gilts etc.

Current Liabilities - items that are due for payment within 12 months or as called by the lender. Typically includes trade creditors (accounts payable), tax duties such as sales tax, employment taxes etc, and bank overdrafts.

Debtor - a person or business who owes you money for goods or services provided. Read more about Managing Debtors

Double Entry - An accounting concept that there are two sides to every transaction. For example, for you to have receive cash (debit) it must be in respect of something (usually a sale - credit). In bookkeeping both sides of the transaction are recorded, which then balance against each other, giving an extra degree of control. Read more about Double Entry Bookkeeping

Financial Ratio Analysis - understand the profitablity, liquidity, indebtedness and operating efficiency of one or more businesses by the application of standardized formulae to monitor their relative strengths and weaknesses over time.

Fixed Asset - is anything which a business owns (e.g. Land, Property, Machinery, Technology), that is used regularly in the business to support profit making activities, but whose lifespan would normally extend beyond a calendar year

Overheads - are costs that are fixed or semi fixed in nature and do not directly vary with production or sales volume. Such things as rent, stationary etc are overheads.

Petty Cash - Cash normally held on the premises for spending on small one-off items, usually in a secure location (under lock and key within a cash box, maybe in a safe), the transactions of which are accounted for in a cash book.

Profit - is all income less all expenditure. You can measure it a few different levels to help you manage your business appropriately.

Gross Profit - Sales(also known as Turnover) - Cost of Sales

Net Profit - Gross Profit - Overheads

Working Capital is Current Assets - Current Liabilities. In general use it is a term used to explain the monetary value of the items managed in day to day operations. It is the money you have tied up in keeping your business running. Read more about Working Capital Management

Work-in-Progress - Represents the value of products at various stages of production within a manufacturing business

Top of Financial Glossary

Small Business Finance Tips home page