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Learning Business Lingo

Intro to Business Terminology

Starting something new may seem overwhelming. Nevertheless, it is important to remember that we all started learning the fundamental numbers and letters. Once we know the foundation of basic words, we can read and understand endless subjects. There are limitless possibilities for acquiring business knowledge
due to the changing global landscape.

In this section, we provide bite-sized summaries of common words and terminologies used in business.

It is our hope that this glossary arms you with regularly used concepts to better communicate with fellow business-oriented individuals.

Accounts Payable (AP)

Also known as “payables,” AP refers to a company’s short-term obligations owed to its creditors or suppliers, which have not yet been paid. Payables appear on a company’s balance sheet as a current liability. (1)

Accounts Receivables (AR)

AR is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. AR is listed on the balance sheet as a current asset. (1)

Asset

Assets are resources that businesses control and from which the owner expects to generate cash flow. Examples include inventory, equipment, and land. (3)

Balance Sheet

A balance sheet documents a company’s financial health at specific points in time, usually at the end of the quarter or fiscal year. The balance sheet includes assets, liabilities, and equity. (3)

Budget

A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Corporate budgets are essential for operating at peak efficiency. (1)

Capital

The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth. Capital is often associated with cash that is being put to work for productive or investment purposes. (1)

Cash Flow Statement

A cash flow statement measures the cash generated (inflow) or used (outflow) by a company in a given time period. It is classified under operating, investing, or financing activities. (3)

Cost

Cost is the total spent on goods or services, including money, time, and labor. It is value measured by what must be given, done, or undergone to obtain something. (2)

Cost of goods sold (COGS)

COGS refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs. (1)

Debt

1.An obligation to pay or do something; 2. money, goods, or services owed by one person to another; 3. the state of owing something (especially money) (2)

Equity

Shareholders’ equity (SE) tells you a company’s net value if liquidating assets or paying off debts. To calculate SE, subtract total liabilities from assets: SE = total assets − total liabilities. (3)

Expense

Expense refers to money spent on utilities, salaries, raw materials, and other items that a company incurs through operation. (3)

Financial Statements

Financial statements are written records that convey a business’ activities and financial performance. Financial statements are often audited by government agencies, accountants, and firms to ensure accuracy as well as for tax, financing, or investing purposes. (1)

Insurance

Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make the insured’s payments more affordable. There are many types of insurance policies. (1)

Inventory

Inventory includes goods available for sale as well as the raw materials used to produce the goods. It is classified as a current asset on a company’s balance sheet. The three types of inventory include raw materials and work-in-progress and finished goods. (1)

Investing

Investing puts money to work for a period of time in some sort of project or undertaking in order to generate positive returns (i.e., profits that exceed the amount of the initial investment). It is the act of allocating resources, usually capital (i.e., money), with the expectation of generating an income, profit, or gain. (1)

Key Performance Indicators (KPIs)

KPIs refer to a set of quantifiable measurements used to gauge a company’s overall long-term performance. They measure a company’s success versus a set of targets, objectives, or industry peers. (1)

Liability

Liabilities are debts, usually sums of money, that a business owes to another entity. Examples include expenses payable to suppliers, AP, and business loans. (3) A liability (generally speaking) is something that is owed to somebody else. (1)

Margin

In a general business context, a margin is the difference between a product’s or service’s sale price and the cost of production, or the ratio of profit to revenue. (1)

Net Income

Also known as net earnings, net income is calculated as sales minus the cost of goods sold, marketing, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. It is a useful number for investors to assess how much revenue exceeds the expenses of an organization. (1)

Net Loss

A net loss is when total expenses (including taxes, fees, interest, and depreciation) exceed the income or revenue produced for a given period of time. A net loss may be contrasted with a net profit, also known as after-tax income or net income. (1)

Net Worth

Net worth is the value of the assets a person or corporation owns minus the liabilities they owe. It is an important metric to gauge a company’s health, providing a useful snapshot of its current financial position. (1)

Outsourcing

Outsourcing is a business practice in which services or job functions are farmed out to a third party. In information technology (IT), an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development, or QA testing. (1)

Overhead

Overhead refers to the ongoing business expenses not directly attributed to creating a product or service. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit. In short, overhead is any expense incurred to support the business while not being directly related to a specific product or service. (1)

Payroll

Payroll is the compensation a business must pay to its employees for a set time period or on a given date. It is usually managed by the accounting or human resources department of a company. Small-business payroll may be handled directly by the owner or an associate. (1)

Prepaid Expense

This is a type of asset on the balance sheet that results from a business paying in advance for goods or services to be received in the future. Prepaid expenses are initially recorded as assets, but their value is expensed over time onto the income statement. (1)

Profit

Also known as “net income” or the “bottom line,” the profit shows the difference between what a business earns and spends. Profit is calculated by subtracting total expenses from total revenue. (2) For accounting purposes, companies report gross profit, operating profit, and net profit. (1)

Profit and Loss Income Statement

This term refers to a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year. These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both. (1)

Reconciliation

Reconciliation is an accounting process that compares two sets of records to ensure that figures are correct and in agreement. Reconciliation also confirms that accounts in the general ledger are consistent, accurate, and complete. (1)

Refund

A refund, in the context of taxes, is reimbursement for an overpayment of taxes by a government taxing authority. In a wider context, businesses and merchants issue refunds to customers who are dissatisfied with the goods or services they purchase. (1)

Return on Investment (ROI)

ROI is a ratio measuring performance efficiency relative to how much a company spends on investments. Calculate ROI by dividing net profit from the investment cost. (3)

Revenue

Revenue refers to the income generated from a business’s operations and activities. One way to calculate revenue is by multiplying the price of an item by the quantity sold. (3)

Taxes

Taxes are mandatory contributions levied on individuals or corporations by a government entity — whether local, regional, or national. Tax revenues finance government activities, including public works and services, such as roads and schools, or programs such as Social Security and Medicare. (1)

For additional information, please visit the links below.

Investopedia

Reverse Dictionary

Suitably

We used the following references to provide you these definitions. However, most links will take you to the Investopedia Dictionary for a detailed explanation of the terms.

References

The definitions used to explain the above concepts were accessed at the following websites:

1. Investopedia Dictionary. (n.d.). Retrieved August 13, 2022 from: https://www.investopedia.com/financial-term-dictionary-4769738

2. Reverse Dictionary. (n.d.). Retrieved August 13, 2022 from: https://reversedictionary.org/

3. Suitably Business Term Definitions. (n.d.). Retrieved August 13, 2022 from: https://www.suitably.com/blogs/well-suited/20-key-business-terms-every-professional-should-know