Glossary of Financial Terms: Understand Accounting Terminology [PDF]

1. Accounts Receivable

• What it is: Money that people or businesses owe you because you’ve sold them something or provided a service.
• Example: If you provided a service but they haven’t paid yet, the amount they owe you is called accounts receivable.

2. Assets

• What it is: Everything your business owns that has value. This can be cash, equipment, property, or anything else that can be used to generate income.
• Types:
  • Current Assets: Things you can turn into cash within a year (like money owed to you or inventory).
  • Fixed Assets: Long-term items like buildings or machinery that aren’t quickly sold.

3. Balance Sheet

• What it is: A document that shows the total value of your business at a certain point. It lists what your business owns (assets), owes (liabilities), and what’s left for the owners (equity).
• Purpose: Helps people understand your business’s financial health.

4. Current Assets

• What it is: Things your business owns that can be quickly turned into cash or used within the year (like cash in the bank or inventory).
• Example: Cash, money customers owe you, or goods you plan to sell.

5. Current Liabilities

• What it is: Money your business owes that needs to be paid within the year (like bills or short-term loans).
• Example: Money you owe to suppliers or wages you need to pay employees.

6. Depreciation

• What it is: The process of gradually reducing the value of things like buildings or machinery as they get older or used more.
• Example: If you buy a machine for Rs. 50,000 and expect it to last 10 years, depreciation helps you spread out the cost over those 10 years.

7. Equity

• What it is: The value left over after subtracting what you owe (liabilities) from what you own (assets). It’s essentially what the business is worth to its owners.
• Example: If a business has Rs. 1,000,000 in assets but owes Rs. 400,000, the equity is Rs. 600,000.

8. Expenses

• What it is: The money your business spends on things needed to run it, like rent, salaries, or materials.
• Example: Monthly rent or payments for supplies are expenses.

9. Fixed Assets

• What it is: Long-term items that you don’t plan to sell or use up quickly. These are the big things your business owns, like buildings, equipment, or vehicles.
• Example: Your office building or machinery.

10. Income Statement

• What it is: A report that shows how much money your business earned and spent over a certain period (like a month or year).
• Purpose: Helps you understand whether your business is making a profit or losing money.

11. Long-term Liabilities

• What it is: Money your business owes that you don’t have to pay back within the next year (like long-term loans or large debts).
• Example: A loan with a 5-year repayment plan.

12. Marketable Securities

• What it is: Investments that can quickly be turned into cash, like stocks or bonds.
• Example: Money invested in a company’s shares or government bonds.

13. Net Accounts Receivable

• What it is: The amount of money that customers owe you, after you take away what you expect you won’t be able to collect.
• Example: If customers owe you Rs. 100,000 but you think Rs. 5,000 won’t be paid, your net accounts receivable would be Rs. 95,000.

14. Net Income

• What it is: The total profit after all expenses (like rent, wages, etc.) have been taken out from your revenue.
• Example: If you made Rs. 500,000 in revenue and spent Rs. 300,000, your net income would be Rs. 200,000.

15. Non-Operating Revenue

• What it is: Money you make from things that aren’t part of your regular business activities, like earning interest or selling an asset.
• Example: If your business earns interest from savings accounts, that’s non-operating revenue.

16. Operating Revenue

• What it is: Money you make from the core activities of your business, like selling products or services.
• Example: If you run a bakery, the money you make from selling bread and cakes is operating revenue.

17. Profit

• What it is: The money left after you subtract all your business costs from the money you earned.
• Example: If your bakery made Rs. 1,000,000 in sales but spent Rs. 750,000 on ingredients, wages, and rent, your profit would be Rs. 250,000.

18. Revenue

• What it is: The total amount of money your business brings in from selling goods or services before any expenses are taken out.
• Example: If you sell 100 items for Rs. 500 each, your revenue is Rs. 50,000.

19. Total Assets

• What it is: The total value of everything your business owns, including cash, equipment, inventory, and property.
• Importance: This shows what your business is worth in terms of its assets.

20. Total Liabilities

• What it is: The total amount of money your business owes, including both short-term and long-term debts.
• Importance: This shows the financial obligations your business has to others.

21. Total Revenue

• What it is: The total money your business earns from selling products or services, including both regular business income and any extra earnings (like interest).
• Example: Revenue from sales plus earnings from interest on investments.

22. Uncollectibles

• What it is: Money that you are owed but don’t expect to collect, often because the customer can’t or won’t pay.
• Example: If a customer goes bankrupt and can’t pay their bill, that would be considered uncollectible.