Common Business Terms You Need To Know

Accounts Payable (AP): is money owed by a business to its suppliers/vendors (not employees).

Accounts Receivable (AR): are legally enforceable claims for payment held by a business for goods supplied and/or services rendered that customers/clients have ordered but not paid for.

Asset: any resource owned by the business. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. Simply stated, assets represent the value of ownership that can be converted into cash (although cash itself is also considered an asset).

Balance Sheet: is a summary of the financial balances of an individual or organization

Cash Flow: is mostly used to describe payments that are expected to happen in the future, are thus uncertain and therefore need to be forecast with cash flows

Fixed Asset: assets and property that cannot easily be converted into cash

Income Statement: is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period

Liability: the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or another yielding of economic benefits in the future.

Profit & Loss: Statement is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period

Annual Percentage :is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate.

Rate/Interest Rate: the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed

Collateral: a borrower's pledge of specific property to a lender, to secure repayment of a loan. Ex. vehicle, home, land, CDs that are on hold and cannot be withdrawn from

Loan-to-Value: the ratio of a loan to the value of an asset purchased.

Debt-Service Coverage Ratio: is the ratio of operating income available to debt servicing for interest, principal and lease payments.

Lien: a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation.

Personal Guarantee: a promise made by a person or an organization (the guarantor) to accept responsibility for some other party's debt (the debtor) if the debtor fails to pay it.

Financial Statements: formal records of the financial activities and position of a business, person, or other entity.

Debt Consolidation: a form of debt refinancing that entails taking out one loan to pay off many others

Gross Profit: is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments

Statement of Cash Flow: a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents and break the analysis down to operating, investing, and financing activities

Credit Limit: maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit

Net 10/15/30/60: forms of trade credit which specify that the net amount (the total outstanding on the invoice) is expected to be paid in full by the buyer within 10, 15, 30 or 60 days of the date when the goods are dispatched or the service is completed

Invoice: a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer.

Payment Processor: a company (often a third party) appointed by a merchant to handle transactions from various channels such as credit cards and debit cards for merchant acquiring banks.

Line of Credit: a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A line of credit takes several forms, such as an overdraft limit, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc. It is effectively a source of funds that can readily be tapped at the borrower's discretion.

Credit Card: a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's promise to the card issuer to pay them for the amounts plus the other agreed charges.[1] The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.

Charge Card: a card that enables the cardholder to make purchases which are paid for by the card issuer, to whom the cardholder becomes indebted. The cardholder is obligated to repay the debt to the card issuer in full by the due date, usually on a monthly basis, or be subject to late fees and restrictions on further card use. Charge cards are distinct from credit cards in that credit cards are revolving credit instruments that do not need to be paid in full every month and a balance may be carried over, on which interest is paid. Charge cards are typically issued without spending limits, but credit cards usually have a specified credit limit that the cardholder may not exceed.

Secured Credit Card: is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus if the cardholder puts down $1,000, they will be given credit in the range of $500–1,000. In some cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases, the deposit required may be significantly less than the required credit limit, and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Credit card issuers offer this because they have noticed that delinquencies were notably reduced when the customer perceives something to lose if the balance is not repaid.

The cardholder of a secured credit card is still expected to make regular payments, as with a regular credit card, but should they default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows building a positive credit history.

Delinquent: payments that are past due

Default: is failure to meet the legal obligations (or conditions) of a loan,[1] for example when a home buyer fails to make a mortgage payment. Delinquent and default are occasionally used interchangeably, but default speaks more to when someone fully stops paying on a loan of any kind.

Liquidation/Wind Up: is the process in accounting by which a company is brought to an end (closing)

Dissolution: refers to the last stage of liquidation. (The last step officially closing the business. Ex. filing dissolution forms with the State to show the business ceases to exist)

Incorporation: The formation of a new business with all required government agencies (The state, city, county, local tax and revenue dept, IRS, attorney general, etc. (LLC, Corp, Inc, Non-profit, organization, etc -- not including Sole-proprietors)

Legal entity: Businesses such as LLCs, Corporations, Partnerships, Inc, Non-profit, organization, etc (not including Sole-proprietors)

Trademark: a type of intellectual property consisting of a recognizable sign, design, or expression which identifies products or services of a particular source from those of others

Copyright: the exclusive right given to the creator of a creative work to reproduce the work, usually for a limited time. The creative work may be in a literary, artistic, educational, or musical form. Copyright is intended to protect the original expression of an idea in the form of a creative work, but not the idea itself

DBA/Trade Name/Fictitious Name a name used by companies that don't want to operate under their registered name Ex. Urban Consulting is incorporated as an LLC, but I want to go by Complianceology. I would file a DBA to be able to legally use the name Complianceology, avoiding the need to legally incorporate the name. A DBA/Trade Name/Fictitious Name is not an entity.

Operating agreement is a key document used by limited liability companies (LLCs) to outline the business' financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms

Limited Liability Company (LLC) is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation under state law; it is a legal form of a company that provides limited liability to its owners

Single-member LLC (SMLLC) Same as above, but only has one (1) member.

Corporation an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity; a legal person in legal context) and recognized as such in law for certain purposes

Partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations

Sole-proprietor/Sole-trader (SP) a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity. The person and the business are one-in-the-same and is not considered a legal entity as LLCs, Corp, etc are.

S-corp/S corporation United States federal income tax, is a closely held corporation (or, in some cases, a limited liability company (LLC) or a partnership) that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. An S-corp is not an entity.

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>> This post is informational and educational only and is not legal advice, nor does it create a consultant-client relationship. Please consult your legal counsel for further guidance on this topic. <<

Resource: Wikipedia

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