Glossary of terms used in the CPA guide

As with any topic, there is a wealth of jargon and terminology specifically associated with financial management.

It is helpful for you to understand these terms when reading financial statements or when talking to finance professionals such as bank managers.

This knowledge will make you feel more confident and comfortable.

The most basic and useful of these terms are set out below.

This page is intended to be read in conjunction with the "Achieving financial success" guide published in chapters in the Business section of this website. The first Chapter is here »


Accrual accounting Recognising income and expenses when they occur rather than when they are received or paid for
Accounting entry The basic recording of business transactions as debits and credits
Accounting period A period for which financial statements are prepared — normally monthly and then annually
Asset Anything having a commercial value that is owned by the business
Break even The amount, in either units or dollar value, that the business needs to achieve before a profit is generated
Budget A financial plan for a business (setting out money the business forecasts it will receive and spend); typically done once a year
Capital expenditure The amount of money that is allocated or spent on assets
Cash accounting Accounting for transactions as they are received or paid
Cash conversion rate The overall number of days to convert your trade from the cash outflow at the beginning of the working capital cycle to cash received at the end of the cycle
Cash flow The flow of cash into and out of the business
Cost of goods sold The total cost of all goods sold (COGS) during the period
Creditors The money you owe your suppliers
Current assets Assets that are likely to be turned into cash within a 12-month period
Current liabilities Liabilities that are required to be paid within a 12-month period
Debtors The money owed to you by your customers
Depreciation The write-off of a portion of a fixed asset’s value in a financial period
Drawings Assets of monetary value (they can be cash or other assets) permanently taken out of the business by the owner(s) of the business
Expenses The costs associated with earning the business income
Financial ratio A method used to measure the financial health of a business and compare the operations of that business with similar businesses in the same industry
Financial statements Financial statements (profit and loss statement, balance sheet and statement of cash flows) record the financial performance and health of your business for a given period
Forecasting Predicting the future financial performance of a business
Inventory The stock that a business holds to sell
Intangibles Assets that don’t have a physical form (e.g. patents, goodwill)
Liability The amount the business owes external stakeholders
Margin Profit from sales before deducting overheads
Mark-up The percentage by which the sales price exceeds the cost
Owners’ equity The amount of capital contributed by the owners to form the business or added later
Overheads Costs not directly associated with the products or services sold by the business
Profit Revenue minus expenses
Purchase order A commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services the seller will provide to the buyer
Receivables Amounts that are owed to a business; also known as debtors
Revenue The income the business earns from its operations
Retained profit Profits that have not been distributed to the owners
Reserves Retained profits that are held for a specific purpose or the result of a revaluation of assets
Working capital The excess of current assets over current liabilities
Work in progress Stage at which an order has been taken from the customer and the business is in the process of "working" to complete the order


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