Glossary FA
Glossary FA
Glossary FA
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Amortize ‐‐ to charge a regular portion of an expenditure over a
fixed period of time. For example if something cost Rs.100000
and is to be amortized over ten years, the financial reports will
show an expense of Rs.10000 per year for ten years. If the cost
were not amortized, the entire 100000 would show up on the
financial report as an expense in the year the expenditure was
made.
Current Assets are those assets that can be expected to turn into
cash within a year or less. Current assets include cash,
marketable securities, accounts receivable, and inventory.
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Sometimes, a reserve is set up to provide for possible bad debts.
Creating or adding to a reserve is also an expense.
Book value ‐‐ total assets minus total liabilities. (See also net
worth.) Book value also means the value of an asset as recorded
on the company's books or financial reports. Book value is often
different than true value. It may be more or less.
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Cash flow ‐‐ the amount of actual cash generated by business
operations, which usually differs from profits shown.
Cost of sales, cost of goods sold ‐‐ the expense or cost of all items
sold during an accounting period. Each unit sold has a cost of
sales or cost of the goods sold. In businesses with a great many
items flowing through, the cost of sales or cost of goods sold is
often computed by this formula: Cost of Sales = Beginning
Inventory + Purchases During the Period ‐ Ending Inventory.
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the machine is purchased. Straight line depreciation charges the
same amount to expense each year.
Fixed cost ‐‐ a cost that does not change as sales volume changes
(in the short run.) Fixed costs normally include such items as rent,
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depreciation, interest, and any salaries unaffected by ups and
downs in sales.
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debentures and long‐term loans that are due more than a year in
the future.
Overhead ‐‐ a cost that does not vary with the level of production
or sales, and usually a cost not directly involved with production
or sales. The chief executive's salary and rent are typically
overhead.
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Return on investment (ROI) ‐‐ a measure of the effectiveness and
efficiency with which managers use the resources available to
them, expressed as a percentage. Return on equity is usually net
profit after taxes divided by the shareholders' equity. Return on
invested capital is usually net profit after taxes plus interest paid
on long‐term debt divided by the equity plus the long‐term debt.
Return on assets used is usually the operating profit divided by the
assets used to produce the profit. Typically used to evaluate
divisions or subsidiaries. ROI is very useful but can only be used to
compare consistent entities ‐‐ similar companies in the same
industry or the same company over a period of time. Different
companies and different industries have different ROIs.
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and capital on the other. The two sides should balance. If they
don't, the accountants must search through the transactions to
find out why. They keep making trial balances until the balance
sheet balances.