GLOSSARY

Accounts receivable
Claims to cash on account which are expected to be paid within one year.

Agents
Middlemen that provide a risk-free procurement function by not taking title to the
merchandise they buy or sell for their customers.

Amortize
Process of rationally and systematically allocating cost of an asset over the
expected life of the asset.

Annual percentage rate

A credit arrangement term that applies to the relative cost of credit stated as an
annual percentage, i.e., the annual cost of credit.

Assets
Probable future economic or income-producing benefits of value gha are owned
or controlled by the business. Current assets are those that can be converted into
cash within one year.

Balance sheet
A statement of financial condition of the business that provides the owner with an
estimate of the firm’s worth on given date.

Broke
An agent middleman or wholesaler who arranges title-free sales for his lients.
Buying power index(BPI)
A composite indicator of consumer demand in specific cities, counties, and metro
areas. Published annually by sales and marketing management magazine, the BPI
reflects disposable personal income, retail sales and population in the area.

Capital
Account that represents real ownership; it is the difference between the value of
the assets and the liabilities. Includes owner’s original investment, subsequent
investment and profit derived from the business, less losses incurred and
withdrawals by the owner.

Carrying costs
Expenses incurred from storage of inventory. Includes interest, insurance, taxes,
deterioration, spoilage, obselescene, handling and warehousing.

Cash budget
An internal statement used by management to keep track of inflows and outflows
of cash transactions over a specific period of time.

Cash discount
Price reducation or discount on bills paid early. Terms of “2/10, next,30,” for
example, means that a 2 percent discount is granted if the bill is paid within 10
days. Otherwise, the entire amount is due within 30 days.

Collateral
Property that secures debt payment that the borrower pledges to the creditor.
Collateral recovers all or part of a debt, if repayment of the loan is not
forthcoming.
Cosigner
Any person for the signs along with the maker of a loan or credit
obligation,becoming responsible if the maker defaults.
Cost off good sold
Determined for the specified period by counting the merchandise (physical
inventory) left at the end of the period, subtracting its cost from the total cost
merchandise availbel for sale.

Current assets
Includes cash and other resources that can be conoverted into ccash or used within
the normal operations of a business within a relatively short period of time,
usually less than one year.

Current liabilities
Debts and other amounts owed to creditors by the business entity, due within
theone year. Includes wages payable, accounts payable taxes payable and so forth.

Current ratio
A commoly used method of measuring a firm’s short term solvency by indicating
its ability topay current debts from current assets. Current rtio is calculated by
dividing current assets by current liabilities.

Debt/ equity ratio

A measure of long –term financial solvency of a firm, showing the relationship
between borrowed capital and owner’s equity. Debt/ equity ratio is calculated by
dividing long-term debt by the total equity. A high ratio might indicate room for
capital expansion.

Debt financing
Financing through borrowing capital that must be rapid.
Discretionary income
Disposable personal income, less amount spent for necessities such as
food,shelter,medical expenses , etc.

Disposable personal income

Individual after-tax income

Double-entry bookkeeping
An accounting system where every debit made to one account has a corresponding
with credit made to another account.

Economies Order Quality

Efficiencies associated with larger-scale operations. For example , it might costs a
manufacturer $100 to manufacturer one unit, $180 for two units, $240 for three
units, and so on, such that the average cost per unit decrease as productin volume
increases.

Entrepreneur
An individual who organizes and owns a business for the purpose of creating
long-term wealth. The responsibility and risk associated with the business are also
the entrepeneur’s.

Equity financing
Selling partial ownership in the business to raise capital.

Fixed assets
Business assets such as building and equipment that will be usedover a long
period of time ususallly one year or longer.
Fixed costs
Fixed amounts that do not vary with changes in the volume of sales or production,
i.e.,rent, depreciation,interest payments.

Franchisee
Afiiliated dealers for distribution of products, services or methods in
franchising,obtained by franchisor.

Franchising
Form of licensing by which the owner (franchisor) of a product, service or method
obtains distribution through affiliated dealers (francisees).

Franchisor
The business entity which provides the franchisee the right and license to sell a
product or service and possibly to use the business system developed by the
company

Goodwill
An intangible asset that attaches to the succesfull operation of a business .
favorable factors such as location, product superiority, service reputation, and
quality personnel often generate goodwill.

Gross maragin
(see gross profit)

Gross profit
Also known as gross margin,detrmined by subtracting costs of goods from net
sales.
Inventory control
The process pf maintaining sufficient inventory measures to meet customer needs,
weighed against the cost of carry inventory, to determine an appropriate inventory
level.

Inventory turnover (or turn)

Measures the movement of how rapidly inventory can be converted into cash
within a period. Turn is calculated by dividing the costs of goods sold by an
average inventory amount

Liabilities
Debts and other amounts owed by the business to creditors.

Lien
A legal claim by a creditor on another’s property, as security for payment of a
just debt. May also appear as the result of judgment.

Line of credit
A revolving form of credit where a bank loans a business up to a specified
amount, as aneeded by the firm.

Liquidity
Ability of business to meet its short-term financial obligations

Long-term financing
Loans not to be repaid within one yaer.

Manufacturer
Business that produces ggods for individual and/or businesses.
Manufacturer’s representative
Middleman agent who markets related but noncompeting product for several
manufacturer or vendors.

Market
A specific group of people who have needs to satisfy and the ability to pay
(purchasing power).

Market potential
The maximum achievable combined sales volume for all sellers o a specific
product, during a specific time period, in a specific market.

Market segmentation
The process of dividing a heterogenous market into several homogeneous sub-
market.

Marketing mix
The four sets of tools the entrepreneur may combine to shape market demand and
facilitate transaction: product, price, promotion, distribution.

Marketing research
The process of systematically gathering, analyzing and interpreting data
pertaining to the company’s market, customers and cpompetitoers, with ghe goal
of improving marketing dicisions.

Net sales
Dollar sales amount remaining when reduced by sales tax and any returns or
allowances.

Net working capital

The different between current assets and current liabilities.
Occupational safety and healty act (OSHA) of 1970
Legislation that led to creation of the government legulatory agency charged with
responsibility for creating, establishing, administering and enforcing job safety
and health standards in the workplace.

Operating expenses
Expenses encurred directly with the sale of merchandise (selling expenses) and/or
those expenses incurred in the general operation of a business (general of
administrative expenses).

Organization
The sum total of the activities, processes and people that define a business.

Organizational chart
A graphic description of a firm with identifies key positions, personnerl
occoupying those positions, and reporting realationships.

Production
The continours process of converting raw materials into finished goods.

Prospecting
First step in the selling process, deceloping a list of potential customers who have
a need for the product, resources to acquire the product, and purvhasing outhotity.

Purchasing
The business activity of securing goods or merchandise of the number and type of
goods manufactured to quality specifications.

Quality control
Ensuring and effectively regulating the production of the number and type of
goods manufactured to quality specifications.
Sales farecase
Projection or estimation of sales, in dollars or physicl unit, for a given time
periode.

Secondary data
Information that hs already been assembled, having ben collected for some other
prupose. Sources include census repots, trade puclications and subscription
services.

Service corps of retired executives (SCORE)

Consulting service composed of retired business executives that volunteer their
management expertise to small business institute programs in man colleges and
universities.

Short-term financing
Repayment of loans within one year.

Small business administration (SBI)

A federal agency established in 1953 to assist prospective entrepreneurs in
obtaining funds, and to preserve competitive enterprise in the economy.
Small business institute (SBI)
A cooperative venture between business colleges and the small business
administration that offers management assistance to small businesses.

Sole proprietorship
A business entity oned and operated by one person.

Subchapter S Corporation
A form of business structure that limits each shareholder’s liability (like a
corporation). Profits and losses are reported by shareholders (like a partnership).
Subchapter S corporations are limited to 25 or fewer shareholders.
Target market
A specific group of customers at which a company aims its products and services.

Terms
The conditions or requirementws set forth in a credit contract or agreement, such
as a promissory note or installment contrac.