DEFINITION OF TERMS: FINANCIAL ASPECTS

1. Operational cost

The operating cost definition refers to expenses associated with the maintenance and administration of a
business on a daily basis.

Also known as operational cost, it includes operating and overhead expenses, as well as the cost of
goods sold. Common operating cost examples are rent, machinery, payroll services, utilities, uniforms
and office supplies.

The operating cost is deducted from revenue to calculate operating income and is reflected on a
company’s income statement.

https://capital.com/operating-cost-definition

2. Cost benefit

Designating or of an analysis that evaluates the cost-effectiveness of a project or policy.

https://www.yourdictionary.com/cost-benefit

3. Maintenance cost

Maintenance costs are the one-time or recurring costs a company incurs related to maintaining company
facilities, property, vehicles or equipment. Some companies incur these costs for general or preventative
maintenance that help keep their assets in proper working order. Understanding the upkeep costs
associated with a piece of equipment or facility can help a company allocate funds for maintenance
costs. They can also review these expenses to help them decide on purchasing a piece of equipment or a
vehicle.

https://www.indeed.com/career-advice/career-development/maintenance-costs

4. Net income

Net income refers to a company’s earnings minus business and operating expenses. An individual’s net
income is equal to total income minus applicable deductions and taxes paid. Net income helps you
understand how profitable your business is.

https://smartasset.com/taxes/net-income

5. Credit extension

Credit Extension means each extension of credit under the Facility (whether funded or unfunded),
including, but not limited to, (a) the issuance of sight or usance commercial letters of credit or
commercial letters of credit supported by back-up letters of credit, (b) the issuance of standby letters of
credit, (c) the issuance of shipping guarantees, (d) the making of revolving credit working capital loans,
(e) the making of loans against imports for letters of credit, (f) the making of clean import loans outside
letters of credit, (g) the making of advances against export orders, (h) the making of advances against
export letters of credit, (i) the making of advances against outgoing collections, (j) the making of term
loans, and (k) the entry into foreign exchange contracts.

https://www.lawinsider.com/dictionary/credit-extension?
cursor=Cl0SV2oVc35sYXdpbnNpZGVyY29udHJhY3RzcjkLEhpEZWZpbml0aW9uU25pcHBldEdyb3VwX3YzO
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6. Bad-debt

The term bad debt refers to an amount of money that a creditor must write off as a result of a default on
the part of the debtor. If a creditor has a bad debt on the books, it becomes uncollectible and is recorded
as a charge-off. Bad debt is a contingency that must be accounted for by all businesses that extend credit
to customers, as there is always a risk that payment won't be collected. These entities can estimate how
much of their receivables may become uncollectible by using either the accounts receivable (AR) aging
method or the percentage of sales method.

https://www.investopedia.com/terms/b/baddebt.asp

7. Quality control costs

Quality cost is an accumulation of expenses that ensure the quality of products and services provided by
a company. It's typically a calculation that can help businesses identify quality and cost inefficiencies in
their production processes and quality control measures.

https://au.indeed.com/career-advice/career-development/cost-of-quality#:~:text=Quality%20cost%20is
%20an%20accumulation%20of%20expenses%20that,in%20their%20production%20processes%20and
%20quality%20control%20measures.

8. Dividend policy

Dividend policy is the policy that the company adopts for paying out the dividends to the company’s
shareholders, which includes the percentage of the amount at which the dividend is to be paid out to
the stockholders and how frequently the amount is paid to the company.

Simply put, a dividend policy is a set of guidelines or rules that the company frames for distributing
dividends in years of profitability. It enhances an investor’s confidence during the dividend’s distribution.
Generally, listed companies draft their dividend policies and keep them on the website for the investors.

https://www.wallstreetmojo.com/dividend-policy/

9. Sales return, allowances and discounts

These are contra revenue accounts, also known as contra sales accounts, with debit balances that reduce
the gross sales revenue credit balance on an income statement in order to report the net sales revenue
generated by a business for an accounting period.

https://www.financetuts.com/sales-discounts-returns-allowances/#:~:text=Sales%20Discounts%2C
%20Returns%20and%20Allowances%20are%20contra%20revenue,period.%20Find%20out%20more
%20about%20contra%20revenue%20accounts
10. Labor and management compensation

Compensation is the human resource management function that deals with every reward individuals
receive for performing an organizational task. The consideration for which labor is exchanged is called
compensation. Compensation is what employees receive in exchange for their work. It is a particular
price, that is, the price of labor. Like any other price, remuneration is set where the labor demand curve
crosses the labor supply curve.

https://www.iedunote.com/compensation-management#:~:text=Compensation%20is%20the%20human
%20resource%20management%20function%20that,particular%20price%2C%20that%20is%2C%20the
%20price%20of%20labor.

11. Overhead accounts

Overhead costs are those that are not related directly to the production activity and are
therefore considered indirect costs that have to be paid even if there is no production; examples
include rent payable, utilities payable, insurance payable, and salaries payable to office staff,
office supplies, etc.

12. Inventory costing

Inventory costing, also called inventory cost accounting, is when companies assign
costs to products. These costs also include incidental fees such as storage, administration and
market fluctuation. Generally accepted accounting principles (GAAP) use standardized
accounting rules to ensure companies do not overstate these costs.

13. Operating Accounts

An operating account encompasses all of the expenses a business needs to operate,
and it can also be used to manage incoming payments. An expense account, on the other hand,
reflects only spending. So, an expense account is an operating account, but an operating
account is more than an expense account.

14. Fixed assets

A fixed asset is a long-term tangible property or piece of equipment that a company
owns and uses in its operations to generate income. These assets are not expected to be sold
or used within a year and are sometimes recorded on the balance sheet as property, plant, and
equipment (PP&E).

15. Methods of depreciation (cite the methods and define)

 Generally Accepted Accounting Principles (GAAP) give business owners the choice of 5
different methods of depreciation to use:

 Straight Line

This is the simplest and most used depreciation method. It is best for smaller businesses
that are looking for a simple way to calculate depreciation.
With the straight-line method, you are calculating a depreciation amount that is the same
year after year for the life of the asset. This is what makes it the simplest method to use. 

 Declining Balance

This method is best suited for companies that have assets that lose value faster in the
early years. Technology (such as computers and cell phones) is an example of an asset
that becomes obsolete quickly. The declining balance method provides larger deductions
sooner, minimizing tax exposure. It is considered a type of accelerated depreciation.

 Double Declining Balance

Also known as the reducing balance method, double declining is another accelerated
depreciation method that, as the name implies, depreciates assets twice as fast as the
declining balance method. It is another method that is commonly used by businesses.

 Sum of the Years' Digits

Another accelerated depreciation method, SYD results in larger depreciation amounts

early in the life of an asset, but not as aggressively as declining balance. This method is
geared towards assets that lose value quickly or produce at a higher capacity during the
early years.

 Units of Production
 This depreciation method does not use time as a factor in calculating depreciation. It
uses the number of units an asset actually produces and the estimate of how much it will
produce over its lifetime.

16. Intangible assets

An intangible asset is an asset with no physical form. It's a long-term asset that accrues
value year over year. Examples of intangible assets include intellectual property, brand
recognition and reputation, relationships, and goodwill.

17.Tangible assets
A tangible asset is an asset that has a finite monetary value and usually a physical
form. Tangible assets can typically always be transacted for some monetary value though the
liquidity of different markets will vary. Tangible assets are the opposite of intangible assets
which have a theorized value rather than a transactional exchange value.

18. Tax rates

A tax rate is a percentage at which an individual or corporation is taxed. The United
States uses a progressive tax rate system imposed by the federal government and many states
in which the percentage of tax charged increases as the amount of the person's or entity's
taxable income increases.

19. Tax exemptions

Tax-exempt refers to income or transactions that are free from tax at the federal, state,
or local level. The reporting of tax-free items may be on a taxpayer's individual or business tax
return and shown for informational purposes only. The tax-exempt article is not part of any tax
calculations.

20. Borrowing costs

Borrowing costs are interest and other costs that an entity incurs in connection with the
borrowing of funds. A qualifying asset is an asset that necessarily takes a substantial period of
time to get ready for its intended use or sale.