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MANAGEMENT & LEADERSHIP ORGANIZATION & PLANNING
An Accounting Glossary for the Non-Financial Manager
•••
BY
DAN MCCARTHY
Updated January 08, 2020
Most managers can get by with a basic understanding of financial acumen. That’s why we have business finance experts, and it’s a good thing we do.
Here’s a basic glossary of finance and accounting terms for the non-financial manager.
Accruals
An amount incurred as an expense in a given accounting period, but not paid by the end of that period.
Allocation
The process of spreading costs from one expense category to several others, typically based on usage.
Amortized Expenses
The costs for assets such as buildings and computers, which are expensed over time to reflect their usable life.
Assets
Anything owned by the company having a monetary value; i.e., fixed assets like buildings, plants and machinery, and vehicles.
Balance Sheet
A snapshot in time of who owns what in the company, and what assets and debts represent the value of the company. The balance sheet equation is: capital + liabilities = assets.
Break-even Point
The point when a business' revenue equals a business' expenses.
Budget Forecast
The amount of money planned to spend over the course of a period, usually a year.
Budget Variance
The difference between a budget forecast and actual expenditures.
Cost-Benefit Analysis
Cost-Benefit Analysis evaluates whether, over a given time frame, the benefits of the new investment, or the new business opportunity, outweigh the associated costs.
Direct vs. Indirect Costs
Costs that are directly associated to the manufacture of a product. Indirect costs cannot be directly tied to a particular product.
Earnings Per Share (EPS)
A commonly watched indicator of a company’s financial performance – it equals net income divided by the number of shares outstanding.
Fixed Assets
Assets that are difficult to convert to cash. For example, buildings, and equipment. Sometimes called plant assets.
Gross Margin
Gross Margin is a ratio that measures the percentage of gross profit relative to sales revenue.
Gross Profit
The sum left over after all direct product expenses or costs of goods sold have been subtracted from revenues.
Hurdle Rate
The rate of return on investment dollars required for a project to be worthwhile. It is typically a higher rate of return than what would have been obtained by investing the capital in low or moderate risk financial instruments.
Intangible Assets
Non-physical assets with no fixed value, such as goodwill and intellectual property rights.
Inventory
Goods or materials a business is holding for sale.
Liabilities
A general term for what the business owes. Liabilities are long-term loans of the type used to finance the business and short-term debts or money owing as a result of trading activities to date.
Net Present Value (NPV)
The economic value of an investment, calculated by subtracting the cost of the investment from the present value of the investment’s future earnings. Due to the time value of money, the investment’s future earnings must be discounted in order to be expressed accurately in today’s dollars.
Operating Expenses
Expenses that occur in operating a business, for example, administrative employee salaries, rents, sales, and marketing costs, as well as other costs of business not directly attributed to manufacturing a product.
Overhead
An expense that cannot be attributed to any one single part of the company's activities
Payback Period
The length of time needed to recoup the cost of a capital investment; the time that transpires before an investment pays for itself.
Productivity Measures
Indicators such as retail sales-per-employee or units-produced-per-employee, which provide a measure of workforce efficiency and effectiveness.
Return on Investment (ROI)
A financial ratio measuring the cash return from an investment relative to its cost.
Sunk Costs
Prior investment that cannot be affected by current decisions. These should not be factored into the calculation of the profitability of a project.
Time Value of Money
The principle that a dollar received today is worth more than a dollar received at a given point in the future. Even without the effects of inflation, the dollar received today would be worth more because it could be invested immediately, earning additional revenue.
Variable Costs
Costs that are incurred in relation to sales volume; examples include the cost of materials and sales commissions.



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