terms Flashcards
Accounts Payable
Your small business’s obligations to pay debts owed to lenders, suppliers, and creditors. Sometimes referred to as A/P or AP for short, accounts payable can be short or long term depending upon the type of credit provided to the business by the lender.
Accounts Receivable
money owed to your small business by others for goods or services rendered. These accounts are labeled as assets because they represent a legal obligation for the customer to pay you cash for their short-term debt.
Accrual Basis of accounting
An accounting method of recording income when it’s earned and expenses when billed. Accrual basis accounting is the most common approach used by larger businesses to record and maintain financial transactions.
E.g. si tu donnes un service à madame X le 1er février et elle te paye 2 semaines plus tard, la transaction est enregistrée le 1er février.
Vs Cash Basis Accounting = enregistré le 14 février.
Accrurals
Expenses that have been incurred but haven’t yet been recorded in the business books. Wages (salaries) and payroll taxes are common examples.
Asset
Anything that has value—whether tangible or intangible—and is owned by the business is considered an asset. Typical items listed as business assets are cash on hand, accounts receivable, buildings, equipment (e.g. vet truck), inventory, and anything else that can be turned into cash.
Balance Sheet
Along with three other reports relating to the financial health of your small business, the balance sheet is essential information that gives a “snapshot” of the company’s net worth at any given time. The report is a summary of the business assets and liabilities.
Cash flow
The amount of operating cash that “flows” through the business and affects the business’s liquidity. Cash flow reports reflect activity for a specified period of time, usually one accounting period or one month. Maintaining tight control of cash flow is especially important if your small business is new, since ready cash can be limited until the business begins to grow and produce more working capital.
Fixed asset
A tangible, long-term asset used for the business and not expected to be sold or otherwise converted into cash during the current or upcoming fiscal year is called a fixed asset. Fixed assets are items like furniture, computer equipment, equipment, and real estate.
Liability
= CE QUE TU DOIS $$, TES DETTES
Ex. credit card balance
This business finance key term is a legal obligation to repay or otherwise settle a debt. Liabilities are considered either current (payable within one year or less) or long-term (payable after one year) and are listed on a business’s balance sheet. A business’s accounts payable, wages, taxes, and accrued expenses are all considered liabilities.
Annual Percentage Rate (APR)
The yearly real cost of a loan including all interest and fees. The total amount of interest to be paid is based on the original amount loaned, or the principal, and is represented in percentage form. When shopping for the right loan for your small business, you should know the APR for the loan in question. This figure can be very helpful in comparing one financial tool with another since it represents the actual cost of borrowing.
Collateral
Any asset that you pledge as security for a loan instrument is called collateral. Lenders often require collateral as a way to make sure they won’t lose money if your business defaults on the loan. When you pledge an asset for collateral, it becomes subject to seizure by the lender if you fail to meet the requirements of the loan documents.
Loan-to-Value
The LTV comparison is a ratio of the fair-market value of an asset compared to the amount of the loan that will fund it. This is another important number for lenders who need to know if the value of the asset will cover the loan repayment if your business defaults and fails to pay.
Depth Service Coverage Ratio
Ratio of cash your small business has available for paying or servicing its debt. Debt payments include making principal and interest payments on the loan you are requesting. Generally speaking, if your DSCR is above 1, your business has enough income to meet its debt requirements.
Lien
A creditor’s legal claim to the collateral pledged as security for a loan
Personal Guarantee
If you’re seeking financing for a very new business and don’t have a high value asset to offer as collateral, you may be asked by the lender to sign a statement of personal guarantee. In effect, this statement affirms that you as an individual will act as guarantor for the business’s debt, making you personally liable for the balance of the loan even in the event that your business fails.
