LESSON 1 (BOOK)

Amortization

The gradual repayment of a liability through regular installments within a specified period of time. Such installments must be adequate to cover both principal and interest earned.

Assets

The resources of economic value owned and controlled by a business, which are expected to provide future benefits.

Authorized Capital

The grand total of assets and operational capability of a corporation.

Bank Note (Bill)

Paper currency issued by the central bank that is considered the legal tender of a country.

Board of Directors

Are the individuals elected by the stockholders to govern a corporation.

Book Value

The worth of an asset as reflected on a company's balance sheet; it is the initial cost less the accumulated depreciation

Break-even (no profit or loss)

Is a condition where total sales are equal to total cost of production and sales. It is a situation where no profit is generated and no losses are incurred.

Burn Rate

The rate at which an entity spends its money.

Cartel

An organization of companies, countries or other entities that agree to work together to manipulate market prices by controlling the output and sale of a particular product. The organization generally prevents the entry of new players to avoid competition.

Cash inflow

Any current or expected profit or savings associated with an investment.

Cash outflow

The initial cost plus other projected expenses associated with an investment

Chief Executive Officer (CEO)

The highest ranking corporate executive who is responsible for a company's overall operations and performance, normally the President or the Chairman of the Board.

Deflation

A decrease in the level of national income and output, usually accompanied by a general decline in prices.

Depletion

A term that refers to the use and exhaustion of natural resources within a region. It is used in reference to activities such as mining, logging, farming, fishing, and oil exploration.

Depreciation

Decrease in the value of an asset due to deterioration, obsolescence, or passage of time.

Depression

A prolonged state of recession where the gross domestic product (GDP) falls by more than 10%. This is characterized by a decline in investments, high unemployment and low wages.

Entity

An organizational unit (a proprietorship, partnership, or corporation) for which accounting reports are prepared and financial records are kept.

Equity

Is the right, claim, or interest of an entity over the assets of the business.

Exchange Rate

The value of one currency in terms of another.

Expense

Costs incurred for goods and services used in the normal course of business. This excludes goods bought for resale or any item that is capital nature.

Fixed Assets (Property, Plant, and Equipment)

Any business property acquired for use in its operations and which still retains a value at year end. These usually consist of major items like land, buildings, equipment, and vehicles.

Franchise

A license given to an entity to offer a product or a particular service of the patent holder.

Income (Revenue)

Amount or payment received by an entity from its business activities.

Inflation

Is the general increase in the price level of goods and services - a decrease in the purchasing power of the peso.

Insolvent

The state of a company if its funds are insufficient to pay all of its obligations.

Joint Venture

A business agreement under which two or more entities join together to undertake a common project and agree to share the profits.

Landed costs

The total costs involved when importing goods. This includes the purchase price, shipping, insurance, and associated taxes.

Lease

A contract that specifies the terms under which a property owner agrees to transfer the right of property use to another party.

Lessee

The party that is granted the right of property use under the terms of a lease.

Lessor

The owner of property that is rented (leased) by another party.

Liabilities

The debts or financial obligations of a business which includes loans, mortgages, and accounts payable.

Liquidity

The ability of the business to meet current obligations with payments in cash or other assets that can be quickly converted to cash.

Losses

Expenses that provide no benefit to the business.

Luxuries

Are products or services that are not essential but are desirable and often expensive, they are usually brought about by the conventions and customs of society.

Maker (Borrower)

The principal debtor who assumes responsibility for the loan payment upon maturity.

Market Value

The price for a property that a willing buyer would pay and a willing seller would accept, with both acting in their own interests and are under no obligation to buy or sell.

Maturity Date

The date on which a financial note or other obligation becomes due.

Necessities

Are products or services that are required to support human life and activities, which will be purchased in almost the same quantities even if the prices vary considerably (e.g. basic food, clothing and shelter).

Overheads

Are the expenses involved in running a business (e.g. rent, insurance, power, wages, etc.).

Owner's Equity or Capital

The value of a business to its owner/s. includes the initial investment and retained earnings.

Parent Company

A company that owns or controls other companies, called subsidiaries. Control generally refers to ownership of more than 50% of the stock in the subsidiary.

Patent

An exclusive right granted by the government for the manufacture, use, and sale of a specific product.

Price Discrimination

The practice of providing the same goods or service at different prices to different dients, even if production and sales costs are the same for all transactions. Clients may be discriminated on the basis of income, gender, age, or geographic location.

Price Transparency

The process where both seller and the buyer are accorded equal access to pricing information with no mediator involved. The term may also indicate the accessibility of pricing information to the public.

Price War

A market situation where companies constantly lower prices to weaken the competition or force smaller competitors out of business.

Profit Margin (Mark-up)

Is the ratio of the difference between the selling price and the cost of a product over the cost of the product, expressed as a percentage (e.g. if a product costs P100 and you sell it for P175 then you have a 75% profit margin).

Pro Rata

A term describing an allocation based on proportionate distribution of the full amount.

Rate of Return (ROR)

The profit or loss from a financial undertaking, expressed as a percentage of the original investment.

Rebate

The partial return of the full amount paid for the purchase of a merchandise or service.

Recession

A period of economic decline that lasts for a few months, this is usually accompanied by a drop in the stock market, a decrease in income and an increase in unemployment.

Refund

The amount returned to a customer for the return of previously purchased products.

Retained Earnings

Are earnings reinvested in the business after profit distributions are made to the owners.

Revenues

Income derived from the selling goods or rendering services.

Shareholders (Stockholders)

Are the owners of a company or corporation.

Shares (Stocks)

Refers to documents issued by a company to its owners (the shareholders) indicating how many shares in the company each shareholder has purchased and what percentage of the company the shareholder owns.

Silent Partner

An investor who does not actively participate in the management or operations of the business but provides capital and shares the liabilities of the company.

Sinking Fund

A reserve fund created for the purpose or repaying debt, purchasing new assets or payment of any other anticipated future expense. The fund is generated by periodically depositing a certain amount in an interest-bearing instrument or investment.

Subsidiary

A company owned or controlled by another company, known as the parent company.

Subsidy

Economic benefit or financial assistance granted by the government to business entities or individuals usually in the form of a cash payment or tax discounts. A subsidy is usually given to keep prices stable, maintain employment or encourage investment.

Sunk Cost

Is a cost that has already been incurred and therefore cannot be changed by any current decision or action.

Supplies

Materials used in the course of business operations that do not generally become part of the sales product.

Trading Securities (Marketable Securities)

Are financial instruments purchased with the intent of realizing short term income or reselling should the need for cash arise.

Transaction

An economic activity between entities that involve the transfer of funds or resources.

Transportation Costs

Is the cost of transferring goods into or out of the firm.

Valuation

The process of determining the current worth of a particular property for a specific reason.