Financial IQ #12

depreciation

Definition 1

A noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. There are several accounting methods that are used in order to write off an asset's depreciation cost over the period of its useful life. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.

Definition 2

A decline in the value of a given currency in comparison with other currencies. For instance, if the U.S. dollar depreciates against the Euro, buyers would have to pay more dollars in order to obtain the original amount of euros before depreciation occurred.

Financial IQ #11

cash flow

Definition

A measure of a company's financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.

Financial IQ #10

dividend

Definition

A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly. Dividends are usually given as cash (cash dividend)but they can also take the form of stock (stock dividend) or other property. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends. The companies that offer dividends are most often companies that have progressed beyond the growth phase, and no longer benefit sufficiently by reinvesting their profits, so they usually choose to pay them out to their shareholders. also called payout.

Financial IQ #9

gross sales

Definition

Total invoice value of sales, before deducting for customer discounts, allowances, or returns.

Financial IQ #8

net sales

Definition

Gross sales minus returns, discounts, and allowances.

Financial IQ #7

Revenue

Definition 1

For a company, this is the total amount of money received by the company for goods sold or services provided during a certain time period. It also includes all net sales, exchange of assets; interest and any other increase in owner’s equity and is calculated before any expenses are subtracted. Net income can be calculated by subtracting expenses from revenue. In terms of reporting revenue in a company's financial statements, different companies consider revenue to be received, or "recognized", different ways. For example, revenue could be recognized when a deal is signed, when the money is received, when the services are provided, or at other times. There are rules specifying when revenue should be recognized in different situations for companies using different accounting methods, such as cash basis and accrual basis.

Definition 2

For the government, the increase in assets of governmental funds that do not increase liability or recovery of expenditure. This revenue is obtained from taxes, licenses and fees.

Financial IQ #6

Liability
Definition

An obligation that legally binds an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may have committed. For example, if John hits Jane's car, John is liable for the damages to Jane's vehicle because John is responsible for the damages. In the case of a company, a liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.

Financial IQ #5

Asset
Definition

Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.

From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate, plant, equipment), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents, copyrights, goodwill).

Financial IQ #4

Balance Sheet
Definition

A quantitative summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders' equity). also called statement of condition.

Financial IQ #3

Capital
Definition 1
Cash or goods used to generate income either by investing in a business or a different income property.

Definition 2
The net worth of a business; that is, the amount by which its assets exceed its liabilities.

Definition 3
The money, property, and other valuables which collectively represent the wealth of an individual or business.

Financial IQ #2

Entrepreneur
Definition
An individual who starts his/her own business.

Financial IQ #1

I have not always been interested in finances, but I know that to be successful in business, we need to have a good financial IQ. Without it, we wont be able to mind our money and become financial leaders in our organizations. I am going to put one financial word/phrase on this blog every day. If you are interested in learning about finances, check back in daily and we will have a new word followed by a definition.

Adventure Capitalist
Definition
An entrepreneur who helps other entrepreneurs financially, and often plays an active role in the company's operations (such as by occupying a seat on the board of directors).