Business Finace Definitions

Definitions of business terminology.

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Balance Sheet Terminology

Fixed assets - These assets are things a company intends on keeping and benefit the business for a long time (usually over a year), these things include buildings, machinery, vehicles, etc.

Current assets - These are things that can be sold or used up with the year and are split into 3 categories. Stocks/inventories are products or raw materials. Debtors, those who owe the company money, customers who owe the company money are known as trade debtors. Cash, such as those in the bank.

Current liabilities - The short term debts a company has. Creditors - money owed by the business e.g. Suppliers (who would be known as "trade creditors"). Bank overdrafts - due within a year.

Working capital = current assets - current liabilities. This money is available for the day to day running of the business. If the figure is negative, then it poses a problem as the business will not be able to pay its debts.

Long term liabilities - money the business owes, usually due in over a year, e.g. a bank loan.

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Balance Sheet Terminology cont.

Profit and loss reserves - Dividends owed to the owners that hasn't been paid out. This doesn't have to be cash, and can be used to buy stock and fixed assets.

Share capital - Money invest by the owners.

Shareholder funds - Share capital and reserves added together

Capital - Long term money, used to buy assets. Usually money put in by the owners and bank loans.

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