Written by Eddy Hood
Working as an entrepreneur can be a satisfying way to earn money, but anyone preparing to start a small business or test the waters as a new entrepreneur will need a firm grasp of the terms and vocabulary that are used daily in the business world. Knowing these professional terms will help you present yourself as a knowledgeable expert in your field and understand the ins and outs of managing your business. Whether you choose to outsource some of the aspects of running a small business, such accounting and tax preparation, or you plan to do it yourself, you'll need to know and understand these terms.
Account Payable: An account payable is a claim that is owed to a creditor to pay for goods or services received.
Account Receivable: An account receivable is a claim for an uncollected amount against a debtor for a completed transaction.
Acquisition: When a company takes over the controlling interest of another company, this is an acquisition.
Adjusted Gross Income: Adjusted gross income is take-home income, which is reduced by specified expenses such as federal and state taxes. It's a key figure when filing income taxes.
Asset: An asset is a tangible or intangible object that has an economic value that will benefit a business.
Bankruptcy: Filing for bankruptcy is a legal process in which debts are liquidated after using the debtor's assets to satisfy as many debts as possible.
Business Valuation: A business valuation is an estimate of the total value of the company and its assets.
Collateral: Collateral includes assets that are pledged to a creditor to secure a loan.
Creditor: A creditor is the party that loans money or sells another type of asset to someone else.
Debt: A debt represents an amount owed, and it might consist of goods, services, bonds, notes, or money.
Deficit: A deficit occurs if there is more debt than resources to cover that debt.
Earned Income: Earned income includes fees, wages, salaries, and other funds earned as compensation for providing a service or goods.
Exemption: An exemption is a portion of a taxpayer's income that isn't taxed. All taxpayers qualify for at least one exemption unless someone else claims them as a dependent on a tax return.
Expense: An expense is an amount spent on a service or item to use for a specific purpose.
Fiscal Year: A fiscal year is a 12-month period that makes up an entity's accounting period. Fiscal years don't necessarily correspond with calendar years.
Fixed Costs: Fixed costs are costs that stay constant within a specific time period or range of activity.
General Journal: A general journal is a flexible and simple type of journal.
In Arrears: If something is noted as in arrears, it hasn't been paid at the agreed time and is overdue.
Independent Contractor: An independent contractor is a person who offers services to the public. Someone contracting with an independent contractor for a service or goods has the right to control or direct only the result of the work performed, not the methods used to accomplish the end result.
Joint Venture: A joint venture is a legal entity that is created by two or more businesses that join together for a specific enterprise. Both parties share profits and losses.
Line of Credit: A line of credit is a loan for which the borrower pays interest only on the amount borrowed, making periodic payments to pay back the balance.
Merger: A merger is the joining together of two corporations. With a legal merger, the two formerly separate businesses dissolve and move all assets and liabilities into the new business entity.
Outsourcing: Outsourcing involves purchasing services or goods from outside companies, which may include accounting, tax preparation, payroll services, or advertising.
Sales: Sales include the exchange of a product or service for payment. Companies may also have a sales department or sales representatives who work to increase the number of products or services sold.
Venture Capital: Venture capital is a type of financing that involves a business giving up a percentage of its ownership and control in exchange for funding. Venture capital agreements have a specific time frame.