Business Definitions – A
Accounts Payable (AP) – Bills to be paid as part of the normal course of business. This is a standard accounting term, one of the most common liabilities, which normally appears in the Balance Sheet listing of liabilities. Businesses receive goods or services from a vendor, receive an invoice, and until that invoice is paid the amount is recorded as part of “Accounts Payable.”
Accounts Receivable (AR) – Debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid. The standard procedure in business-to-business sales is that when goods or services are delivered the come with an invoice, which is to be paid later. Business customers expect to be invoiced and to pay later. The money involved goes onto the seller’s books as accounts receivable, and onto the buyer’s books as accounts payable.
accrual-based accounting – Standard business accounting, which assumes there will be Accounts payable (Bills to be paid as part of the normal course of business) and/or sales on credit (Sales made on account; shipments against invoices to be paid later) , as opposed to Cash-Basis only. For example, most businesses have regular bills such as rent, utilities, and often inventory purchase which are not paid for at the exact moment of purchase, but are invoiced. Most businesses will also not be able to collect on all of their sales immediately in cash, but must bill the purchaser or wait for payment on at least some percentage of their sales (the exact percentage varies by industry).
accumulated depreciation – Total accumulated depreciation reduces the formal accounting value (called book value) of assets. Each month’s accumulated balance is the same as last month’s balance plus this month’s depreciation. Business Plan Pro shows accumulated depreciation in the Balance Sheet.
acid test – Short-term assets minus accounts receivable and inventory, divided by short-term liabilities. This is a test of a company’s ability to meet its immediate cash requirements. It is one of the more common business ratios used by financial analysts.
adventure capital – Capital needed in the earliest stages of the venture’s creation before the product or service is available to be provided. (As mentioned in Entrepreneurship for the ’90′s by Baty.)
advertising opportunity – A product or service may generate additional revenue through advertising if there is benefit from creating additional awareness, communicating differentiating attributes, hidden qualities or benefits. Optimizing the opportunity may involve leveraging strong emotional buying motives and potential benefits.
assets – Property that a business owns, including cash and receivables, inventory, etc. Assets are any possessions that have value in an exchange. The more formal definition is the entire property of a person, association, corporation, or estate applicable or subject to the payment of debts. What most people understand as business assets are cash and investments, accounts receivable, inventory, office equipment, plant and equipment, etc. Assets can be long-term or short-term, and the distinction between these two categories might be whether they last three years, five years, 10 years, or whatever; normally the accountants decide for each company and what’s important is consistency. The government also has a say in defining assets, because it has to do with tax treatment; when you buy a piece of equipment, if you call that purchase an expense then you can deduct it from taxable income. If you call it an asset you can’t deduct it, but you can list it on your financial statement among the assets. The tax code controls how businesses decide to categorize spendings into assets or expenses.