Common Business Terminologies

The common terminologies of business come under the category of accounting terminology, as stated by business leaders. Usually, these are the business terms that influence the functioning of any company. For the smooth functioning of business in your organization, as a leader, you should be well aware of these topics and the impact they hold in running your business. You can’t grab a dictionary all the time, and it’s not practical too, so to ease the process of understanding the business terminologies, we are listing them below for you.

· Asset:

In the context of financial accounting, an asset is something that an individual or an entity owns with an expectation of future returns. It is a resource that holds some economic value and is of benefit to the entity. Assets are mentioned in the balance sheet of the firm. Assets help in generating cash flow, improving sales, or in reducing the expenses of a firm in the future.

Assets are mainly of two types:

1. Tangible assets
2. Intangible assets.

· Balance Sheet:

The balance sheet is a statement that shows the financial position of the business on a particular date. It shows the trader’s possession on one side and the liabilities on the other. Helping in the estimation of the exact capital of the firm at the end of a financial year. It also helps in finding the solvency of the firm, i.e., if the assets exceed the liabilities, then the firm is solvent. Else, it is insolvent.

· Expenses:

Expense is one of the terminologies of business that includes all costs other than material and labour. These include the business costs that help in revenue generation or creation.

Expenses are mainly of two types:

1. Direct Expenses
2. Indirect Expenses.

Direct Expenses: These are expenses in direct connection with a particular product or job. Example- Design.

Indirect Expenses: These are expenses indirectly related to a particular product or service. Example- Rent.

· Budget:

Budget is one of the terminologies of business that helps in the prediction of the future expenses of a company, which further helps in the allocation of the funds to the different departments of the organization to meet all the necessary expenses. The budget acts as a measure for the analysis of the past performance and the prediction of the future performance by the allocation of the funds to the different functional areas of the business. The budget helps in maximizing the asset value and increasing the revenue.

· Revenue:

Revenue is the total income generated by the sales of products concerning the primary operations of the company. Revenue helps in the generation of the financial strength of an organization.

· Income:

Income is the total profit earned by an organization. It, too, helps in the determination of the financial strength of an organization. Both income and revenue are relatable to each other. But are not a replacement for the other one.

· Operating Expenses:

Operating expense is a common business terminology that includes all the costs that help in the operation of the business. Operating expenses include employees’ salaries, rent, travel costs, etc., excluding taxes and financial costs.

· Return on Investment (ROI):

Return on Investment is a ratio in finance that helps in the calculation of the benefit of the investor concerning his investment cost.

Return on Investment= (Net Profit/ Cost Of Investment) *100

ROI is of different use in business.

· Key Performance Indicators (KPIs):

KPIs are one of the basic financial terms, mainly numbers that tell the effectiveness of your business in a specified area. KPIs are a measure of the success of a company in comparison to the set targets. The central point to KPIs is customer satisfaction.

· R&D:

R&D is one of the terminologies of business that stands for Research and Development. Research and Development include the activities of innovation and introduction of new products. The major goal is to bring new products to the market. In addition, helps in improving the existing products and services.

· Fixed Costs:

Fixed Costs include all the expenses that one must pay irrespective of the business’s profit margin. These costs include all the mandatory utilities, salaries, rent, etc.

· Variable Costs:

Variable Costs include those expenses that keep on fluctuating based on the business volume. These costs include commissions, hourly wages, etc.

· Performance Review:

Performance review is a basic business terminology that helps a manager evaluate the performance of the team members. Performance review is usually a two-way communication channel between a manager and team members. The manager provides true feedback on the employee performance through performance review.

Conclusion

These are the 14 common terminologies of business that everyone, in general, should be aware of. But if you belong to a business or accounting background, these terminologies are a must to know.