Retirement fund- Fund created by putting aside funds to provide for when you stop working. These funds are usually established by large organisations such as Sanlam, Liberty etc. who pool the funds of a number of investors
PAYE- Pay As You Earn- This is the tax that is deducted from your salary monthly and paid over to SARS by the Employer
Legal Entity- An entity which exists in the eyes of the law. It can sue and be sued. A company established in terms of the Companies Act is an example of a legal entity.
Forecast- projection into the future. We will forecast sales for the next 6 months
Break-even point- the number of units of your products or the value of revenues you need to achieve to cover all of your costs
Annual Budget- The projections of what revenues and costs the business will achieve. It is normally prepared for a 12-month period and is vital to properly manage a business
Cash Flow Document- This schedule shows all the inflows and outflows of cash and will show how much cash is available in the bank.
Compelling value proposition- The reason why your business exists. The benefit your business provides and why it does so well
Gross Profit- Selling price less cost price. The cost price can be the manufactured cost if you manufacture the product or the inclusive cost of the product arriving at your premises before selling on to your customer.
Gross Profit Margin-Selling price less cost price divided by selling price as a %.
Collective Bargaining-This is a term used in labour disputes where the unions will put forward a proposal as a collective
Stock requisition- Document used to release product from the store
Executive Summary- This is the summary which is brief but covers all the major facets of the business as well as its prospects. This summary usually forms part of a business plan.
Business Objectives- Why the business exists- what its purpose – what it is trying to achieve
Operational Costs- The costs of running the business. These would generally be the costs which are charged to the profit and loss account every month.
Enterprise Development- This is a practice which drives economic growth through the inclusion of small and medium enterprises in the supply chains of large enterprises. In other words, large enterprises source their inputs (goods, services) from SMEs
Socio-Economic Development
Management Accounts- These are accounting records prepared monthly which show how the business is performing. They are not audited and will usually be prepared by the accountant of the organisation
Capital Expenditure – This is money spent on items which are capitalised (taken to the balance sheet under the term Assets). Capital expenditure will usually include plant & machinery, furniture and equipment, motor vehicles, computers and land and buildings.
Books of Account- These are the financial records of the organisation and are required by law. It is from these records that annual financial statements are drawn, tax returns prepared, company disclosure documents submitted etc.
Income Statement – These schedule gives details of all the revenues generated and all the expenses incurred. The net result will either reflect a profit or a loss. The schedule is usually prepared for a period of 12 months but can be monthly etc.
Balance Sheet – Records all assets and liabilities of the business at a particular point in time usually the last day of the financial year.
Cash Flow Statement- forms part of the annual financial statements and records all the cash inflows and outflows
Journal- This is a book wherein accounting entries are made. It is now computer generated. Journals always balance and have a debit and credit side. Journals are used to move amounts between general ledger accounts
General Ledger – This is the book of final entry. The general ledger contains all the accounts of your business. All the sales, expenses, assets and liabilities are recorded here. The cash book and journals are posted(allocated) to various accounts in the general ledger.
Purchase Journal- This is a book or computer generated document which maintains a record of all the purchases made from various supplies. It is then posted (allocated) in total to the general ledger. It is a sub ledger of the general ledger.
Misallocations- Sometimes entries are allocated in error to a wrong account. This is called a misallocation and is fixed by passing a journal entry.
Write off- Generally a write off occurs when there is no change of recovering a debt from a customer. Eg you have sold your product on credit to the customer and he disappears. You realise you will never be paid the amount owing to you so it gets written off in the books as a bad debt.
Posted- The amounts paid through the cash book are divided up into various accounts such as rent, stationery, salaries, postage etc. These are then added up and the totals transferred to the individual accounts in the general ledger. This is known as posting.
Trial Balance – All of the accounts that make up the general ledger will either have a debit or credit balance. The trial balance is a listing of all these accounts with their balances. When added up the total debit account balances must be equal to the total credit account balances. If the trial balance is in balance, you can then proceed to draw up the financial statements using the trial balance.
Trading statement- Shows how you have traded -what stock you started with, what your sales and purchases were and what stock you finished the trading period with. Your sales less your calculated cost of sales will show your gross profit. The trading statement is always done over a period such as monthly, annually etc.
Loss- Where your expenditures exceed your revenues you will show a loss.
Profit- Where your revenues exceed your expenditure you will be making a profit
Fixed Assets-These are the assets or infrastructure your business requires in order to trade. They will normally consist of the plant required to manufacture your product, buildings, computers, vehicles, office furniture, forklifts etc.
Current Assets- cash and other assets which are expected to be converted into cash within twelve months. Usually consists of stock, debtors, bank balances etc.
Retained Income- is the total profits the company has earned to date. It is a figure that is updated usually at the end of the financial year. It is a strong indicator as to the health of the business
Long Term Liability- this is an amount owing that is not due within one year of the date of the financial statement. Are also known as non-current liabilities.
Share Capital- this is the capital the company raises in exchange for giving ownership in the form of a share
Equity- usually refers to the share capital plus any distributable reserves. It is generally what would be left if all the assets were sold and all liabilities paid up. Also known as Shareholders Equity and is in fact the net worth of the company
Liabilities- Obligations that arise to the third parties as a result of conducting business operations
Net Worth- Total assets less total liabilities or share capital plus reserves
Depreciation- Fixed assets such as motor vehicles lose their value over time. So if you bought a car today for R500,000, in two years’ time it would probably be worth only R300,000. It has thus depreciated in value by R200,000. In accounting we charge an amount to depreciation so that the car in 2 years’ time would be valued in the books at R300,000(its true value).
Budget- A projection for a future period (usually 12 months). Usually actual performance is monitored against this budget. The budget is a key planning document.
Inflation Rates- The rate by which the price of goods increase measured over a one-year period.
Consolidated Budget- Where a company has a number of different business units they would each prepare a budget for the required 12-month period. In order to ascertain the overall situation of the company, all the business unit budgets would be added together into one budget, which would then be the consolidated budget.
Audit Committee- The audit committee is a committee formed to exercise oversight over the financial and risk areas within a business. An audit committee process is a sign of good corporate governance and they should be given the freedom to exercise their oversight role without interference.
Benchmark- a benchmark is a statistic by which you gauge performance. In the industry you are working it may be that the expected gross profit is 20% and this is a benchmark that your business could aim for, try and exceed etc.