Financial Glossary

A

Accounts Payable

An amount owing to a creditor, usually arising from the purchase of goods or services, that is due to be paid within a 12- month period or within the normal operating cycle (where the cycle is longer than a year).

Accounts Receivable

An amount owed to the business usually arising from the sale of goods or services.

Accounts Receivable Aging

The placing of individual accounts receivable into categories according to how long they have been outstanding. Normally, four categories (current, over 30 days, over 60 days, and over 90 days) are sufficient to assess the collectibility and effectiveness of the collection policy, and hence the value of the receivables.

Accruals

Represents services that the business has used, but not been billed for, and not paid. The most common example is salaries covering a pay period that overlaps the business year-end.

Accrual Basis of Accounting

A method of accounting/reporting whereby revenue and expenses are recorded in the period when they are earned or incurred, regardless of when the cash transaction took place.

Accrued Expenses Payable

Liabilities resulting from transactions that occur during one accounting period but are payable during the next. The most common example is wages earned in one period but not payable until the next.

Administrative & Financial Expenses

Category on income statement that includes expenses such as management salaries, office expenses, bank charges and interest paid, bad debts, utilities and rent.

Adjusted Debt Service Capacity

The amount available for debt servicing calculated as net income after tax plus term interest plus depreciation minus gain/loss on disposal of assets minus extraordinary income minus deferred income taxes minus dividends minus living expenses plus off-farm income.

Adjusted Debt Service Coverage

Adjusted debt service capacity divided by debt service requirements(Total principal payments plus term interest expense.)

Amortization

Similar to depreciation. The scheduled or systematic reduction of a balance in an account over an appropriate period of time of intangible assets such as patents, leaseholds, agricultural marketing quota or goodwill. Amortization is often used interchangeably with depreciation on Income Statements.

Appraisal Increase

The credit resulting from an increase in the recorded value of fixed assets arising from an appraisal.

Asset

Tangible or intangible item of value owned by the business (cash, land, equipment, inventory).

Authorized Capital

The number and par value, if any, of shares of each class of capital stock that a company may issue in accordance with its instruments of incorporation.

B

Balance Sheet

A statement of financial position showing the assets, liabilities and equity of a business at a specific date.

Bank Loan

Bank borrowings, usually to finance receivables and inventory, which the bank will often assign as security. May be called an operating line; line of credit; or demand loan.

Bonds & Investments

Assets owned by the business as investments, which will normally not be converted into cash within 12 months (NISA, Patronage Equity).

Break-even Point

That level of operations at which total expenses equal total revenue.

Breeding Livestock

Animals used in production where the herd is kept for more than one year (cows, bulls, sows, boars, mares).

Buildings

Includes all buildings owned by the business. On a corporate financial statement is usually recorded at construction or purchase cost and includes direct purchase expenses.

C

Capital

Applies to unincorporated businesses only. It is the original owners' investment plus net profit and any additional investments or contributions less drawings. Also referred to as "owner's equity."

Capital Cost Allowance

The tax-deductible amount charged to allocate the cost of tangible assets over one or more fiscal periods for income tax purposes only. Not the same as depreciation! In farm statements where historical balance sheets are not available and therefore there is no consistent method of calculating depreciation, capital cost allowance (CCA) is used as depreciation expense.

Capital Gain

Profit on the sale or disposition of a capital asset. A gain resulting from a scaling-down of business debts, as in a reorganization, an arrangement with creditors, or a purchase of the company's own bonds at a discount. Under income tax legislation, the amount by which proceeds on the disposition of a long-term asset in excess of the asset's original cost.

Capital Loss

In taxation, it is defined as the deficiency between the amount of the proceeds on the disposition of a long-term, non-depreciable asset and its original cost.

Capital Stock

The ownership interest represented by shares of a corporation.

Capital Surplus

The excess received over the par or stated or legal value of the shares issued. For example, if 100 shares having a par value of $5 per share are sold for $55 per share, a capital surplus of $5,000 results ($55-$5x100).

Cash

Includes all current account bank balances plus petty cash balance. If the total is negative (as appears on many in-house accounting packages) the balance should be shown in current liabilities as a bank overdraft or operating loan.

Cash Advance

Amounts owed to purchasers of product, which are paid in advance of receiving the product. These debts are a form of operating credit and should be included in Other Current Liabilities on the balance sheet. E.g. CWB Cash Advance.

Cash Flow

A very important figure, it is a measure of the usable profit in a business. Calculated by adding net profit and all non-cash expenses (usually depreciation and amortization). Cash receipts less cash disbursements.

Cash Method of Accounting

Revenue is recognized only when cash is received and expenses are recognized only when cash is paid out.

Common Stock

The class of capital stock representing the residual equity in the company's assets and earnings.

Contributed Capital

The amount of a limited company's paid-up capital plus contributed surplus.

Contributed Surplus

Surplus contributed by shareholders that comprises the premium received on the issue of par-value shares, the portion of proceeds from the issue of no-par value shares that has been allocated to surplus, the proceeds of sale of donated shares, the profit on forfeited shares, the credit resulting from redemption or conversion of shares at less than the amount set up as share capital, or any other contributions in excess of the stated value of shares made by shareholders as such;

or

capital donations from sources other than shareholders.

Consolidated Financial Statements

The combination, into an overall report, of the financial positions and earnings reports of the parent company with those of various subsidiaries, as if they were a single entity.

Cost of Goods Sold

The direct costs of producing or providing the business's goods or services. Includes inventories at beginning of year less inventories at end of year, plus whatever direct labour and overhead it is conventional to apply. Also referred to as cost of sales.

Current Assets

Cash or other assets expected to be converted into cash or consumed in the production process within one year or within the normal operating cycle (where the cycle is longer than a year). E.g. cash, accounts receivable, market livestock, feed, crop inventory on hand.

Current Liability

A liability that will be payable within the current year or within the normal operating cycle (where the operating cycle is longer than a year). E.g. accounts payable, cash advance, operating loan, current portion of term debts.

Current Portion of Long Term Debt/Current Term Debt

The principal portion of all long-term debt that is due within the next 12 months. Common abbreviation used is "CPLTD"

D

Debt Coverage

A figure that illustrates the cash generation of the business. It is calculated by taking net profit and adding back all the non-cash expenses.

Debt Service Capacity

The amount available for debt servicing and calculated as net income after tax plus term interest plus depreciation minus dividends minus living expenses plus off-farm income.

Debt Service Coverage

Debt service capacity divided by debt service requirements.

Debt Service Requirements

Total principal payments plus term interest expense.

Deferred Income Taxes

The accumulated amount of the difference in income taxes due on accounting income (net income before taxes on the financial statements) versus income taxes actually paid based on taxable income (taxable income on your tax return). This liability has no specific repayment terms and would only be payable upon winding down of the business.

Depletion

A non-cash expense charged periodically to allocate or distribute the cost of a natural resource asset like a gravel pit over its estimated useful life. The allocation is based on the reduction in quantity resulting from consumption or removal.

Depreciation

A non-cash expense charged periodically to allocate or distribute the cost of a long-term asset over its estimated useful life. An allowance for the "wearing out" of the business's fixed assets is expensed each year, and accumulated in the balance sheet account "accumulated depreciation." This reduces the value of the assets by the total amount depreciated or "used up." Depreciation is therefore the current year's expense, and accumulated depreciation is the total depreciation charged to date.

Dividends

An amount of retained earnings declared by a company's board of directors for distribution to its shareholders in proportion to their relative shareholdings.

Due from Shareholders & Related Companies

Loans or accounts receivable from business shareholders or other companies related to the business. This asset will only appear in a corporate financial statement.

E

Equity

The interest of the owner in the assets of a business. This is represented by the excess of the total assets over the total liabilities.

Extraordinary Income

Income the business received that will not likely be received in the future on an ongoing basis (Western Grain Transition payments, insurance settlement, grants).

F

Feeder Finance Loans

Short-term loans owed to purchasers of feeder cattle for the purchase of these feeder cattle. These debts are a form of operating credit and should be included in other current liabilities on the balance sheet.

Floating Charge

A general claim on the assets of a corporation, given as debt security, without attachment to specific assets.

First In First Out (FIFO)

The stock acquired earliest is assumed to be used first; the stock acquired latest is assumed to be still on hand.

Fixed Assets

A tangible asset, which is usually involved in the production of goods and services rather than held for resale. This asset represents a relatively long-term investment that is used for more than one year.

G

Gain (Loss) on Disposal of Assets

The excess of sale proceeds over the net book value (purchase price less accumulated depreciation) of a fixed asset. This is an accounting term, which represents an increase or decrease in equity as a result of the transaction. The actual amount of cash received in the transaction is not equal to the Gain (Loss) on Disposal of Asset. The capital gain calculated for income tax is also calculated differently.

General, Salary & Administrative Expenses

Category on the income statement that includes expenses such as management salaries, office expenses, utilities and rent.

Going Concern

The concept that a business will continue in operation indefinitely and that assets are therefore valued on the basis of their continued use as distinct from their market or liquidation value.

Goodwill

Goodwill is an intangible asset, the value of which is related to the value of a business in excess of the sum of the fair market value of the net assets.

Gross Expenses

The total expenses for operating of the business for the period.

Gross Profit/ Gross Margin

Excess of total revenue over cost of goods sold.

I

Income Statement

A financial statement that discloses the revenues and expenses of a business over a period of time, usually one year.

Income Tax Paid

Income taxes paid on business earnings for the current year. For a sole proprietorship this figure can be taken from the income tax return. For a corporation, income tax paid is often broken into current and deferred income taxes. The current portion is that which is actually paid. The deferred portion is a non-cash item, which results from the company reporting net income for tax purposes differently than in the financial statements. The deferred portion is accumulated and carried as a liability on the balance sheet.

Intangible Assets

Literally an asset you cannot touch, but like all other assets, benefits or adds value to the business. The most common example is goodwill.

Intermediate Assets

Assets used in the production process with a lifespan of less than 10 years.

Inventories

Items of tangible property that are held for sale in the ordinary course of business or are in the process of production for sale or are to be directly consumed in the production of goods and services (feed, seed, farm supplies, market livestock). In a non-farm business, it is the total purchase cost of physical inventory at hand and may be shown either as one total as in a typical retail store or broken down into its parts of raw materials on hand at cost, work in progress (material plus cost of labour) and finished goods (such as material cost plus labour and packaging) as in a typical manufacturing enterprise.

Issued Capital

The portion of authorized capital stock for which shares have been subscribed, allotted and entered in the share register.

L

Land

Considered to have an indefinite life, so does not depreciate. On a corporate financial statement, is usually recorded at original cost and includes direct purchase expenses.

Last In First Out (LIFO)

The stock acquired earliest is assumed to be still on hand; the stock acquired latest is assumed to have been used immediately.

Leasehold Improvements

Includes the cost of renovations and alterations to leased premises.

Liability/Debt

A financial obligation or debt of a business arising from a past transaction that is to be paid in the future.

Limited Partnership

A partnership in which one or more of the partners have had their liability for the debts of the partnership limited to their contributed capital.

Living Costs

Personal drawings from the business not including fees or salaries paid to shareholders or management that are included in expenses.

Liquidity

Includes working capital, quick ratio, collection period, inventory turnover, bank support. Measures the enterprise's capacity to meet current obligation using its most liquid assets and short-term financing opportunities.

Long-Term Debt/Long Term Liabilities

A debt with a maturity date beyond one year from the date of the balance sheet or beyond the normal operating cycle (where the cycle is longer than one year). Long-term debt excludes that portion of the debt principal due within one year.

M

Machinery, Equipment & Vehicles

Includes all machinery and equipment owed by the business. On a corporate financial statement is usually recorded at purchase cost less accumulated depreciation and includes direct purchase and installation expenses.

Mandatory Inventory Adjustment

An adjustment usually made to expenses or net farm income for tax purposes. These adjustments do not reflect actual values of inventory on hand and should not be included in net income calculations for analysis purposes.

Market Livestock

Includes animals that will be sold in the next 12 months (calves, culls, hogs, etc.)

N

Net Farm Income/ Net Profit or Loss

The excess of revenues over expenses for a given period of time. If expenses exceed revenue, the difference is called net loss.

Non-Cumulative Stock

That part of issued stock for which settlement has been received.

O

Off-farm Income (net)

Employment, investment or business income earned outside of the farm operation less all deductions from source including income taxes, CPP and EI premiums. This amount does not include capital gains reported on the tax return.

Operating expenses

Gross expenses less term interest, depreciation, land rent and property taxes.

Operating Expenses (AGRIBEX)

Usually contains expenses directly related to selling and promoting business products or services.

Operating loan/ Line of credit

Cash advance to a business to pay for operating costs. This loan usually provides for repayment within one year or the normal operating cycle.

Optional Inventory Adjustment

An adjustment usually made to expenses or net farm income for tax purposes. These adjustments do not reflect actual values of inventory on hand and should not be included in net income calculations for analysis purposes.

Other Income

All income not included in revenue, gain on disposal or extraordinary income.

P

Paid-up Capital

That part of issued capital for which settlement has been received.

Participating Stock

A class of preferred capital stock that, in addition to providing a dividend at a fixed or determinable annual rate, participated with common stock in the distribution of profits and sometimes in the residual distribution at liquidation of company.

Par Value

A value printed on the face of the security certificate.

Periodic Inventory Method

An inventory accounting system that requires a physical count of inventory to determine the final amounts of raw materials, work in process, and finished goods, and hence also the cost of goods sold.

Perpetual Inventory Method

An inventory accounting system whereby a continuous record is kept that tracks raw material, work in progress, finished goods and cost of goods sold on a day-to-day basis.

Preferred Stock

A class of capital stock with special rights or restrictions, as compared with other classes of stock of the same company. The preference will generally relate to the distribution of dividends at a fixed or determinable annual rate, with or without priority for return of capital on liquidation. The restrictions generally apply to voting rights.

Prepaid Expenses

The unused total at the statement date of any item paid for in advance (insurance premiums, fall applied fertilizer).

Principal Payments

The current portion of long-term debt from the opening balance sheet. (The principal payment for the year ending December 31, 1998 would be the current portion of long-term debt that appeared on the balance sheet dated December 31, 1997 as that is the amount of principal that was scheduled to be paid in the year ending December 31 1998). If historical balance sheets are not available, the actual principal paid during the period is used.

Proforma Statements

A projection of what costs and revenue should be.

Forecast Provision for Bad Debts

A reserve account to allow for customers who cannot pay.

Quota

An intangible asset that is a license, or right, to sell a certain amount of a specific commodity.

R

Residual After Debt Service

Debt service capacity minus debt service requirements.

Residual for Growth

Residual after debt service minus depreciation plus principal payments. Represents the funds available for growth or investment.

Retained Earnings/Deficit

The accumulated balance of net income in excess of net losses of an incorporated business after any dividends and other appropriate charges or credits. A negative retained earnings balance is termed "deficit."

Revenue/Sales

The value of all goods produced and sold and all services rendered during the fiscal period from the operation of the business.

Rollover

A term used to describe a transaction under which no gain or loss is recognized for tax purposes, so that the tax cost of an asset is "rolled over" to another asset or another taxpayer.

S

Selling Expenses

All expenses relating directly to selling and promoting company products or services.

Share Capital

Another name for capital stock.

Shareholders' Equity

The excess of assets over liabilities.

Shareholder Loans

The amount that a company owes to its shareholders. Most shareholder loans have no interest rate or fixed repayment terms.

Stated Capital

A term used in corporate legislation to designate the aggregate consideration received by a corporation on the issue of share capital.

Stock Split

The issuance of additional shares for no consideration and under conditions indicating that the objective is to increase the number of outstanding shares for the purpose of reducing their unit market value.

T

Tangible Assets

Something substantial or real that is capable of being appraised at an actual or approximate value.

Term Asset

Tangible or intangible asset usually involved in the production of goods and services rather than held for resale and has an economic life greater than one year. These assets are used for more than one year (land, buildings, equipment, quota).

Term Interest Expense

The amount of interest expenses on term loans. Does not include interest paid on operating loan or line of credit.

Term Liability

That portion of a term loan that does not come due within the next 12 months (mortgages, equipment loans).

U

Unissued Capital

The portion of authorized capital stock for which no shares have been issued.

V

Variable Cost

A cost that is uniform per unit, but that fluctuates in total in direct proportion to changes in the related total activity or volume.

W

Work in Progress

The cost of uncompleted goods still on the production line.

Working Capital

Current assets minus current liabilities