30 finance terms — explained without jargon. Every term tells you why it matters to you.
Money your business owes to suppliers for goods/services received but not yet paid. Balance Sheet current liability.
Why it matters to you: If this is growing faster than revenue, you're taking longer to pay suppliers — which may strain relationships or signal cash problems.
Money owed to your business by customers who've been invoiced but haven't paid. Balance Sheet current asset.
Why it matters to you: Receivables that age beyond 60 days are at risk of not being paid. Watch the ageing report.
Recording a cost or revenue in the period it was incurred or earned, even if cash hasn't moved yet.
Why it matters to you: This is why your P&L shows a cost you haven't paid yet. It's not a mistake — it's how accrual accounting works.
Same as depreciation, but applied to intangible assets: software licences, patents, goodwill.
Why it matters to you: When your business acquires software or intellectual property, the cost spreads over its useful life rather than hitting the P&L immediately.
Everything the business owns that has value: cash, equipment, buildings, inventory, money owed by customers.
Why it matters to you: The Balance Sheet shows all assets. Understanding what your team owns (or uses) helps you understand your department's footprint.
Snapshot showing what the business owns (assets), owes (liabilities), and what's left for the owners (equity) at a specific date.
Why it matters to you: This is the business's financial health check. Senior leaders need to read it; most operational managers don't, but should.
The difference between what you planned to spend (or earn) and what actually happened. Favourable = better than plan. Unfavourable = worse.
Why it matters to you: This is the number every finance meeting focuses on. Being able to explain yours before being asked is the single biggest financial credibility signal.
Spending on assets that will last more than one year. Goes to Balance Sheet first, then depreciates over time. Not an immediate P&L expense.
Why it matters to you: Buying a $12,000 server isn't a $12,000 P&L hit — it's $333/month for 3 years. Capex and Opex have different budget approval processes.
The actual movement of cash in and out of the business. Different from profit, which includes non-cash items like depreciation.
Why it matters to you: A business can be profitable and cash-broke at the same time. Cash flow is the reality check on the P&L.
The direct cost of producing what you sell: materials, direct labour, manufacturing costs.
Why it matters to you: Subtracted from revenue to give gross profit. If COGS rises faster than revenue, your gross margin is shrinking.
Assets that will convert to cash within 12 months: cash, receivables, inventory, prepaid expenses.
Why it matters to you: Compared to Current Liabilities to give the Current Ratio — the primary short-term liquidity signal.
Obligations due within 12 months: supplier invoices unpaid, short-term loan repayments, tax owed.
Why it matters to you: If Current Liabilities exceed Current Assets (ratio below 1), the business can't cover its short-term obligations.
Money received for goods or services not yet delivered. It's a liability until the obligation is fulfilled.
Why it matters to you: If your business sells annual contracts, the revenue is recognised over time — not all on day one. Deferred revenue tracks what's still owed to customers.
Spreading an asset's cost over its useful life. A non-cash expense on the P&L that reduces asset book value on the Balance Sheet.
Why it matters to you: This is why equipment purchases don't create a huge single-month P&L hit. The cost spreads over years.
Earnings Before Interest, Tax, Depreciation, and Amortisation. A measure of operating profitability.
Why it matters to you: Commonly used in business valuations and performance conversations. Strips out financing and accounting decisions to show operational performance.
The net worth of the business: total assets minus total liabilities. What belongs to the owners.
Why it matters to you: Positive and growing equity signals a healthy business. Negative equity means liabilities exceed assets — a serious warning sign.
Costs that don't change with sales volume: rent, salaried headcount, insurance, committed contracts.
Why it matters to you: Fixed costs are your floor — they exist regardless of revenue. Knowing your fixed cost base tells you the minimum revenue needed to break even.
Revenue minus Cost of Goods Sold. What's left before operating expenses.
Why it matters to you: Gross profit margin tells you whether the fundamental economics of your product or service are working, before overhead is considered.
Report showing revenue, costs, and profit or loss over a specific period.
Why it matters to you: This is your primary financial scorecard. If you only read one report, make it this one.
Everything the business owes: supplier invoices, loans, tax, lease obligations.
Why it matters to you: Rising liabilities without corresponding asset growth is a warning sign of financial stress.
Revenue minus all expenses including tax. The bottom line. What the business actually made.
Why it matters to you: This is the final verdict on whether the business earned more than it spent. If negative, the business is losing money.
Day-to-day costs of running the business: salaries, rent, marketing, utilities, software. Hits P&L immediately (unlike Capex).
Why it matters to you: Opex is what most managers control. Reducing Opex directly improves Net Profit — every unnecessary dollar of Opex comes off the bottom line.
Cash paid in advance for goods/services not yet received. Recorded as an asset, then expensed over the period it covers.
Why it matters to you: This is why Helen's $60,000 annual licence showed as $5,000 on the monthly P&L. The cash went out; the expense spreads.
Net Profit divided by Revenue, expressed as a percentage.
Why it matters to you: Tells you how much of each revenue dollar becomes profit. Declining margin is a structural warning sign.
An updated projection of where you expect to end the financial year, based on actual performance and revised assumptions.
Why it matters to you: If you've inherited a wrong budget, or if circumstances have changed significantly, a reforecast replaces the original budget as your benchmark.
Income generated from the business's normal operations: sales, service fees, licence income.
Why it matters to you: Revenue is the top line. Everything else is how much of it you keep. Revenue trend over 6 months is more useful than any single month's number.
Bookkeeping tool your accounting team uses to check all transactions are correctly recorded. You'll never produce one.
Why it matters to you: When your accountant mentions a trial balance, you now know it's a checking step, not a final report.
Costs that increase or decrease with sales volume: raw materials, sales commissions, delivery costs.
Why it matters to you: Understanding the split between fixed and variable costs helps you model how profit changes as revenue goes up or down.
The difference between a budgeted figure and an actual figure.
Why it matters to you: This is the number every finance meeting focuses on. Being able to explain variances proactively — not reactively — is the single most visible sign of financial competence.
Current Assets minus Current Liabilities. The day-to-day cash available to run the business.
Why it matters to you: Positive working capital = the business can meet short-term obligations. Shrinking working capital = a cash crunch may be coming.