The following is a list of terms that will be helpful when dealing with your financial duties as a retailer.
Accounts Payable
Money owed to a creditor, generally an open account. Usually your vendors or suppliers for your goods.
Accounts Receivable
Sales of goods orservices not yet collected.In other words, money owed to you by your customer after they have takenpossession of the goods or you have delivered your services.
Accrual Basis
One of two types of accounting methods (cash and accrual). When usingaccrual basis for youraccounting, salesarereported on the income statement for the period (month) when they wereearned (regardless of when it is collected), and expenses reported in the period when they occur (regardless of when you paid the bill).
Accrued Expenses
Expenses which have been incurred but have not been paid. An example would be payroll.
Administrative Expenses
Salaries, wages,benefits, professional fees, vehicles and all other general and administrative expenses.
Asset
Any owned physical object (tangible) or right (intangible) having a monetaryvalue.It's normally relatedin terms of cost(or depreciated cost).
Balance Sheet
The portion of the financial statement which shows the financialhealth of a business during aselected period. Itshows assets, liabilities, and shareholder's equity, and always balances according to the formulaAssets = Liabilities + Equity.
Beginning Inventory
Usuallyexpressed as theactual cost of the total inventory on hand at the beginning of an accounting period. It is the same number as the ending inventory for theprevious period.
Cash Flow
The most important way to manage a small business, cash flow reflects the flow of funds into and out of a business. The better your cash flow, the better able to pay expenses and pay down debt
Cash Flow Budget
A projection of cash receipts and cash expenses for a period of time into the future, usually done on a monthly basis.
Cost of Goods Sold
The cost of your inventory (goods) calculated byadding the opening inventory tothepurchases at cost, minus the closing inventory at cost. This calculation may include markdowns or freight.
Current Assets
Assets which are expected to convert to cash usually within one year. Includes cash on hand, accounts receivable, andcurrentinventory.
Current Liabilities
Liabilities which are due to be paid within one operating cycle (usually one year). Includes accounts payable, notes or bank loans payable, accrued expenses and current portion of long-term debt.
Dating
Special merchandise payment terms which extend the standard due date.
Depreciation
The decline in value of a fixed asset due to wear, tear and/orobsolescence. For example, the value of your POS system in your store will decline as it ages. By depreciating the asset, you aremaintaining a more accurate view of the asset on your books.
Equity
Balance sheet category listing the shareholder's share of the company; also referred to as "net worth". It is calculated astotal assets minus total liabilities.
Financial Statement
The balance sheet and the profit and loss statement are generally spoken of as the financial statement. These reports reflect both the current financial status at the end of the accounting period and the change in financial status during the accounting period.
Fixed Assets
Assets which are not bought to be sold or easily converted to cash within one year. Examples of these items wouldIncludesignage, furniture, fixtures, POS equipment, leasehold improvements, or deliveryvehicles.
Gross Margin
Sales minus thecost of goods sold.This can be calculated as a percentage or in dollars. Dollars is great for knowing the total money yielded by the product category in your store whereas percentage is great when you are comparingcategorieswithin the store.
Gross Margin Percent
Gross Margin dollars divided by Sales. An easier way to manage since it is in % versus dollars.
G.M.R.O.I. - Gross Margin Return on Inventory Investment
This calculation measures your inventory's effectiveness by comparinghow much is returned in gross margin dollars for each dollar spentin inventory.It is the gross marginpercent x the sales / by average inventory cost. It is especiallyuseful whencomparing one merchandise categoryagainst another.
Gross Profit
Similar to gross margin, its the amount of money remaining after cost of goods soldis subtracted from your sales. Generally, this calculation includes total COGS so it hasfreight and markdowns andshrinkage included.It is a high-level view of your business health when comparing month to month or year over year.
Income Statement
The portion of the financial statement which shows the performance of a business over a period of time. It is normally called the P&L (profit and loss)Statement
Initial Markup
The amountadded to the cost of new merchandise to arrive at the initialretail price.For example, Cost = $50 and RetailPrice = $100 means IMU is $50. Can also be related as a %.
Inventory Turnover
Ratio measuringhow often yourentire inventory is sold and replaced within a given period of time. It is calculated as sales / average inventory (when you are using retail price) or COGS / average inventory (when you are using cost) Varies greatly by category and merchandise. Best to compare to others inyoursame business.
Keystone
A term referring to an Initial Markup (IMU) of 50%.
Liabilities
Balance sheet category listing of debts, everything which is owed by the business.
Long-Term Liabilities
Liabilities which are due to be paid more than one year from now.
Markdown
A reduction in the retail price of merchandise. For example, if you have to sell the merchandise for less than youoriginallylisted it to get rid of the inventory.For comparative purposes, markdowns are usually relatedto the percentage of net sales.
Markup
The difference between the landed cost of a product and its selling price.
Net Operating Income
Net sales minusnet cost of goods sold minusoperating expenses. Often confused, this is not the same as net profit (see below)
Net Profit
Normally the last line on an income statement (P&L) it shows grossprofit from sales minus all expenses (operating expenses,taxes, depreciation and withdrawals.)
Net Worth
The difference between the total value of the assets minus the liabilities.
Notes Payable
Refers to the short-term or long-term debts of a business and does not include accounts payable.
Occupancy Expenses
Includes expenses for storeincluding common areamaintenance (CAM), repairs, rent,and utilities.
Open-to-Buy
An inventory purchasing plan based on anticipated sales and desired inventory turnover rate for various categories of merchandise, departments or entire operations.
Operating Expenses
Non-merchandise expenses incurred by a business; may be generally categorized as selling expenses, occupancy expenses, administrative expenses, and depreciation.
Profit
The revenueminusall related costs.
Profit Before Taxes Percent
The financial ratio which indicates the percent of original sales dollars remaining after all expenses are recognized. It is calculated as profitbefore your taxes/sales.
Profit and Loss Statement
Commonly referred to as the P&L, itis theportion of the financial statement that indicates the operating results for a given period of time. This is also referred to as the income statement.
Proforma
A detailed analysis showing the projected financial performanceas a result of a business plan. Required by all banks whenapplying for a loan.
Ratio Analysis
The study of relationships between different parts of a company's financial data. Used to pinpoint a company's financial strengths and weaknesses.
Return on Total Assets
Calculated as net profit before taxes / total assets. It measures profit as a percentage of total assets.
Selling Expenses
A calculation relating the expenses related to sellingyour merchandise and not the COGS themselves. Itincludes compensation (salaries, bonuses orcommissions),related payroll taxes and employee benefits. It also should include advertising andmarketingexpenses.
Shrinkage
The difference between the amount of inventory shown on the booksand the actual physical inventory when counted. This will also reflect theft. It is best to compare to other stores in your samecategory. The lower the better.
Working Capital
The amount of money which may be available in order to meet current debt obligations when they become due.This is calculated by taking your current assets and subtracting your current liabilities.
