Glossary of Terms

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Accounts Receivable: Also called debtors. Amounts owing to you usually from non cash sales.

Closing inventory: Inventory or stock on hand at the end of a reporting period.

Cost of goods sold (COGS): The direct costs required to produce your products. May be calculated as Opening stock plus purchases less closing stock. COGS does not usually include overheads such as rent etc.

Depreciation: This is the expense associated with the systematic write off of assets used to run your business. The rate of this write off is determined by the useful life of the asset. If an assets has a useful life of 5 years then the depreciation rate used is 20% (100% / 5 years = 20%)

Direct costs: Costs that are directly used to produce a product. Items such as raw materials and labour are typical direct costs. Overheads such as electricity and rent are not direct costs.

Dividends: The profits from a company that are actually distributed to shareholders.

Franking accounts: The account that is used to record the imputation credits and dividends received or paid by a company. The balance in the franking account is the amount of dividend that can be paid that is fully franked.

Gross Margin: Is the percentage value after dividing the gross profit by sales.

Gross Profit: Is the result of deducting cost of sales from sales.

Imputation credits: The tax credits received when a dividend that has been paid has been fully or partly franked. Imputation credits received generally reduce the amount of tax that you have to pay. A company is able to pay franked dividends when it has paid income tax on its earnings.

Indirect expenses: Often referred to as overheads. These are all those costs required to run your business excluding direct costs.

Net Assets: Is the result after subtracting liabilities from assets.

Net profit/loss: Is the result after deducting the indirect expenses from the gross profit. This is the amount that a business has made or lost from operating.

Opening inventory/stock: The stock on hand at the beginning of a period. Should match the closing stock from the prior period.

Please note these are provided as one suggested definition of terms. When used for specific uses or tasks please seek professional advice. We accept no responsibility of your use of these terms