From "Accounts Payable" to the "Working Capital Wheel", your quick reference resource for the financial terms used in retail.
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A liability to a creditor, generally an open account. Usually limited to unpaid purchases of goods and services.
A claim against a debtor, generally an open account. Usually limited to uncollected sales of goods and services and distinguished from deposits, accruals, and other items not arising out of everyday transactions.
Under the accrual basis of accounting, revenue (sales) is reported in the income statement for the period when it is earned (regardless of when it is collected), and expenses reported in the period when they occur (regardless of when the cash disbursement is made).
Expenses which have been incurred but have not been paid.
Officers' salaries, wages, and benefits, professional fees, vehicles and all other general and administrative expenses.
Any owned physical object (tangible) or right (intangible) having a money value; expressed in terms of its cost, depreciated cost, or less frequently some other value.
The portion of the financial statement which shows the financial condition of a business at a particular point in time; shows Assets, Liabilities and Owner's Equity, and always balances according to the formula: Assets = Liabilities + Equity (Net Worth).
Can be at cost or retail; same as ending inventory of previous period.
The physical flow of funds into and out of a business.
A projection of cash receipts and cash expenses for a period of time into the future, usually done on a monthly basis.
The sum of the opening inventory, plus purchases at cost, minus the closing inventory at cost. Can include cash discounts deducted, or workroom costs, or freight in. Other terms used: Gross Cost of Merchandise Sold, Total Merchandise Costs, or Cost of Sales.
Assets which are expected to convert to cash within one operating cycle, which is usually one year. Includes cash, accounts receivable, and inventory.
Liabilities which are due to be paid within one operating cycle (usually one year). Includes Accounts Payable (Trade), Notes Payable, Accrued Expenses and current portion of Long-Term Debt.
The portion of long-term obligations which are due within one year of the date of the Balance Sheet.
Financial ratio which tests solvency or ability to meet current debt obligations. An increase in your current ratio is favorable.
Special merchandise payment terms which extend the standard due date.
Financial ratio which compares the amount loaned by creditors to the amount invested by the owners of a business; a measure of safety. A decrease in your debt-to-worth ratio is generally favorable.
The decline in useful value of a fixed asset due to wear, tear and obsolescence. A non-cash operating expense.
The approximate amount of retail inventory that the turnover rate suggests be on hand at month-end to cover the next complete cycle of sales. For example, if your planned turnover rate is 4.0, at any given month-end you would want enough inventory (at retail) on hand to cover the next three months (of sales). (12 months / 4.0 = 3 months "supply".)
Balance sheet category listing the owners' share of the company; also referred to as "Net Worth". Equity (or Net Worth) equals Total Assets minus Total Liabilities.
The probable or actual Ending Inventory minus the Desired (Targeted) Ending Inventory.
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.
Assets which are not bought to be sold or easily converted to cash within one operating cycle (usually one year). Includes furniture, fixtures, equipment, leasehold improvements, vehicles, etc.
Amount of money remaining after "Cost of Goods Sold" is subtracted from sales; can be calculated as a percentage or in dollars. An increase in your gross margin is favorable.
(Gross Margin Dollars divided by Sales)
A financial ratio which indicates the percent of sales dollars remaining after costs related to purchased merchandise are recognized; an increase in your Gross Margin Percent is generally favorable.
(Gross Margin Percent times Annual Sales divided by Average Inventory at Cost)
Measures productivity; how much is returned in Gross Margin Dollars for each average dollar invested in inventory; particularly useful in comparing one merchandise department against another. Can also be computed by dividing Gross Margin (annual) Dollars by Average Inventory at Cost.
The portion of the financial statement which shows the performance of a business over a period of time; shows Sales, Cost of Goods Sold, Gross Margin, Operating Expenses, and Profit or Loss. Also called Profit and Loss Statement (P&L).
The sum added to the cost of new merchandise to arrive at the first retail price. (Note: the "Initial Markup Percent" may be used for "Gross Margin Percent" when markdowns and shrinkage are not included.)
(Sales divided by Average Inventory @Retail), or
(Cost of Goods Sold divided by Average Inventory @Cost)
Financial ratio which measures velocity or how often (theoretically) entire inventory is sold and replaced within a given period of time. Inventory Turnover in Days equals Number of Days in Period divided by Inventory Turnover.
Balance sheet category listing of debts, everything which is owed by the business.
See Long-Term Liabilities.
(Also Long-Term Debt) Liabilities which are due to be paid more than one year from the date of the Balance Sheet.
A reduction in the original or previous retail price of a piece of merchandise. For comparative purposes, markdowns are stated as percentage of net sales.
Difference between landed cost of a product and its selling (retail) price. Also referred to as Markon.
Net sales less net cost of goods sold less operating expenses. (Not the same as Net Profit)
Bookkeeping figure derived by subtracting all Operating Expenses and all other expenses such as taxes, depreciation and draws from Gross Profit. Found on Income Statement.
The difference between the total value of the assets minus the liabilities.
Revenue and/or expenses associated with related activities such as sub-tenant rental, repair shops, etc.
Balance sheet category showing short-term or long-term debts which are contracted for in writing. Does not include Accounts Payable - Trade.
Includes expenses for premises (i.e., maintenance, repair, rent and utilities). Found on Income Statement.
An inventory purchasing plan based on anticipated sales and desired inventory turnover rate for various categories of merchandise, departments or entire operations.
Non-merchandise expenses incurred by a business; may be generally categorized as Selling Expenses, Occupancy Expenses, Administrative Expenses, and Depreciation.
A term for the excess of revenue, proceeds, or selling price over all related costs.
Financial ratio which indicates the percent of original sales dollars remaining after all expenses are recognized.
A portion of the financial statement that indicates the operating results for a period of time. The format is to deduct from sales (revenues) the cost of sales; the resulting gross margin covers expenses and profit for the business. See Income Statement.
A forecast or projection.
Financial ratio which measures ability to have cash available to quickly meet current obligations. An increase in your Quick Ratio is generally favorable.
The study of relationships between different parts of a company's financial data. Used to pinpoint a company's financial strengths and weaknesses.
(Net Profit Before Taxes divided by Total Assets)
Measures profit as a percentage of total assets. An increase is generally favorable.
Type of Operating Expense which includes Sales Salaries, Commissions, related Payroll Taxes and Employee Benefits, Advertising and all other expenses specifically related to the selling of merchandise. Selling Expenses may be sub-divided into Store Payroll Expenses and all other selling expenses.
Difference between the amount of inventory the accounting records report and the actual physical inventory when counted. Can result from bookkeeping or paperwork errors, and/or pilferage (internal or external).
(Current Assets minus Current Liabilities)
The amount of money which may be available in order to meet current debt obligations when they become due.
The difference between the starting Working Capital and the Working Capital at the end of the period (usually one year). An increase is favorable.
Diagram used to illustrate the relationship between sales and the flow of cash, inventory and accounts receivable through a business.
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