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system of recording and classifying a company’s financial transactions and summarizing and communicating those transactions in the form of financial statements
accounting equation
assets = liabilities + equity
accounts payable
account that includes vendors that the company owes money to
accounts receivable
account that includes customers that owe the business money
angel investor
wealthy, private individual seeking investment options with a greater potential return than is generally available with traditional publicly traded stocks
items a business owns and derives future use from
balance sheet
financial statement that summarizes a company’s financial condition according to the accounting equation
exchanging goods or services for other goods or services instead of for cash
funding strategy that seeks to optimize use of personal funds and other creative strategies (such as bartering) to minimize cash outflows
breakeven point
level of operations that results in exactly enough revenue to cover costs
burn rate
rate at which cash outflow exceeds cash inflow
charitable organization
nonprofit company founded for altruistic purposes
something of value pledged to secure a loan
contribution margin
gross profit from a single item sold
cost of goods sold
cost required to produce the product or service
lending of funds in exchange for a promise to repay
financing with investments of small amounts of money from a large number of people
debt financing
borrowing funds that must be repaid, usually with interest
financial gift intended to support an organization’s general operations
early stage
company lifecycle stage in which the product or service has begun development
owner’s interest in the assets of the business
equity financing
funds provided in exchange for a share of ownership in a business
costs incurred in the normal course of business operations
financial statement
output of an accounting system that is used to make financial decisions
financial viability
long-term financial sustainability of an organization to fulfill its mission
raising money to fund the startup and operation of a business
financing activities
section of the statement of cash flows that shows where new infusions of cash are coming from
fixed assets
major purchases with a long life, such as buildings, land, and so on
fixed costs
costs that do not change, regardless of the amount of sales
financial resources for acquiring assets
financial gift intended to fund a specific goal or project
gross profit
selling price of a product or service minus its direct costs
income (profit-and-loss) statement
financial statement that describes how much a company earned while the business was operating and what costs were incurred to generate those revenues
initial public offering (IPO)
process by which a company lists its ownership shares on a public stock exchange
investing activities
section of the statement of cash flows that shows major purchases of equipment or facilities
company’s debt to another party
mature stage
company lifecycle stage in which the business has reached commercial viability
earning income from a source outside of one’s primary employ
net income
revenue minus expenses
operating activities
section of the statement of cash flows that shows day-to-day activities of the business, such as purchasing supplies, paying rent, and receiving cash from customers
profit margin
amount by which revenue exceeds costs, typically described as a percent
program services
basic offerings that a nonprofit provides to generate a portion of its revenue to sustain operations
forecast of the future operations of a business
amount a business earns through product sales or providing a service
run rate
cost of running a business over a specified period of time
seed stage
company lifecycle stage in which the business is largely still an idea
statement of cash flows
financial statement that explains the sources and uses of the company’s cash
sustainable strategy
strategy that can maintain an organization’s financial stability
tax-exempt status
treatment under U.S. tax law that removes the burden of taxes from nonprofit organizations
estimate of a company’s worth
variable costs
costs that fluctuate with the level of revenue
venture capitalist
individual or investment firm that specializes in funding startup companies
working capital
funds available for day-to-day operations
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