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Business Terms

Business terms can be quite challenging at times because some terms may be mentioned in multiple business courses in the same semester, but invoke different concepts. The purpose of this business vocabulary is to provide simplified definitions of the more challenging terms in various first and second year business courses.

Accrual Accounting

Type of accounting that looks at impact of transactions and economic events recording (before/after/at the same time as) cash flow

Accrued Expense/Liability

Liability recognition before invoice for expense/liability

Accrued Revenue/Asset

Revenue recognition before invoice for revenue

Adapting

Changing a firm’s operations to suit a different cultural environment

Adjusting Entries

A journal entry that accounts for revenue and liabilities

Agency Problem

Possible conflict of interest between shareholders and a firm’s management

Amphiboly

Misleading use of punctuation/syntax

Anchoring Bias

The tendency to be stuck on initial information and not adjust for information that comes later

Anthropocentrism

A human habit of seeing oneself as the central and most important entity in the world

Avoidance

A type of resistance

Breakeven Analysis

Analysis of a situation when total cost and total revenue are equal (no net gain/loss -> “break even”)

Bullwhip Effect

Amplification of forecast deviations as one moves upstream in a supply chain

Capital Cost Allowance

Depreciation for tax purposes, which is not the same as depreciation under GAAP

Capital Structure

Mix of debt and equity maintained by the firm

Cash Accounting

Type of accounting that looks at cash flowing in and out of entity

Cash Flow (not income)

Movement of cash in operations, investing activities, financing activities. Looks only at cash-related transactions unlike the income statement that looks at non-cash interactions

Cliches

An overused expression that has lost its original meaning and become a stereotype (e.g. He threw himself at her feet.)

Cognitive Dissonance

The feeling of unease after a purchase

Consol

A type of perpetuity

Consumption Externality

A consumption activity that has positive or negative consequences for a third party

Co-operatives

An entity owned by members and customers where profit is shared by usage and not via shares

Contribution Margin

Amount remaining after subtracting variable costs from revenue

Core Competence

A firm’s capability that creates value, is unique and hard to copy, and easily leveraged to other products

Cost-Recovery Method

A different name for the Zero-Profit Method

Credit

Journal Entries: decreases Asset and Expense Account balances, but increases Liabilities, Equity and Revenues Account balances

Critical-Event Approach

Recognition approach where 100% of revenue is recognized after a critical event (defined by IFRS criteria) occurs

Dead Weight Loss of Taxes

The fall in total surplus (losses to buyer+sellers > revenue raised by government)

Debenture

Unsecured debt with a maturity of 10 years or more

Debit

Journal Entries: increases Asset and Expense Account balances, decreases Liabilities, Equity and Revenues Account balances.

Debt

Liabilities

Deferred Revenue

Advanced reception of payment, but there is no revenue recognition until goods/services are supplied

Deferred/Prepaid Expense

Expense made to pay for future benefits that would last for more than one accounting period, and would be consumed over time

Direct Method

Method of reporting cash collections and disbursements in detail

Double-Think

Situation where one would believe two conflicting ideas as correct

Dumping

A pricing policy of charging a lower price for a good in a foreign market than for a good charged in a domestic market; therefore, selling for less than “fair value”

Dysphemism

Use of an intentionally harsh word/expression instead of a polite one (opposite of euphemism)

Economic Profit

The simplest definition of profit: profit = sales – costs

Egocentrism

Personality trait of seeing oneself’s opinions/interests as the most important and valid

Environmental Scanning

The concept of scanning for external forces (social, technological, economic, competitive, regulatory forces) that would affect a firm’s product

Equity

In accounting: accounts for investments into entity as well as revenues and expenses

Equivocation

The misleading use of a term

Ethnocentrism

Tendency to believe one’s ethnic/cultural group is the most important in relation to all other groups

Euphemism

Use of a mild, relatively incontroversial word/expression to express something that might offend the audience

Future Value

The amount of money attained in the future for the money invested today at a given rate

Gradual Approach

Revenue recognition approach where revenue is recognized gradually vs. at a critical event (e.g. long-term contracts)

Groupthink

Occurs when group pressures for conformity prevents members from critically analyzing minority or unpopular views

Hyperbole

A rhetorical device that uses exaggeration to cause strong feelings or give a certain impression to the audience

Incremental Cash Flows

Starts a financial report with net income and adjusts for non cash items and operating cash flows not included in net income

Indenture

A written agreement between the company and the lender detailing the terms of the debt issued

Indirect Method

Starts a financial report with net income and adjusts for non cash items and operating cash flows not included in net income

In House

The opposite of outsourcing; keeping operations within the firm

Manufacturing Costs

Also known as “product costs”; includes direct materials, direct labour and overhead costs that convert raw materials to finished goods

Manufacturing Overhead

Indirect costs of manufacturing

Margin of Safety

Difference between actual sales and sales at break-even; amount of buffer to avoid profit loss

Market Segmentation

Breaking the market into groups with similar needs and similar reactions to marketing actions

Marketing Mix

The mix of ‘4 Ps’ (Price, Product, Promotion, Place) crucial for deciding a product or brand’s unique selling point

Matching

Theory of matching expenses to revenue, not vice versa

Mission Statement

A socially meaningful statement of a company’s scope that identifies its customers, product, markets, technology, and values

Monopsony

Situation where one buyer is buying from multiple sellers

Narrow-mindedness

Situation where one is not willing to accept opposing views

Naturalistic Fallacy

A type of formal fallacy where one tries to prove a claim by appealing to what is defined as “natural”

Offshoring

The most valuable alternative that is given up if a certain investment is undertaken

Onshoring

Behaviour that is not part of a job’s requirements, but promotes the organization’s well-being

Opportunity Cost

Also known as “face value”; the principal value of a bond paid at the end of its term

Outsourcing

Hiring an outside entity to complete one of a firm’s many functions to decrease production costs

Organizational Citizenship Behaviour

Non-manufacturing costs such as selling expenses and administrative expenses

Owner’s Equity (or Shareholder’s Equity)

Accounting: includes cash and asset investments from owners (Generally found by calculating retained earnings minus dividends declared)

Par Value

Matching a product to a market segment in such a way as to be in a unique “position” in the customer’s mind

Perceptual Errors

Errors in perception that may or may not be due to intention, and should never be used as a premise in an argument

Period Costs

Retained earnings divided by net income

Pigovian Tax

Tax levied on market activities that generate negative externalities

Period Costs

Retained earnings divided by net income

Plowback Ratio

Costs and revenues that change between alternatives decisions in incremental analysis

Positioning

Grant of authority by a shareholder allowing for another person to vote his or her shares

Present Value

Value of money today for money you will receive in the future

Production Externality

Production costs that are paid for by someone other than the producer of the good or service

Proxy

To find a solution that is just “good enough”

Pull System

System of moving work by using output from previous station

Push System

System of moving work by pushing output to next station

Red Herring

A distraction which diverts attention from an issue of importance

Relevant Cost

Account managed by bond trustee for early bond redemption

Resistance

A barrier to thinking that strengthens one’s view of the world

Revenue Recognition

Recording of revenue in accounting books when IFRS requirements are met, but judgement can be used to achieve the economic consequence of choice

Rhetoric

Language devices used to increase persuasion in arguments

Satisfice

Synonymous with SWOT analysis: analyzing a firm for its strengths, weaknesses, opportunities and threats

Sinking Fund

Tendency of group members exerting less effort because they believe the group will share the burden

Situation Analysis

Costs that have already happened and will not be changed in the future; not relevant costs

Social Loafing

Outsourcing to an entity outside of the country

Specialization

The ability of a company to excel at one or two things

Straw Man

Informal fallacy of twisting an opponent’s words to argue more persuasively

Sunk Costs

The opposite of offshoring; moving operations within the country

Time Value of Money (TVM)

“The sooner you have money, the sooner you can earn a return on it”

Trade Protectionism

Government regulation that protects domestic trade through practices such as: dumping, tariffs, import quotas, embargos

Transplanting

Direct placement of a firm’s operations into another country

Uncollectible Receivables

Possible losses that are a cost of credit sales

Utility

Economics: The compromise between two variables, products, etc; a measure of desirability

Value of Marginal Product of Capital (VMPK)

Economics: Equal to interest rate

Value of Marginal Product of Labour (VMPL)

Economics: Equivalent to wage

Vendor-Managed Inventory

Production management process where forecast information is provided by buyer of a product to a supplier

Zero-Profit Method

Gradual method approach that matches revenues to costs until the final year, but no profit reported until final year

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