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