Micro-Enterprise: Key Financial Concepts Set 1 Flashcards

Money owed by a company to a supplier. Example: "I purchased $20,000 of beauty supplies for my big sidewalk sale. My supplier gave me 60 days to pay for this huge order. That $20,000 is now an Account Payable for my company. The supplier trusts me to pay this account payable on the terms we agreed to."

Money owed by a customer to a company. Example: "I sold the new computer system to my client for $20,000. They mad an initial payment of $1,000 and now woe me $19,000, which they have promised to pay in 30 days. That $19,000 is an Account Receivable for me. I trust the customer to pay this account receivable on the terms we agreed to."

Investors who make small investments in an enterprise or to support an entrepreneur where they do expect an immediate or large return on investment. Angel Investors are typically "friends and family," individuals who know the business owner and want the owner to succeed. Angel Investors typically provide small amounts of equity with no expectation of a large return.

Debt from a bank. Banks require much more information from potential borrowers, and take more time to make a lending decision based on a great deal of analysis. Therefore bank loans are less expensive than online lines of credit.

A loan. A bond is security that investors buy and sell, that represents a legal obligation from the company issuing the bond that they will repay the funds they received when they issued the bond.

A determination of how many units you have to sell in order to pay for all fixed costs. Example 1: "that equipment costs $4,000. The contribution margin for each item it makes is $10. I will need to sell 400 items to break even on that investment." Example 2: "My overhead expenses are $50,000. The contribution margin on each item I sell is $50. I will need to sell 1,000 items for my company to break even.

A company that provides individuals and companies with access to financial markets. Example: "I buy stocks and bonds from my broker."

Funds contributed by investors to a business. Investors contribute capital to a business because they expect a significant return on their investment when the business succeeds.

Expenditures on equipment the business will use for many years.

Total Revenues minus Total Cost minus one-time expenditures (called "capital expenditures") on equipment you will use for many years.

Unit price minus cost of goods sold.

Costs that make up one unit of what you sell. These can be labor costs as well as material costs. Example: When you sell a hat, the variable costs include: a) the hat's material; and b) the labor cost required to make the hat.

A loss that an insurance company will reimburse a policyholder for in the event of a claim. Example: "The fire damage to my inventory was a covered loss - the insurance company paid my claim after I paid for my deductible. I had to close my store for a week-the business I lost because my store was closed cost me another $20,000, but that was not a covered lost because my fire insurance policy did not cover a business interruption claim.

Funds lent to a business with an agreement that the business will repay the lender with interest.

An Internet phenomenon, where strangers learn about your business online and then decide whether or not to make an investment. Crowdfunding investors are typically "fans" of the owner, but they do expect a return on an investment. (The company pays a percentage of the capital raised to the online Crowdfunding website)