Financial Dictionary: List of Essential Retail Business Terms


Accounts Payable:

This accounting entry shows the obligation to pay off any short-term debt to the creditor that may be your raw material supplier or vendor.

Accounts Receivable:

Money that you have not yet collected from your customers after delivering services or products to them.

Accrual Basis:

Accrual is a popular accounting method where sales are reported to the income statement as per the period when they were earned instead of when they were actually collected. As well as the expenses are reported for the duration when they occurred instead of when they were paid.

Accrued Expenses:

It involves expenses that have already occurred but are not yet paid as like payroll.

Administrative Expenses:

Administrative expenses include money involved in vehicles, professional fees, benefits, wages, and salaries.


Any physical object or right with some monetary value that can be related in terms of depreciated cost.

Balance Sheet:

It is a small part of the financial statement that shows financial health of business over a specific duration. This document displays liabilities, assets, balances and shareholder’s equity.

Beginning Inventory:

Expressed as the total cost of inventory at the initial stage of an accounting period. It is always same as ending inventory cost for the previous session.

Cash Flow:

Cash flow is the flow of funds inside and out of the business. It is desired to maintain a healthy cash flow for great business growth.

Cash Flow Budget:

Can be determined as a projection of cash expenses and receipts for a specific duration of time. Most of the businesses maintain it on monthly basis.

Cost of Goods Sold:

This cost is calculated by simply adding the opening inventory into purchases at cost and by taking out the amount of closing inventory at cost.

Current Assets:

It reflects assets that are expected to get converted into cash within one year; it may include current inventory, accounts receivable and cash on hand.

Current Liabilities:

Liabilities in business are the dues that are required to be paid within the single operating cycle. It includes accrued expenses, payable bank loans, accounts payable and a portion of long-term debt as well.


Depreciation is decay in fixed asset value due to wear and tear. For example, the POS system may get aged with time.


It is a special category in the balance sheet that displays share of a shareholder in the company. It is also known as Net Worth.

Financial Statement:

A financial statement is the combination of profit and loss statement along with balance sheet. This document depicts the complete financial status of your business.

Fixed Assets:

Assets that are not purchased for sale. It may include delivery vehicles, leasehold improvement, POS equipment, fixture, furniture, and signage.

Gross Margin:

It is calculated as sales minus cost of the sold goods; usually represented in terms of dollars or percentage.

Gross Margin Percent:

Gross Margin dollars/sales.

G.M.R.O.I. – Gross Margin Return on Inventory Investment:

This term depicts effectiveness of inventory by comparing the amount that is returned in form of Gross Margin Dollars for every dollar that you have spent on inventory.

Gross Profit:

It is almost same as that of Gross Margin, calculated by subtracting the cost of sold goods from sales.

Income Statement:

A portion of the financial statement that reflects the performance of the business for a specific duration.

Initial Markup:

It is the amount added to new merchandise cost to create the retail price.

Inventory Turnover:

It is a ratio that measures how frequently the inventory is replaced or sold within a specific period of time. Business experts often prefer to compare it with other competitive businesses in the city.


This term refers to the Initial Markup of 50%.


Liabilities are the important section of the balance sheet that contains details about debts and everything that is an obligation on the business.

Long-Term Liabilities:

It reflects the details about liabilities that are due for more than one year or are yet to be paid for a long time.


Markdown represents a reduction in the merchandise’s retail price. Sometimes business owners need to sell merchandise just to get rid of inventory and they sell it for a lesser price as compared to the original listing.


It shows the difference between selling price and landed cost of a product.

Net Operating Income:

It is determined as the net sales subtracted from Cost of Goods Sold subtracted from total operating expenses. Note that it is different from Net Profit that is discussed below.

Net Profit:

Generally considered as the last line in an Income Statement. It is calculated as gross profit out of sales subtracted from all expenses including withdrawals, depreciation, taxes and operating expenses.

Net Worth:

Net Worth is calculated as liabilities subtracted from the total value of assets.

Notes Payable:

It deals with the long term and short term debts of the business excluding the accounts payable.

Occupancy Expenses:

It includes various store expenses as like utilities, rent, repair and common area maintenance.

Open to Buy:

It shows the inventory purchasing plan that is based on desire anticipated sales and inventory turnover rate for departments or various categories of merchandise.

Operating Expenses:

It lists all the non-merchandise expenses for a business. The list includes depreciation, administrative expenses, occupancy expenses and selling expenses.


It is calculated as revenue subtracted from all related costs.

Profit Before Taxes Percent:

It is an important financial ratio that represents the percentage of original sales dollars right after all expenses are managed. PBTP is the profit before your sales/taxes.

Profit and Loss Statement:

It is popularly known as P&L and depicts a portion of the financial statement that represents operating results for a specific duration. Sometimes it is also called as Income Statement.


This analysis shows projected financial performance for certain business plan. This document must be presented to banks while applying for a business loan.

Ratio Analysis:

This term is used to highlight the strengths and weaknesses of company’s finances. In simple words, the ratio analysis shows the relationship between various parts of the financial data for a business.

Return on Total Assets:

It is the percentage profit measurement from total assets.

Selling Expenses:

This calculation is specifically related to the merchandise selling. It generally includes compensations such as commissions, bonuses, and salaries, employee benefits, related payroll taxes etc. Selling Expenses also include marketing expenses and advertising cost.


It is the difference between actual physical inventory and estimated inventory shown in books. This value is desired to be kept lower and is often compared with other businesses dealing with the same niche.

Working Capital:

Working capital is calculated by subtracting current liabilities from current assets. It is the total money available to meet the debt obligations that are due.

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