Financial accounting terms, legal contract definitions, intellectual property types, and corporate structures.
Revenue is the total amount of money a business collects from sales of goods or services before any expenses are subtracted ('top-line growth'). Profit is the actual financial gain remaining after deducting all operating costs, taxes, debt, and inventory expenses ('bottom-line earnings').
An invoice is a formal billing request sent by a seller to a buyer before or immediately upon delivery of goods, detailing agreed payment terms and amount due. A receipt is an official proof of payment issued after the buyer has successfully paid, confirming the transaction is settled.
A trademark protects commercial brand identifiers—such as logos, brand names, slogans, and trade dress—to prevent consumer confusion in the marketplace. A copyright protects original creative and artistic works fixed in a tangible medium—such as books, songs, software code, videos, and artwork.
A sole proprietorship is an unincorporated business automatically owned by one individual with zero paperwork, but provides zero liability protection—meaning your personal savings, home, and car can be seized to pay business debts. An LLC is a formal legal entity registered with the state that creates a corporate veil, protecting personal assets from business lawsuits.
A debit card withdraws your own deposited cash directly from your checking account in real time, preventing you from spending money you don't have. A credit card borrows the bank's money on a revolving line of credit with a grace period, offering superior fraud protection, travel rewards, and credit score building.
APR is the simple annual interest rate applied to money you borrow (loans, credit cards, mortgages) without accounting for the compounding of interest within the year. APY is the effective annual rate of return that includes compound interest, representing the true amount you earn on savings accounts or pay on compounding debt.
Gross pay is the total compensation an employee earns before any deductions—such as income taxes, Social Security, healthcare premiums, and retirement contributions—are taken out. Net pay ('take-home pay') is the final amount deposited into the employee's bank account after all mandatory and voluntary deductions.
Stocks represent fractional equity ownership in a company, offering high historical growth through capital appreciation and dividends but carrying higher volatility and risk of total loss. Bonds are debt instruments where you act as a lender to a corporation or government, receiving guaranteed periodic interest payments (coupons) and return of principal at maturity.
A 401(k) is an employer-sponsored retirement account funded with pre-tax dollars that lowers your current taxable income and often features matching company contributions, with withdrawals taxed in retirement. A Roth IRA is an individual account funded with after-tax dollars that offers completely tax-free growth and tax-free withdrawals in retirement.
Under the US Fair Labor Standards Act (FLSA), non-exempt employees are legally entitled to 1.5x overtime pay for all hours worked over 40 per week and must track their hours. Exempt employees are 'exempt' from overtime regulations, receiving a fixed predetermined salary regardless of how many hours they work.
A Non-Disclosure Agreement (NDA) legally prohibits an employee, contractor, or business partner from sharing or utilizing proprietary confidential information, trade secrets, and client lists. A Non-Compete Agreement restricts an individual from working for competing businesses or founding a rival enterprise within a specific geographic territory and timeframe after leaving.
A W-2 worker is an official employee whose employer withholds federal and state payroll taxes, pays half of FICA taxes, and often provides benefits (healthcare, 401k match, paid leave). A 1099 independent contractor is a self-employed business entity that receives gross pay without tax withholding, controls how and when they work, and must pay the full 15.3% self-employment tax.
A balance sheet is a financial snapshot of what a company owns (assets) and owes (liabilities) along with shareholder equity at a single specific moment in time. An income statement (Profit and Loss / P&L) tracks a company's financial performance—total revenues, operating expenses, and net profit—over a continuous period of time (e.g. a quarter or full year).
A copyright protects original artistic, creative, and literary expressions fixed in a tangible medium—such as novels, music, illustrations, movies, and software source code. A patent protects novel, non-obvious, and useful physical inventions, machinery, functional hardware designs, and chemical processes.
A Traditional 401(k) uses pre-tax paycheck contributions to reduce your taxable income today, allowing investments to grow tax-deferred until withdrawals are taxed as ordinary income in retirement. A Roth 401(k) uses after-tax contributions with zero immediate tax deduction, but all investment growth and retirement withdrawals after age 59½ are 100% tax-free forever.
Accounts Payable (AP) is a short-term liability representing money your business owes to suppliers, vendors, or creditors for goods and services received on credit. Accounts Receivable (AR) is a current asset representing money owed to your business by customers or clients who purchased your products or services on invoice terms.
CapEx (Capital Expenditure) represents major long-term investments in physical assets—such as purchasing real estate, factory machinery, or data center servers—that are capitalized on the balance sheet and depreciated over multiple years. OpEx (Operating Expenditure) covers the day-to-day ongoing costs of running the business—such as employee wages, SaaS cloud subscriptions, and office rent—which are 100% tax-deductible in the current tax year.
A calendar year always starts on January 1 and ends on December 31, adhering to the Gregorian calendar for individual income tax filings. A fiscal year is a customized 12-month accounting period established by a corporation, university, or government to align financial reporting with its natural annual business revenue cycle (e.g., Apple's FY ends in late September; the US Federal Government's FY ends September 30).
Both are non-cash accounting methods that spread the capital cost of an asset over its useful economic lifespan. Depreciation strictly applies to tangible physical assets (machinery, delivery vehicles, buildings), calculating physical wear and tear often with a salvage value. Amortization strictly applies to intangible non-physical assets (patents, copyrights, trademarks), expensing costs on a straight-line basis with zero salvage value.
B2B (Business-to-Business) companies sell products or services directly to other commercial enterprises, characterized by multiple corporate decision-makers, complex multi-month sales cycles, high order values, and logic-driven ROI purchasing. B2C (Business-to-Consumer) companies sell directly to individual end-users, driven by single-person emotional decision-making, fast transaction cycles, and lower order values.
Debt financing involves borrowing capital from banks or issuing bonds that must be repaid with scheduled interest regardless of business performance, but allows founders to retain 100% company ownership and decision-making control. Equity financing raises capital by selling ownership shares to investors or venture capitalists, requiring zero debt repayment, but permanently diluting founder equity and sharing future profits and board control.
Direct costs are business expenses that can be directly and traceably attributed to the production of a specific product, project, or service—such as raw lumber for a table or hourly factory assembly labor. Indirect costs (overhead) are shared operating expenses that keep the business functioning as a whole—such as factory electricity, executive salaries, and office rent—which cannot be traced to a single unit produced.
Legal insider buying occurs when corporate officers, directors, or major shareholders purchase stock in their own company following strict SEC compliance rules, public disclosures (Form 4 filed within 2 business days), and pre-scheduled trading plans (Rule 10b5-1). Illegal insider trading occurs when anyone buys or sells securities based on material, non-public information (MNPI) in breach of a fiduciary duty, cheating the public market.
Fixed costs are business expenses that remain constant and predictable regardless of how many goods or services a company produces or sells—such as office building rent, business insurance, and salaried executive compensation. Variable costs fluctuate in direct proportion to production and sales volume—such as raw material purchases, packaging boxes, merchant credit card processing fees, and shipping postage.
Pre-money valuation is the agreed value of a company before receiving external investment capital. Post-money valuation equals the pre-money valuation plus the new capital invested (Post-Money = Pre-Money + Investment), directly determining the exact equity percentage dilution for founders and investors.
A merger occurs when two separate companies mutually agree to combine their operations, assets, and liabilities to form a brand-new single corporate legal entity. An acquisition occurs when one company (the acquirer) purchases the majority shares or assets of another company (the target), absorbing it into existing corporate operations.
A convertible note is a short-term debt instrument that accrues interest and possesses a legal maturity date at which the loan must either be repaid or converted into equity during a future priced funding round. A SAFE (created by Y Combinator in 2013) is not debt; it carries zero interest rate and zero maturity date, functioning as a lightweight contractual right to future equity shares.
Liquidity measures a company's ability to cover its immediate short-term financial obligations (due within 30 to 90 days) using cash or quick-converting liquid assets. Solvency measures a company's long-term financial health and ability to sustain ongoing operations by maintaining total assets that exceed total liabilities over years or decades.
In an asset purchase, the buyer cherry-picks specific corporate assets (machinery, patents, customer contracts) and leaves unwanted historical legal liabilities with the seller, gaining a stepped-up tax basis for future depreciation. In a stock purchase, the buyer purchases the target company's outstanding equity shares in full, seamlessly inheriting all historical contracts and licenses while also inheriting all known and unknown historical legal liabilities.
CAGR (Compound Annual Growth Rate) calculates the smoothed annual growth rate of an investment assuming a single lump-sum deposit at the start and a single exit payout at the end, ignoring all intermediate timing. IRR (Internal Rate of Return) calculates the annualized effective discount rate that sets the Net Present Value (NPV) of all irregular interim cash inflows and outflows to zero, making it the gold standard for evaluating multi-year private equity, real estate, and project capital investments.
Gross margin measures the percentage of revenue remaining after deducting only the direct Cost of Goods Sold (COGS)—revealing basic product manufacturing and delivery efficiency. Net margin (the 'bottom line') measures the percentage of revenue remaining after deducting ALL operating expenses, executive salaries, office rent, marketing costs, loan interest, and corporate income taxes.
Tangible assets are physical, measurable economic resources owned by a business—such as real estate, manufacturing machinery, fleet vehicles, and inventory. Intangible assets lack physical substance but hold significant economic value—such as patented technology, brand trademarks, proprietary software algorithms, copyrights, and corporate goodwill.
A bilateral contract is an agreement formed by an exchange of mutual promises where both parties obligate themselves to future performance (a 'promise for a promise'), such as an employment agreement or real estate purchase. A unilateral contract involves only one party making a legal promise in exchange for the actual physical performance of an act by another party (a 'promise for an act'), such as offering a public lost dog reward.
In financial and legal agreements, a debtor (or borrower) is the individual, business, or sovereign entity that has borrowed capital or incurred an obligation, owing money to another party. A creditor (or lender) is the individual, commercial bank, or bondholder that extended credit, provided goods on invoice terms, or loaned money, possessing the legal right to collect repayment with interest.
Revolving credit provides an open credit line (such as a credit card or HELOC) with a preset limit that borrowers can draw from, repay, and draw from again repeatedly, paying interest only on the actively borrowed balance. An installment loan disburses a single lump sum of capital upfront (such as a 30-year fixed mortgage, car loan, or student loan) that is repaid through a fixed schedule of equal monthly installments over a set amortization term.
Wholesale is a Business-to-Business (B2B) model where goods are purchased in large bulk quantities directly from manufacturers at deeply discounted unit prices and resold in batch shipments to commercial businesses, institutions, or retail stores. Retail is a Business-to-Consumer (B2C) model where individual products are sold directly to the final end-consumer at a substantial retail markup in small quantities.
An operating lease is a rental agreement that grants temporary operational use of an asset (like office space or delivery vans) without transferring ownership, treated as regular operational rental expense. A capital lease (classified as a finance lease under modern ASC 842 / IFRS 16) is economically equivalent to purchasing the asset with a loan, transferring substantially all ownership benefits, risks, and asset depreciation onto the lessee's balance sheet.
A monopoly is an imperfect market structure where a single dominant firm produces 100% of the industry's supply with zero close substitutes, exercising unilateral price-setting power and protected by insurmountable barriers to entry. An oligopoly is a market structure dominated by a small handful of large, interdependent firms (typically 2 to 5 corporations) that engage in strategic game-theory competition, non-price differentiation, or informal collusion.
Cash accounting records revenue and expenses only when physical money actually enters or leaves the corporate bank account, offering simple bookkeeping ideal for sole proprietors and micro-businesses. Accrual accounting recognizes revenue when earned and expenses when incurred (the matching principle), regardless of when cash changes hands, mandated by GAAP and IFRS for public corporations to provide an accurate picture of financial health.
A stock split divides existing corporate shares by a predetermined ratio (e.g. 2-for-1 or 3-for-1) to lower the per-share trading price and boost retail liquidity without altering corporate retained earnings or balance sheet equity. A stock dividend issues additional newly minted shares to shareholders (typically under 20-25%), requiring an internal accounting journal entry that transfers dollar value from Retained Earnings into Paid-in Capital.
Operating income (Earnings Before Interest and Taxes, or EBIT) measures the profit a company generates strictly from its core day-to-day business operations, deducting only COGS and operating expenses (SG&A, R&D, depreciation). Net income is the final 'bottom line' profit after deducting ALL corporate expenses, including capital debt interest payments, non-operating investments, and corporate income taxes.
Common stock represents true equity ownership in a corporation, providing shareholders with voting rights in board elections and unlimited capital appreciation upside, but occupies the most junior priority in corporate bankruptcy liquidation. Preferred stock functions as a hybrid equity-debt security that typically lacks voting rights, but pays guaranteed fixed dividend yields and holds senior liquidation priority over common shareholders.