Terminology



Every subject or industry has its own jargon. However, here are some words that you need to know to talk with people beyond subjects or industries’ boundary where money is involved, such as revenue, profit, expense and so on. Yes, These terms are accounting language and basically required to be known. Because, these terms are related with money. Let’s start few keywords(Please do not misunderstand, this site is not accounting or financial site at all).


*Precondition : Terms are interpreted as we are company itself for better understanding.


Assets : Things belong to you(Not yours(Liabilities) + Yours(Capital))


Liabilities : Not yours(belongs to others but you have had for a while for some reasons)


Capital(Owner’s equity) : Assets – Liabilities


Income : money received, especially on a regular basis, for work or through investments. (Not only for money but time too. If you save time, it becomes income as well)


Expenses : Whatever action or things that required to be done or spent for Income, there are two kinds of costs, fixed cost and variable cost.

Fixed Cost : Can’t be managed
Variable Cost : Can be managed


1) His $10 was spent for flour, eggs as fixed cost which was supposed to be spent as raw materials.


2) $10 for Labor power (Variable Cost). ← Important factor


3) A hunk of bread was made as COMMODITY that would be sold by a client.


4) Gross profit $30 was made when it was sold.


Let’s assume that he sold a bunch of bread for $30. How much his total income it would be? $30 Yes. But, actual his net income is $10 as $20 out of $30 was already taken as Expenses (Fixed cost and Constant cost)


All around in this world, any company uses this formula to calculate its own Net-Income.
Net-Income($10) = Gross Profit($30) – Total Expenses($20)


Here is a question. If the baker wants to make more money(increase net income), what he can do ? Yes, Rising offer price or reduce total expenses. But, the first one(rising offer price) is not the smart solution and can’t be done easily. There is only one way to make more money is making Total Expenses cuts down.(You will see the reason why via case study)
Net-Income($20) = Gross Profit($30) – Total Expenses($10) - Correct
Note : Above study case is just for helping understand of the terminology, For example, Labor expense could be interpreted as fixed cost or sometimes can be variable cost, it depends on company’s profit structure.


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