Business Finance Terms, Eexplained Simply.
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What is a Working Capital Adjustment?
A working capital adjustment is the mechanism in a transaction that ensures the buyer receives a business with a normal,....
What is a Vendor Take-Back (VTB)?
A vendor take-back is a seller-financed loan where the selling owner lends a portion of the purchase price back to....
What is the Difference Between a Strategic Buyer and a Financial Buyer?
A strategic buyer acquires a business for what it adds to their existing operation; a financial buyer acquires it as....
What is Sell-Side Readiness?
Sell-side readiness is the state of being genuinely prepared to run a sale process, with the financial, legal, operational, and....
What are Representations and Warranties?
Representations and warranties are the seller’s formal statements in a purchase and sale agreement about the accuracy and completeness of....
What is the Difference Between the Real Number and the Tax Number?
The real number is what a business actually earns under normal operating conditions; the tax number is the lower figure....
What is Quality of Earnings Readiness?
Quality of earnings readiness is the state of being prepared for a buyer’s QoE review, with financial records, accounting policies,....
What is a Quality of Earnings (QoE) Report?
A Quality of Earnings report is an independent financial analysis that examines the reliability, sustainability, and accuracy of a business’s....
What is Purchase Price Allocation?
Purchase price allocation is the process of assigning the total transaction price across the specific assets and liabilities acquired, a....
What is a Purchase and Sale Agreement (PSA)?
A purchase and sale agreement is the definitive legal contract that governs a business transaction, setting out every binding term,....
What is Pre-Sale Due Diligence?
Pre-sale due diligence is the process of reviewing a business before a buyer does, to identify and resolve the issues....
What is Normalized, Adjusted, or Recast EBITDA?
Normalized EBITDA is reported EBITDA adjusted to remove owner-specific costs, non-recurring items, and other distortions, producing the earnings figure that....
What is Non-Solicitation and Non-Compete Clauses?
A non-compete clause prevents the seller from starting or joining a competing business for a defined period after closing; a....
What is Management Continuity?
Management continuity is the assurance a buyer seeks that the key people running the business will remain in their roles....
What is a Letter of Intent (LOI)?
A letter of intent is a non-binding document that outlines the key terms a buyer proposes for acquiring a business,....
What is an Information Memorandum (CIM)?
An information memorandum, also called a confidential information memorandum or CIM, is the formal document prepared by the seller to....
What are Indemnities?
Indemnities are contractual obligations in a purchase and sale agreement that require the seller to compensate the buyer for specific....
What is an Exclusivity Clause?
An exclusivity clause is a provision in a letter of intent that prevents the seller from soliciting or entertaining offers....
What is Equity Rollover?
An equity rollover is an arrangement where the selling owner reinvests a portion of the sale proceeds into the acquiring....
What is an Earnout?
An earnout is a deal structure where a portion of the purchase price is contingent on the business achieving defined....
What is due diligence?
Due diligence is the formal investigation a buyer conducts into a business before completing a transaction, verifying that what was....
What are Drag-Along and Tag-Along rights?
Drag-along rights allow a majority shareholder to compel minority shareholders to join a sale on the same terms; tag-along rights....
What is a Deadlock Clause?
A deadlock clause is a provision in a shareholders agreement that provides a defined mechanism for resolving disputes between equal....
What is Deal Structure?
Deal structure is the combination of price, payment terms, form of consideration, and post-closing obligations that together define what the....
What is a Data Room?
A data room is the secure, organized repository of documents and information made available to buyers and their advisors during....
What is a Confidentiality Agreement (NDA)?
A confidentiality agreement, also called a non-disclosure agreement or NDA, is a binding contract that prevents a prospective buyer from....
What is the Difference Between Closing and Post-Closing Adjustments?
Closing adjustments finalize the purchase price at completion based on the actual financial position delivered; post-closing adjustments settle any remaining....
What is Closing and Completion?
Closing is the moment a transaction legally completes, when funds are transferred, documents are executed, and ownership of the business....
What are Clean Financials?
Clean financials are financial statements that are accurate, consistently prepared, free of personal or non-business expenses, and presented in a....
What is the Difference Between an Asset Sale and a Share Sale?
In an asset sale, the buyer purchases specific assets and liabilities of the business; in a share sale, they purchase....
What is the Value Acceleration Methodology?
The Value Acceleration Methodology is the Exit Planning Institute’s structured framework for building business value deliberately over time, aligning the....
What is Transferable Value?
Transferable value is the portion of enterprise value that would survive if the owner stepped away, the share of what....
What is Transferability?
Transferability is the degree to which a business can operate, perform, and retain its value after ownership changes, independently of....
What is the Three Legs of the Stool?
The Three Legs of the Stool is the Exit Planning Institute’s framework for a successful exit, representing business readiness, financial....
What is Systems and Process Documentation?
Systems and process documentation is the written, organized record of how a business operates, the step-by-step processes, decision frameworks, and....
What is Structural Capital?
Structural capital is one of the four intangible capitals in the Value Acceleration framework, measuring the systems, processes, and institutional....
What is Social Capital?
Social capital is one of the four intangible capitals in the Value Acceleration framework, measuring the strength of a business’s....
What is Scalability?
Scalability is the ability of a business to grow revenue without a proportional increase in costs or owner involvement, the....
What is Revenue Diversification?
Revenue diversification is the distribution of a business’s income across multiple customers, products, services, and channels, reducing dependence on any....
What is Recurring Revenue?
Recurring revenue is income that renews predictably, through subscriptions, retainers, maintenance agreements, or contracts, without requiring the business to re-earn....
What is a Readiness Score?
A readiness score is a structured, quantified assessment of how prepared a business is for an ownership transition, across the....
What is the Range of Value?
The range of value is the spread between the floor and ceiling of what a business is realistically worth, reflecting....
What is the Profit Gap?
The profit gap is the difference between what a business currently earns and what it would need to earn to....
What is the owner’s Real Number?
The owner’s real number is the specific after-tax amount needed from a business exit to achieve financial independence, the personal....
What is Owner Dependence?
Owner dependence is the degree to which a business’s performance, relationships, and operations rely on the owner personally, the single....
What is Management Depth?
Management depth is the strength and capability of the leadership layer below the owner, the team that can run the....
What is Key Person Risk?
Key person risk is the degree to which a business’s performance depends on one or two individuals, and the discount....
What is Intangible Capital (the 4Cs)?
Intangible capital is the collective term for the four non-financial value drivers, human, structural, social, and customer capital, that determine....
What is Human Capital?
Human capital is one of the four intangible capitals in the Value Acceleration framework, measuring the quality, depth, and independence....
What is Growth Potential?
Growth potential is a buyer’s assessment of how credibly and sustainably a business can grow beyond its current performance, and....
What is Enterprise Value?
Enterprise value is the total value of a business as a going concern, what a buyer pays for the entire....
What is an EBITDA Multiple?
An EBITDA multiple is the number by which a buyer multiplies normalized EBITDA to arrive at enterprise value, the single....
What is Customer Retention?
Customer retention is the rate at which a business keeps its existing customers over time, one of the clearest indicators....
What is Customer Concentration Risk?
Customer concentration risk is when too much revenue depends on too few customers, a structural vulnerability that reduces enterprise value....
What is Customer Capital?
Customer capital is one of the four intangible capitals in the Value Acceleration framework, measuring the strength, diversity, and loyalty....
What is Competitive Differentiation?
Competitive differentiation is what makes a business the only logical choice for a specific type of customer, the combination of....
What is Business Valuation?
Business valuation is the process of determining what a business is worth, and for most incorporated Canadian owners, the answer....
What is Business Attractiveness?
Business attractiveness is how compelling a business looks to a buyer before they have examined the details, the combination of....
What is Wealth Preservation?
Wealth preservation is the discipline of protecting assets accumulated through a business exit from erosion by tax, poor investment decisions,....
What is the Wealth Gap?
The wealth gap is the difference between what a business and personal assets are worth today and the amount needed....
What is Transition Planning?
Transition planning is the operational roadmap for handing over leadership, relationships, and institutional knowledge from the departing owner to whoever....
What are Succession Options?
Succession options are the specific paths available for transferring ownership of a business, to family, management, employees, or a third-party....
What is a Shareholders Agreement?
A shareholders agreement is a binding contract between the owners of a private corporation that governs their rights, obligations, and....
What is Risk Tolerance?
Risk tolerance in an exit planning context is the degree to which a business owner is willing to accept uncertainty,....
What is Retirement Planning for Business Owners?
Retirement planning for business owners is the process of building the personal financial resources needed to sustain the owner’s lifestyle....
What is Post-Exit Planning?
Post-exit planning is the preparation for life after the business, covering personal financial management, wealth deployment, identity, purpose, and legacy....
What is Phantom Equity?
Phantom equity is a compensation arrangement that gives key employees the economic benefit of ownership, a share of business value....
What is a Personal Financial Plan?
A personal financial plan is the comprehensive blueprint for how wealth, including business exit proceeds, will be invested, managed, and....
What is Owner Readiness?
Owner readiness is the personal and psychological dimension of exit preparedness, whether the owner is genuinely ready to let go....
What is a Management Buyout (MBO)?
A management buyout is a transaction in which the existing management team purchases the business from its current owner, typically....
What is a Liquidity Event?
A liquidity event is any transaction that converts illiquid ownership in a private business into cash or marketable assets, a....
What is Legacy Planning?
Legacy planning is the process of defining what a business, its wealth, and its impact will represent after the owner....
What is Leadership Succession?
Leadership succession is the planned development and appointment of the individuals who will run the business after the current owner....
What is Key Person Insurance?
Key person insurance is a life or disability policy owned by the corporation on a key individual whose loss would....
What is an Income Replacement Strategy?
An income replacement strategy is the plan for how income, dividends, and financial benefits provided by a business will be....
What is Harvesting?
Harvesting is the phase of the Value Acceleration Methodology in which the owner converts built business value into personal wealth,....
What is the Freedom Point?
The freedom point is the specific financial threshold at which a business owner has accumulated enough wealth to be financially....
What is Financial Readiness?
Financial readiness is the personal financial dimension of exit preparedness, specifically, whether the proceeds from a business exit will be....
What is an Exit Timeline?
An exit timeline is the planned schedule for completing an ownership transition, the horizon that determines how much time is....
What is an Exit Strategy?
An exit strategy is the specific plan for how, when, to whom, and under what terms ownership of a business....
What is Exit Readiness?
Exit readiness is an assessment of how prepared a business is to successfully complete an ownership transition, across the business,....
What is Exit Planning?
Exit planning is the process of deliberately preparing a business, its finances, and its owner for an ownership transition, so....
What are Exit Options?
Exit options are the range of paths available to a business owner to transition ownership, each with different financial outcomes,....
What is an Employee Share Ownership Plan (ESOP)?
An ESOP is a structured program that transfers ownership of a business to its employees, providing the owner with an....
What is De-Risking?
De-risking is the deliberate reduction of the factors that make a business vulnerable, to ownership transition, revenue disruption, key person....
What is Corporate-Owned Life Insurance?
Corporate-owned life insurance is a policy held and paid for by a corporation, used to fund buy-sell agreements, protect against....
What is a CEPA (Certified Exit Planning Advisor)?
A CEPA is a professional designation awarded by the Exit Planning Institute to advisors who have completed rigorous training in....
What is a Buy-Sell Agreement?
A buy-sell agreement is a legally binding contract between co-owners that governs what happens to a shareholder’s interest if they....
What is Business Succession Planning?
Business succession planning is the process of identifying who will lead and own a business after the current owner, and....
What is Business Readiness?
Business readiness is the degree to which a company can operate, perform, and sustain its value through an ownership transition,....
What is Attractiveness vs Readiness?
Attractiveness measures how appealing a business is to buyers based on performance and growth potential; readiness measures how prepared it....
What is Working Capital Optimization?
Working capital optimization is the active management of receivables, payables, and inventory to reduce the cash tied up in the....
What is Profitability Improvement?
Profitability improvement is the deliberate process of increasing the percentage of revenue that converts to profit, through pricing discipline, cost....
What is a Virtual Controller?
A virtual controller is a remote finance professional who oversees the accuracy, completeness, and integrity of a business’s accounting operations,....
What is a Virtual CFO?
A virtual CFO is an outsourced senior finance professional who delivers CFO-level services remotely, typically through structured, tiered service packages,....
What is Variance Analysis?
Variance analysis is the comparison of actual financial results against budget, forecast, or prior periods, explaining the differences and identifying....
What is Sensitivity Analysis?
Sensitivity analysis tests how financial outcomes change when a single assumption is varied, isolating the variables that have the most....
What is Scenario Planning?
Scenario planning models how a business performs under different sets of assumptions, giving a financial view of multiple possible futures....
What is Runway?
Runway is how long a business can continue operating at its current burn rate before its cash is exhausted, measured....
What is a Rolling 13-Week Cash Flow Forecast?
A rolling 13-week cash flow forecast projects cash receipts and payments week by week over the next quarter, updated continuously....
What is Outsourced Accounting?
Outsourced accounting is the delegation of some or all of a business’s accounting function to an external firm, typically delivered....
What are Objectives and Key Results (OKRs)?
OKRs are a goal-setting framework that pairs a qualitative objective, what is to be achieved, with specific, measurable key results....
What is Multi-Entity Accounting?
Multi-entity accounting is the management of financial records across multiple related corporations, ensuring each entity’s books are accurate, intercompany transactions....
What is a Margin Profile?
A margin profile is the full picture of profitability across different dimensions of a business, by product, service line, customer,....
What is Margin Expansion?
Margin expansion is the improvement in profitability as a percentage of revenue over time, achieved through pricing power, operational efficiency,....
What are Management Accounts?
Management accounts are regular internal financial reports prepared for the business owner and leadership team, designed to support decisions rather....
What is Liquidity Planning?
Liquidity planning is the forward-looking management of a business’s ability to meet financial obligations as they fall due, ensuring that....
What is a KPI Dashboard?
A KPI dashboard is a visual display of the most critical business metrics in a single view, designed so the....
What is a Key Performance Indicator (KPI)?
A KPI is a specific, measurable metric that reflects how well a critical aspect of a business is performing, chosen....
What are Intercompany Transactions?
Intercompany transactions are financial dealings between two or more entities under common ownership, including management fees, loans, shared services, and....
What is Financial Planning and Analysis (FP&A)?
FP&A is the finance function responsible for budgeting, forecasting, performance analysis, and the financial modelling that supports strategic decisions, the....
What is Free Cash Flow?
Free cash flow is operating cash flow after capital expenditures, the cash the business actually generates that is available for....
What is a Fractional CFO?
A fractional CFO is a senior finance executive engaged on a part-time or defined-scope basis, providing CFO-level leadership on an....
What is the difference between a Forecast and a Projection?
A forecast estimates future financial results based on what is most likely to happen; a projection models what would happen....
What is the difference between Fixed and Variable Costs?
Fixed costs remain constant regardless of how much a business produces or sells; variable costs rise and fall directly with....
What is a Financial Model?
A financial model is a structured, dynamic representation of a business’s finances, built to project performance under different assumptions and....
What is Financial Due Diligence?
Financial due diligence is the structured investigation of a business’s financial records, performance, and obligations undertaken by a buyer, investor,....
What is Cost Structure?
Cost structure is the composition of a business’s costs, fixed versus variable, direct versus indirect, and it determines how profitability....
What are Cash Reserves?
Cash reserves are the liquid funds held by a business beyond its immediate operating needs, a financial buffer against unexpected....
What is Cash Flow Management?
Cash flow management is the active discipline of controlling the timing and volume of cash moving through the business, ensuring....
What is a Cash Flow Forecast?
A cash flow forecast projects when cash will enter and leave the business over a future period, giving management a....
What is the Cash Conversion Cycle?
Cash conversion cycle measures how long it takes for a dollar invested in the business’s operations to return as collected....
What is Capital Planning?
Capital planning is the process of identifying, prioritising, and financing the significant investments a business needs to make in assets,....
What is Burn Rate?
Burn rate is the pace at which a business consumes cash, typically expressed as a monthly figure, and it determines....
What is Budgeting and Forecasting?
Budgeting sets the financial plan for the year ahead; forecasting updates that plan as the year unfolds, and together they....
What is Break-Even Analysis?
Break-even analysis identifies the exact level of revenue at which your business covers all its costs, the point where you....
What is Board and Investor Reporting?
Board and investor reporting is the structured financial and operational information provided to directors and investors on a regular basis,....
What is the Working Capital Ratio?
The working capital ratio, also called the current ratio, divides current assets by current liabilities to show whether the business....
What is a Working Capital Facility?
A working capital facility is a credit arrangement specifically structured to fund the short-term operational cycle of a business, bridging....
What is the difference between a Term Loan and Revolving Credit?
A term loan advances a fixed amount repaid on a set schedule; revolving credit provides a limit that can be....
What is Subordinated Debt?
Subordinated debt sits behind senior debt in the repayment hierarchy, meaning in a default or insolvency, senior lenders are repaid....
What is Solvency?
Solvency is the ability of a business to meet its financial obligations as they fall due, the threshold between a....
What is Security and Collateral?
Security is the legal claim a lender takes over specific assets to protect its position if the borrower defaults; collateral....
What is Refinancing?
Refinancing is replacing an existing loan with a new one, typically to access better terms, extend the repayment period, consolidate....
What is the Personal Property Security Act (PPSA)?
The PPSA is provincial legislation that governs how security interests in personal property, equipment, receivables, and inventory are created, registered,....
What is a Personal Guarantee?
A personal guarantee is a commitment by a business owner to repay a corporate debt personally if the business cannot,....
What is an Operating Line of Credit?
An operating line of credit is a revolving facility that allows a business to borrow up to a set limit,....
What is the difference between a Compilation, a Review, and an Audit?
These are three levels of accountant engagement for financial statements, each offering progressively more assurance to external users and required....
What is Mezzanine Financing?
Mezzanine financing sits between senior debt and equity in a company’s capital structure, offering more capital than a bank will....
What is Loan-to-Value (LTV)?
Loan-to-value is the ratio of a loan amount to the appraised value of the asset securing it, a primary measure....
What is the Interest Coverage Ratio?
The interest coverage ratio measures how many times operating earnings cover interest expense, a key indicator of whether the business....
What is Equipment Financing?
Equipment financing is a loan or lease structure specifically designed to fund the acquisition of business equipment, with the equipment....
What is EDC (Export Development Canada)?
EDC is a federal Crown corporation that helps Canadian businesses manage the risks of international trade and access financing for....
What is a Demand Loan?
A demand loan is a loan that the lender can require to be repaid in full at any time, with....
What is the Debt-to-Equity Ratio?
The debt-to-equity ratio compares what a business owes to what it owns net of liabilities, measuring how much of the....
What is the Debt Service Coverage Ratio (DSCR)?
The debt service coverage ratio measures whether a business generates enough operating income to cover its debt payments, and it....
What are Debt Covenants?
Debt covenants are the contractual conditions attached to a loan that the borrower must maintain throughout the lending relationship, and....
What is a Business Credit Score?
A business credit score is a numerical rating of a company’s creditworthiness based on its payment history, debt levels, and....
What is a Credit Facility?
A credit facility is a formal borrowing arrangement between a business and a lender that sets the maximum amount available,....
What is a Covenant Breach?
A covenant breach occurs when a borrower fails to meet a condition in a loan agreement, giving the lender the....
What is a Commercial Mortgage?
A commercial mortgage is a loan secured against commercial real estate, such as an office, warehouse, retail, or industrial property,....
What is Cash Flow Lending?
Cash flow lending is financing based on your business’s ability to generate enough cash flow to service debt, rather than....
What is the Canada Small Business Financing Program (CSBFP)?
The CSBFP is a federal government-backed loan program that helps small businesses access financing for equipment, leasehold improvements, and commercial....
What is Bridge Financing?
Bridge financing is short-term funding used to cover a defined gap between now and a known future event, such as....
What is the Business Development Bank of Canada (BDC)?
The BDC is a federal Crown corporation that provides financing, advisory services, and venture capital to Canadian businesses, with a....
What is Asset-Based Lending?
Asset-based lending is a form of business financing where the loan is structured around the value of specific assets, receivables,....
What is Accounts Receivable Financing?
Accounts receivable financing is a funding arrangement where a business borrows against or sells its outstanding invoices to access cash....
What are Financial Statements?
Financial statements are the three core reports, the income statement, balance sheet, and cash flow statement, that together give a....
What is Undepreciated Capital Cost (UCC)?
Undepreciated capital cost is the remaining tax value of a depreciable asset after CCA deductions have been claimed, the balance....
What is Tax Planning?
Tax planning is the proactive structuring of business and personal affairs to minimize tax owed within the law, the difference....
What is Tax on Split Income (TOSI)?
TOSI is a set of rules that applies the highest personal marginal tax rate to certain income received by family....
What is Tax Deferral?
Tax deferral is the strategy of delaying when tax becomes payable, allowing money to remain in a corporation or a....
What is a T2 Corporate Tax Return?
The T2 is the annual corporate income tax return that Canadian corporations must generally file with the CRA, regardless of....
What is the Small Business Deduction (SBD)?
The Small Business Deduction is a federal tax reduction that lowers the corporate tax rate on active business income for....
What is a Shareholder Loan?
A shareholder loan is money borrowed from or lent to a corporation, and the CRA monitors it closely to ensure....
What is a Section 85 rollover?
A Section 85 rollover is a provision of the Income Tax Act that allows eligible property to be transferred to....
What is Scientific Research and Experimental Development (SR&ED)?
SR&ED is the CRA’s tax incentive program that provides credits and deductions for eligible research and development expenditures, one of....
What is the difference between salary and dividends?
Salary is employment income paid to the owner-employee and is deductible to the corporation; dividends are distributions of after-tax corporate....
What is a Qualified Small Business Corporation (QSBC)?
A QSBC is a Canadian-Controlled Private Corporation that meets specific CRA tests at the time of a share sale, and....
What is a Prescribed Rate Loan?
A prescribed rate loan is a loan from a higher-income spouse or family member to a lower-income one at the....
What is a Personal Services Business?
A personal services business is a corporation the CRA treats as a disguised employment relationship, typically an incorporated contractor providing....
What is the difference between Permanent and Term Life Insurance?
Term life insurance provides coverage for a fixed period at a lower premium; permanent life insurance provides lifetime coverage and....
What is Passive Income?
Passive income is investment income earned inside a corporation, interest, rental income, and taxable capital gains, that does not qualify....
What is Owner Compensation Planning?
Owner compensation planning is the deliberate design of how income is extracted from a corporation, balancing salary, dividends, and other....
What is a Non-Arm’s Length Transaction?
A non-arm’s length transaction is a deal between related parties, family members, a shareholder and a corporation, or entities under....
What is the Lifetime Capital Gains Exemption (LCGE)?
The LCGE is a federal exemption that allows eligible Canadian business owners to shelter a significant portion of capital gains....
What are Instalment Penalties?
Instalment penalties are interest charges the CRA imposes when required tax instalments are paid late, short, or not at all,....
What is Income Splitting?
Income splitting is the practice of directing corporate income to family members in lower tax brackets to reduce the household’s....
What is HST/GST and how do Input Tax Credits work?
HST and GST are consumption taxes collected by businesses on behalf of the CRA; input tax credits allow recovery of....
What are Home Office Expenses?
Home office expenses are the portion of household costs, rent, utilities, internet, and maintenance, that an incorporated business owner can....
What is the difference between a HoldCo and an OpCo?
An OpCo is the operating company that runs a business; a HoldCo is a separate corporation that sits above it,....
What is Goodwill?
Goodwill is the value of a business above its identifiable assets, reflecting customer relationships, reputation, brand, and earning power that....
What is a Fiscal Year?
A fiscal year is the 12-month accounting period a corporation uses for financial reporting and tax purposes, and it does....
What is a Family Trust?
A family trust is a discretionary trust that holds assets, often shares of a private corporation, on behalf of family....
What is Estate Planning?
Estate planning is the process of structuring personal and corporate affairs so that wealth transfers to the right people, in....
What is an Estate Freeze?
An estate freeze locks in the current value of an owner’s assets and transfers future growth to the next generation....
What is the difference between Eligible and Non-Eligible Dividends?
Eligible dividends are paid from income taxed at the general corporate rate and receive a higher gross-up and personal tax....
What is a Dividend Refund?
A dividend refund returns a portion of the tax a private corporation paid on investment income when it pays taxable....
What is Depreciable Property?
Depreciable property is a business asset whose cost is written off over time through Capital Cost Allowance, because its useful....
What is a Deemed Dividend?
A deemed dividend is an amount the CRA treats as a dividend for tax purposes even though it was never....
What is a Corporate Reorganization?
A corporate reorganization is a restructuring of how a business is legally held or operated, changing the corporate structure, share....
What is a Canadian-Controlled Private Corporation (CCPC)?
A CCPC is a private corporation incorporated in Canada that is not controlled by non-residents or public corporations, and the....
What is Capital Property?
Capital property is any asset held for investment or long-term use whose disposal produces a capital gain or loss rather....
What is the Capital Dividend Account (CDA)?
The Capital Dividend Account is a notional CRA ledger that tracks amounts a private corporation can distribute to Canadian shareholders....
What is Capital Cost Allowance (CCA)?
Capital Cost Allowance is the CRA’s system for deducting the cost of business assets over time, the tax equivalent of....
What is an Arm’s Length Transaction?
An arm’s length transaction is a deal between unrelated parties acting independently in their own interests, the standard the CRA....
What is Adjusted Cost Base (ACB)?
Adjusted cost base is the CRA’s measure of what was paid for a capital property, including acquisition costs and improvements,....
What is Working Capital Management?
Working capital management is the active discipline of managing the timing of cash coming in and going out, to ensure....
What is Working Capital?
Working capital is current assets minus current liabilities, the net short-term financial resources a business has available to fund its....
What is Work in Progress (WIP)?
Work in progress is the value of work that has been started but not yet completed or billed, a balance....
What is Trust Accounting?
Trust accounting is the strict segregation and tracking of client funds held in trust, a legal and regulatory requirement for....
What is Revenue Recognition?
Revenue recognition is the accounting principle that determines when a sale is officially recorded, not when the invoice is sent....
What does Retained Earnings vs Cash mean?
Retained earnings is the cumulative profit kept in the business since incorporation; cash is what is actually in the bank,....
What is Profitability Analysis?
Profitability analysis examines where a business actually makes money, by product, service, customer, or channel, rather than simply confirming that....
What is the difference between Profit and Cash Flow?
Profit is an accounting measure of what was earned after expenses; cash flow is what actually moved through the bank....
What is Percentage of Completion Accounting?
Percentage of completion is a revenue recognition method that records revenue and costs as a long-term project is completed over....
What is Payroll?
Payroll is the process of calculating, remitting, and reporting employee compensation and the associated statutory deductions, CPP, EI, and income....
What is Owner’s Equity?
Owner’s equity is what remains on the balance sheet after all liabilities are subtracted from all assets, the accumulated financial....
What is the difference between Operating and Capital Expenses?
Operating expenses are recurring costs deducted in the year they are incurred; capital expenses are investments in long-term assets that....
What are Non-Cash Expenses?
Non-cash expenses reduce reported profit on the income statement without any cash leaving the business, with depreciation and amortization being....
What is Month-End Close?
Month-end close is the process of finalizing all financial records after each period ends: posting transactions, reconciling accounts, recording accruals,....
What is the difference between Markup and Margin?
Markup is the percentage added to cost to set a price; margin is the percentage of that price that is....
What is Job Costing?
Job costing tracks every cost associated with a specific project or engagement so it is clear how profitable each piece....
What is an Income Statement?
The income statement shows revenue, costs, and expenses over a specific period and produces a net profit or loss figure....
What is Holdback?
A holdback is a portion of each progress payment withheld by the client until a defined period after project completion,....
What is the difference between Gross and Net Profit?
Gross profit is revenue minus the cost of delivering a product or service; net profit is what remains after all....
What is Grant Accounting?
Grant accounting is the discipline of tracking, recording, and reporting on each grant separately to prove the money was spent....
What is Fund Accounting?
Fund accounting tracks resources in separate, purpose-restricted pools to demonstrate that money was used as intended, the standard approach for....
What is Active Business Income?
Active business income is the profit a corporation earns from actually running a business, and it is the income that....
What are Financial Statements?
Accounts receivable financing is a funding arrangement where a business borrows against or sells its outstanding invoices to access cash....
What is Financial Reporting?
Financial reporting is the regular production of structured financial information for the people who need it: owners or management making....
What is a Financial Dashboard?
A financial dashboard is a curated, visual summary of the most important business metrics, designed to show what is on....
What is EBITDA?
EBITDA is earnings before interest, taxes, depreciation, and amortization, the most widely used proxy for a business’s operating performance in....
What is the difference between Direct and Indirect Costs?
Direct costs are tied specifically to delivering a product or service; indirect costs support the business overall and cannot be....
What is Department-Level Reporting?
Department-level reporting breaks financial performance down by team, function, or business unit, showing not just whether the business made money,....
What is Deferred Revenue?
Deferred revenue is cash received from a customer for work not yet delivered, a liability on the balance sheet until....
What is Contribution Margin?
Contribution margin is what remains from revenue after variable costs, the portion of each dollar of sales that contributes to....
What are Consolidated Financial Statements?
Consolidated financial statements combine the results of a parent company and its subsidiaries into a single set of reports, eliminating....
What is a Chart of Accounts?
A chart of accounts is the structured classification system that organizes every transaction a business records and determines whether financial....
What is Catch-Up Bookkeeping?
Catch-up bookkeeping is the process of reconstructing and bringing financial records fully up to date after they have fallen significantly....
What is the difference between Cash and Accrual Accounting?
Cash accounting records transactions when money changes hands; accrual accounting records them when they are earned or incurred, and the....
What is a Cash Flow Statement?
The cash flow statement tracks how cash actually moved in and out of a business during a period and explains....
What is Bookkeeping?
Bookkeeping is the disciplined, ongoing recording of every financial transaction in a business. It is the foundation that accurate reporting,....
What is a Balance Sheet?
The balance sheet is the financial statement that shows what a business owns, what it owes, and what is left....
What is Accounts Receivable?
Accounts receivable is the total customers owe for work already completed or products already delivered. Essentially, it is revenue earned....
What is Accounts Payable?
Accounts payable is the total a business currently owes to suppliers and vendors for goods or services already received but....
What are Accounting Standards for Private Enterprises (ASPE)?
ASPE is the CRA-recognized accounting framework that governs how private Canadian corporations measure, record, and present their financial results. Every....
What is Accounting?
Accounting transforms raw financial records into the information that runs a business: performance, position, and trends that bookkeeping alone cannot....