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# Glossary

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### Glossary

2. 2. Average Annual Return The expected annual return on an investment, including interest and dividends, expressed as a percentage.Average Cost A method of inventory valuation whereby the total cost of all units bought or produced is divided by the number of units.Bad Debt Expense Losses for uncollectible accounts receivable.Balance Sheet A financial statement that lists the assets, liabilities, and equity of a company at a certain point in time.Benefits The total amount of indirect compensation that the business will provide to employees for each forecast year. Benefits are either statutory, such as payroll taxes and workers compensation; or discretionary, such as health insurance, life insurance, and 401(K) plans.Book Value The value of an asset for accounting purposes. For assets where depreciation is taken or reserves booked, this is often expressed as a net book value. The book value of a company is the excess of assets over liabilities, which is equivalent to total owners equity.Breakeven Analysis An analysis tool that models how revenue, expenses, and profit vary with changes in sales volume. Breakeven analysis estimates the sales volume needed to cover fixed and variable expenses.Breakeven Point The sales level at which revenues equal expenses (fixed and variable).Budgeting The process of determining and recording the expected financial results of a future period, generally the next fiscal year. In some organizations budgeting is limited to financial items that are shown on the income statement, while in others the budgeting process produces the three major statements (Income Statement, Balance Sheet, and Cash Flow Statement). After the target time period begins, the budgeting process frequently includes tracking actual financial figures against the forecast as well. There is considerable overlap between the activities of budgeting and forecasting. Budgeting usually involves a more detailed account structure and a finer time scale than forecasting, which typically covers between three and seven years of higher-level projections.Capital Lease A long-term lease of property, plant, or equipment in which the lessee acquires essentially all the risks and benefits associated with the ownership of the leased item. Because it most closely resembles the financing of an asset purchase, a capital lease is treated as a long-term debt rather than as a rental.Cash & Equivalents Cash plus investments of very high liquidity and safety, such as money market funds and treasury bills. See also minimum cash balance.