IT Financials Glossary

*** INDEX of entries ***

This glossary is an extract from the book “An Introduction to IT PROJECT FINANCIALS – Budgeting, Cost Management and Chargebacks” (copyright Michael Gentle).

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ABC (Activity-Based Costing): a method for assigning costs to products and services based on the activities required to produce them. More …

Accruals: enable revenue or expenses to be recognized before payment occurs. More …

Actuals: short for actual costs incurred, as opposed to planned or budgeted costs. More …

Amortization: the technical term for the depreciation of non-material or intangible assets like patents, trademarks or brands. More …

Asset: tangible or intangible things that are directly or indirectly able to generate revenue over several years, thus allowing a company to produce goods or services. More …

Balance sheet: A snapshot of a company’s value at a specific point in time. It contains two parts, assets (cash, accounts receivable, equipment…) and liabilities (accounts payable and other debt). More …

Bottom line: the last line of the P&L or Income Statement, which represents net income – ie, sales minus total costs. More …

Capex: see Costs.

Capital costs: see Costs.

Cashflow: the difference between income and expenses. Even if revenue and profits are up, what ultimately counts in the short term is a positive cashflow – ie, money in the bank – to pay employee salaries and vendor invoices. More …

Cash out: the sum of capex and opex. More …

Commitments : the amount owed to a vendor once a product or a service has been delivered but the invoice has not yet been paid. More …

Costs: Costs can be categorized in different ways. More …

Depreciation: the reduction in value of an asset over its useful life (usually several years) through usage or obsolescence. More …

Direct costs: see Costs.

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. This represents the first part of the P&L (Profit & Loss) or Income Statement. More …

Equity: the difference between assets and liabilities. Equity can be owner’s equity or shareholder’s equity. Also known as net worth. More …

Expenses: Operating expenses or opex. Sometimes used as a verb, as in “expensed”. More …

Financial accounting system: see General accounting system.

Financial year (FY): the annual 12-month period over which a company does business, which may or may not coincide with the calendar year of January to December. More …

Fiscal period: see Financial Year.

Fiscal year: see Financial Year.

Fixed assets: see Assets.

Fixed costs: see Costs.

Forecast: actuals plus estimated remaining costs. The forecast is in essence a revised budget, based on better visibility on what’s really happening and is likely to happen next. More …

GAAP (Generally Accepted Accounting Principles): the rules and guidelines for financial accounting, used mainly in the US. More …

General Accounting System (GAS): the company’s official system of record from a legal and regulatory perspective. More …

General ledger (GL): see General accounting system.

IFRS (International Financial Reporting Standards): see GAAP. More …

Income statement: a company financial statement that shows the difference between revenue and costs – in other words, income. Also known as the P&L. More …

Indirect costs: see Costs.

Liabilities: a company’s obligations to its creditors. More …

Management Accounting System (MAS): a parallel accounting system that augments the general accounting system. It manages costs and revenue based on management criteria like projects, applications or customers. More …

NPV (Net Present Value): The present value (discounted at the required rate of return) of an investment’s future cashflows minus the initial investment. More …

Operational costs: see Costs.

Opex: see Costs.

P&L (Profit and Loss): see Income Statement.

Portfolio Management: an investment method that spreads investments across a number of well-defined categories based on a combination of business objectives, expected return and risk. More …

Purchase order (PO): an official request to a vendor to provide goods or services at agreed conditions (price, quantity, delivery dates and payment terms). More …

Purchase requisition: a request to raise a purchase order (PO) as part of an approval process. An approved purchase requisition normally contains all of the information necessary to raise the PO. More …

Receiving: the accounting process whereby the goods or services associated with a PO are recorded as having been delivered. More …

Recognition: the financial term used to signify that an income or an expense is “real” from an accounting perspective. More …

Rolling forecast: see Forecast.

Sunk costs: previously incurred costs that are unrecoverable. Usually associated with writing off an investment. More …

TCO (Total Cost of Ownership): total lifetime costs, from “cradle to grave”, comprising both acquisition costs and ongoing operational costs. More …

Time entry: a method of capturing the time people spend on tasks or activities, which can be translated into costs and then assigned to projects, applications and services. More …

Top line: the first line of the P&L or Income Statement, which is sales or revenue. More …

Variable costs: see Costs.

Write off: to reduce the value of an asset to zero by charging it to expense or loss, resulting in the asset being removed from the books. More …

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