Some Basic Financial Terms

Basic Financial Terms explained simply

Finance is used in daily life. When we go out to buy Grocery we are making a transaction which is a financial transaction. Getting paid for the service we render or the product we sell is also a financial transaction. My endeavor will be to start with understanding some basic financial terms.

  • Financial Transaction – We do many transactions in our life, and most of them involve money. The transaction which involves direct or indirect exchange of money is called financial transaction.
  • Bottom Line – The net income is called bottom line in finance. Do not get confused by the terminology. I will be using this term very much in the coming posts. It simply means profit.
  • Costs (Fixed and variable) – Every thing has a value attached to it. When this value is expressed in terms of money it is called cost. In business costs can be fixed( For one time) and variable (continuous). You can look at this example from Canadian electricity association to understand them.
  • Equity and Debt – Equity means the money from investors. The investors will have share in the profit or loss. Debt is loan from individuals or financial institutions which carry a fixed interest.
  • Resources – The things used to produce product or provide services. They are commonly known as land, labor and capital.

This was a brief on some very basic terms used in finance. We will continue with some more basic understanding about finance before plunging into serious stuff. Do not worry I will make it all simple.


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