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    Accounting Terms

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    alostguy1
    This document defines 42 accounting terms related to financial statements, including balance sheets, income statements, and general ledger terms. Key terms include accounts payable, accounts receivable, accrued expenses, assets, liabilities, equity, revenue, expenses, net income, and generally accepted accounting principles. The document provides brief definitions of each term in 1-2 sentences.

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    Accounting Terms

    Uploaded by

    alostguy1
    219 views5 pages
    This document defines 42 accounting terms related to financial statements, including balance sheets, income statements, and general ledger terms. Key terms include accounts payable, accounts receivable, accrued expenses, assets, liabilities, equity, revenue, expenses, net income, and generally accepted accounting principles. The document provides brief definitions of each term in 1-2 sentences.

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    This document defines 42 accounting terms related to financial statements, including balance sheets, income statements, and general ledger terms. Key terms include accounts payable, accounts receivable, accrued expenses, assets, liabilities, equity, revenue, expenses, net income, and generally accepted accounting principles. The document provides brief definitions of each term in 1-2 sentences.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    219 views5 pages

    Accounting Terms

    Uploaded by

    alostguy1
    This document defines 42 accounting terms related to financial statements, including balance sheets, income statements, and general ledger terms. Key terms include accounts payable, accounts receivable, accrued expenses, assets, liabilities, equity, revenue, expenses, net income, and generally accepted accounting principles. The document provides brief definitions of each term in 1-2 sentences.

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    © All Rights Reserved
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    Accounting Terms

    1. Accounts Payable (AP)


    Accounts Payable include all of the expenses that a business has incurred but has not yet
    paid. This account is recorded as a liability on the Balance Sheet as it is a debt owed by the
    company.

    2. Accounts Receivable (AR)


    Accounts Receivable include all of the revenue (sales) that a company has provided but has
    not yet collected payment on. This account is on the Balance Sheet, recorded as an asset that
    will likely convert to cash in the short-term.

    3. Accrued Expense
    An expense that been incurred but hasn’t been paid is described by the term Accrued
    Expense.

    4. Asset (A)
    Anything the company owns that has monetary value. These are listed in order of liquidity,
    from cash (the most liquid) to land (least liquid).

    5. Balance Sheet (BS)


    A financial statement that reports on all of a company’s assets, liabilities, and equity. As
    suggested by its name, a balance sheet abides by the equation <Assets = Liabilities +
    Equity>.

    6. Book Value (BV)


    As an asset is depreciated, it loses value. The Book Value shows the original value of an
    Asset, less any accumulated Depreciation.

    7. Equity (E)
    Equity denotes the value left over after liabilities have been removed. Recall the equation
    Assets = Liabilities + Equity. If you take your Assets and subtract your Liabilities, you are
    left with Equity, which is the portion of the company that is owned by the investors and
    owners.

    8. Inventory
    Inventory is the term used to classify the assets that a company has purchased to sell to its
    customers that remain unsold. As these items are sold to customers, the inventory account
    will lower.

    9. Liability (L)
    All debts that a company has yet to pay are referred to as Liabilities. Common liabilities
    include Accounts Payable, Payroll, and Loans.

    Income Statement Terms


    The Income Statement AKA Profit and Loss Statement is the second of the two common
    financial statements. These are the terms that are most commonly used in reference with this
    reporting tool.
    10. Cost of Goods Sold (COGS)
    Cost of Goods Sold are the expenses that directly relate to the creation of a product or
    service. Not included in this category are those costs that are needed to run the business. An
    example of COGS would be the cost of Materials, or the Direct Labor to provide a service.

    11. Depreciation (Dep)


    Depreciation is the term that accounts for the loss of value in an asset over time. Generally,
    an asset has to have substantial value in order to warrant depreciating it. Common assets to be
    depreciated are automobiles and equipment. Depreciation appears on the Income Statement
    as an expense and is often categorized as a “Non-Cash Expense” since it doesn’t have a direct
    impact on a company’s cash position.

    12. Expense (Cost)


    An Expense is any cost incurred by the business.

    13. Gross Margin (GM)


    Gross Margin is a percentage calculated by taking Gross Profit and dividing by Revenue for
    the same period. It represents the profitability of a company after deducting the Cost of
    Goods Sold.

    14. Gross Profit (GP)


    Gross Profit indicates the profitability of a company in dollars, without taking overhead
    expenses into account. It is calculated by subtracting the Cost of Goods Sold from Revenue
    for the same period.

    15. Income Statement (Profit and Loss) (IS or P&L)


    The Income Statement (often referred to as a Profit and Loss, or P&L) is the financial
    statement that shows the revenues, expenses, and profits over a given time period. Revenue
    earned is shown at the top of the report and various costs (expenses) are subtracted from it
    until all costs are accounted for; the result being Net Income.
    16. Net Income (NI)
    Net Income is the dollar amount that is earned in profits. It is calculated by taking Revenue
    and subtracting all of the Expenses in a given period, including COGS, Overhead,
    Depreciation, and Taxes.

    17. Net Margin


    Net Margin is the percent amount that illustrates the profit of a company in relation to its
    Revenue. It is calculated by taking Net Income and dividing it by Revenue for a given period.

    18. Revenue (Sales) (Rev)


    Revenue is any money earned by the business.
    General Terms
    Of course, there are those accounting terms that don’t pertain to a particular financial
    statement. For those, we’ve reserved the “general” category.

    19. Accounting Period


    An Accounting Period is designated in all Financial Statements (Income Statement, Balance
    Sheet, and Statement of Cash Flows). The period communicates the span of time that is
    reported in the statements.

    20. Allocation
    The term Allocation describes the procedure of assigning funds to various accounts or
    periods. For example, a cost can be Allocated over multiple months (like in the case of
    insurance) or Allocated over multiple departments (as is often done with administrative costs
    for companies with multiple divisions).

    21. Business (or Legal) Entity


    This is the legal structure, or type, of a business. Common company formations include Sole
    Proprietor, Partnership, Limited Liability Corp (LLC), S-Corp and C-Corp. Each entity has a
    unique set of requirements, laws, and tax implications.

    22. Cash Flow (CF)


    Cash Flow is the term that describes the inflow and outflow of cash in a business. The Net
    Cash Flow for a period of time is found by taking the Beginning Cash Balance and
    subtracting the Ending Cash Balance. A positive number indicates that more cash flowed into
    the business than out, where a negative number indicates the opposite.

    23. Certified Public Accountant (CPA)


    CPA is a professional designation that an accountant can earn by passing the CPA exam and
    fulfilling the requirements for both education and work experience, which vary by state.

    24. Credit
    A credit is an increase in a liability or equity account, or a decrease in an asset or expense
    account.

    25. Debit
    A debit is an increase in an asset or expense account, or a decrease in a liability or equity
    account.

    26. Diversification
    Diversification is a method of reducing risk. The goal is to allocate capital across a multitude
    of assets so that the performance of any one asset doesn’t dictate the performance of the total.

    27. Enrolled Agent (EA)


    An Enrolled Agent is a professional accounting designation assigned to professionals who
    have successfully passed tests showcasing expertise in business and personal taxes. Enrolled
    Agents are generally sought out to complete business tax filings to ensure compliance with
    the IRS.

    28. Fixed Cost (FC)


    A Fixed Cost is one that does not change with the volume of sales. For example, rent and
    salaries won’t change if a company sells more. The opposite of a Fixed Cost is a Variable
    Cost.

    29. General Ledger (GL)


    A General Ledger is the complete record of a company’s financial transactions. The GL is
    used in order to prepare all of the Financial Statements.

    30. Generally Accepted Accounting Principles (GAAP)


    These are the rules that all accountants abide by when performing the act of accounting.
    These general rules were established so that it is easier to compare ‘apples to apples’ when
    looking at a business’s financial reports.

    31. Interest
    Interest is the amount paid on a loan or line of credit that exceeds the repayment of the
    principal balance.

    32. Journal Entry (JE)


    Journal Entries are how updates and changes are made to a company’s books. Every Journal
    Entry must consist of a unique identifier (to record the entry), a date, a debit/credit, an
    amount, and an account code (that determines which account is altered).

    33. Liquidity
    A term referencing how quickly something can be converted into cash. For example, stocks
    are more liquid than a house since you can sell stocks (turning it into cash) more quickly than
    real estate.

    34. Material
    Material is the term that refers whether information influences decisions. For example, if a
    company has revenue in the millions of dollars, an amount of $0.50 is hardly material. GAAP
    requires that all Material considerations must be disclosed.

    35. On Credit/On Account


    A purchase that happens On Credit or On Account is a purchase that will be paid at a future
    time, but the buyer gets to enjoy the benefit of that purchase immediately. “Bartender, put it
    on my tab…”

    36. Overhead
    Overhead are those Expenses that relate to running the business. They do not include
    Expenses that make the product or deliver the service. For example, Overhead often includes
    Rent, and Executive Salaries.

    37. Payroll
    Payroll is the account that shows payments to employee salaries, wages, bonuses, and
    deductions. Often this will appear on the Balance Sheet as a Liability that the company owes
    if there is accrued vacation pay or any unpaid wages.

    38. Present Value (PV)


    Present Value is a term that refers to the value of an Asset today, as opposed to a different
    point in time. It is based on the theory that cash today is more valuable than cash tomorrow,
    due to the concept of inflation.

    39. Receipts
    A Receipt is a document that proves payment was made. A business produces receipts when
    it provides its product or service and it receives receipts when it pays for goods and services
    from other businesses. Received Receipts should be saved and catalogued so that a company
    can prove that its incurred expenses are accurate.
    40. Return on Investment (ROI)
    Originally, this term referred to the profit that a company was making (Return), divided by
    the Investment required. Today, the term is used more loosely to include returns on various
    projects and objectives. For example, if a company spent $1,000 on marketing, which
    produced $2,000 in profit, the company could state that it’s ROI on marketing spend is 50%.

    41. Trial Balance (TB)


    Trial Balance is a listing of all accounts in the General Ledger with their balance amount
    (either debit or credit). The total debits must equal the total credits, hence the balance.

    42. Variable Cost (VC)


    These are costs that change with the volume of sales and are the opposite of Fixed Costs.
    Variable costs increase with more sales because they are an expense that is incurred in order
    to deliver the sale. For example, if a company produces a product and sells more of that
    product, they will require more raw materials in order to meet the increase in demand.

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