Whether you’re just starting out with accounting or taking on a new project, it can help to have a primer of basic accounting terms. These 30 accounting terms will assist you in reaching your company’s financial goals through focusing on the basics.

General Accounting Terms

  1. Credit: An accounting entry that increases your liability or decreases an asset or expense.
  2. Debit: The opposite of credit, this accounting entry increases your assets or decreases liabilities on your balance sheet.
  3. Accounts Payable (AP): An entry under current liabilities representing debt obligations.
  4. Accounts Receivable (AR): The balance of money due to your business for goods or services rendered but not yet paid.
  5. Asset (A): An economic resource that your company controls.
  6. Balance Sheet (BS): A report of your company’s assets, liabilities and equity during a specific time period.
  7. Book Value (BV): The value of your company’s balance sheet.
  8. Equity (E): The value of your company’s assets minus all liabilities of that asset.
  9. Inventory: Merchandise or raw materials your company has on hand.
  10. Liability (L): Your legal financial debts or obligations arising from business operations.
  11. Expense (Cost): The costs your business incurs through revenue generating business operations.
  12. Income Statement (Profit and Loss): Your company’s financial statement reporting performance over a specific accounting period.
  13. Revenue (Sales) (Rev): Your income resulting from sales or services provided.
  14. Generally Accepted Accounting Principles (GAAP): The common set of procedures, principles and standards for accounting that your company must follow.
  15. General Ledger (GL): Your company’s formal financial statements.
  16. Business (or Legal) Entity: Your legal organization established for tax purposes.
  17. Accounting Period: Can be a fiscal year or calendar year, but is an established range of time for accounting functions.

 

Technical Accounting Terms

  1. Accrued Expense: An expense recorded before it’s paid for.
  2. Cost of Goods Sold (COGS): Your direct costs related to production of goods sold.
  3. Depreciation (Dep): The accounting method of assigning costs of tangible assets over the lifetime of the asset to account for any decline in value over time.
  4. Gross Margin (GM): The percent of total revenue from company sales or services retained after incurring the direct production costs.
  5. Gross Profit (GP): Your profit minus production costs of goods or costs of providing services.
  6. Net Income (NI): Your income calculated by subtracting all costs from the total income.
  7. Net Margin: Your net income divided by total revenue.
  8. Allocation: The process of shifting your overhead costs to assets.
  9. Cash Flow (CF): The net amount of cash and equivalents transferred into and out of your business.
  10. Diversification: A business strategy in which you invest in a variety of securities rather than a few.
  11. Fixed Cost (FC): An expense that stays the same.

 

Accounting Qualifications

  1. Enrolled Agent (EA): When dealing with the U.S., an enrolled agent is a tax professional who has been authorized by the US government to represent taxpayers with Internal Revenue Service (IRS) problems.
  2. Certified Public Accountant (CPA): The US term for a qualified accounting professional. In Australia, a CPA is a Certified Practising Accounting with specific qualifications.

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