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
- Credit: An accounting entry that increases your liability or decreases an asset or expense.
- Debit: The opposite of credit, this accounting entry increases your assets or decreases liabilities on your balance sheet.
- Accounts Payable (AP): An entry under current liabilities representing debt obligations.
- Accounts Receivable (AR): The balance of money due to your business for goods or services rendered but not yet paid.
- Asset (A): An economic resource that your company controls.
- Balance Sheet (BS): A report of your company’s assets, liabilities and equity during a specific time period.
- Book Value (BV): The value of your company’s balance sheet.
- Equity (E): The value of your company’s assets minus all liabilities of that asset.
- Inventory: Merchandise or raw materials your company has on hand.
- Liability (L): Your legal financial debts or obligations arising from business operations.
- Expense (Cost): The costs your business incurs through revenue generating business operations.
- Income Statement (Profit and Loss): Your company’s financial statement reporting performance over a specific accounting period.
- Revenue (Sales) (Rev): Your income resulting from sales or services provided.
- Generally Accepted Accounting Principles (GAAP): The common set of procedures, principles and standards for accounting that your company must follow.
- General Ledger (GL): Your company’s formal financial statements.
- Business (or Legal) Entity: Your legal organization established for tax purposes.
- Accounting Period: Can be a fiscal year or calendar year, but is an established range of time for accounting functions.
Technical Accounting Terms
- Accrued Expense: An expense recorded before it’s paid for.
- Cost of Goods Sold (COGS): Your direct costs related to production of goods sold.
- 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.
- Gross Margin (GM): The percent of total revenue from company sales or services retained after incurring the direct production costs.
- Gross Profit (GP): Your profit minus production costs of goods or costs of providing services.
- Net Income (NI): Your income calculated by subtracting all costs from the total income.
- Net Margin: Your net income divided by total revenue.
- Allocation: The process of shifting your overhead costs to assets.
- Cash Flow (CF): The net amount of cash and equivalents transferred into and out of your business.
- Diversification: A business strategy in which you invest in a variety of securities rather than a few.
- Fixed Cost (FC): An expense that stays the same.
Accounting Qualifications
- 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.
- 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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