Do you speak it?
Do you speak the lingo? The terms of Accounting
BRUCE LAISTER
Last Update a year ago
1. Assets: Resources owned by a company that have economic value, such as cash, inventory, property, and equipment.
2. Liabilities: Debts or obligations owed by a company to creditors, such as loans, accounts payable, and accrued expenses.
3. Equity: The difference between a company's assets and liabilities, representing the owner's stake in the business.
4. Revenue: Income earned by a company from its primary business activities, such as sales of goods or services.
5. Expenses: Costs incurred by a company to generate revenue, such as salaries, rent, and utilities.
6. Income Statement: A financial statement that shows a company's revenues, expenses, and net income or loss over a specific period.
7. Balance Sheet: A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
8. Cash Flow Statement: A financial statement that shows the inflows and outflows of cash from a company's operating, investing, and financing activities.
9. Depreciation: The allocation of the cost of a long-term asset over its useful life, reflecting the decrease in value of the asset over time.
10. Accrual Accounting: An accounting method that recognizes revenues and expenses when
they are incurred, regardless of when cash is exchanged. This method provides a more accurate representation of a company's financial performance.
11. GAAP (Generally Accepted Accounting Principles): A set of accounting standards and guidelines used in the United States to ensure consistency and transparency in financial reporting.
12. FIFO (First-In, First-Out): A method of inventory valuation where the oldest inventory items are sold first, typically resulting in lower cost of goods sold and higher ending inventory values.
13. LIFO (Last-In, First-Out): A method of inventory valuation where the newest inventory items are sold first, typically resulting in higher cost of goods sold and lower ending inventory values.
14. Trial Balance: A list of all the accounts in the general ledger with their respective debit and credit balances, used to ensure that debits equal credits.
15. Audit: A systematic examination of a company's financial records and internal controls by an independent third party to ensure accuracy and compliance with laws and regulations.
16. Amortization: The gradual reduction of the value of intangible assets over time, such as patents, trademarks, and goodwill.
17. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance that excludes
interest, taxes, depreciation, and amortization, providing a clearer picture of its profitability before non-operating expenses.
18. Accruals: Expenses or revenues that have been incurred but not yet paid or received, which are recorded in the accounting period in which they are earned or owed.
19. Capital Expenditure: Funds spent by a company to acquire or upgrade physical assets, such as property, equipment, or machinery, with the expectation of generating future benefits.
20. Cost of Goods Sold (COGS): The direct costs associated with producing goods or services that are sold by a company, including materials, labor, and overhead expenses.
21. Equity Ratio: A financial ratio that measures the proportion of a company's assets that are financed by shareholders' equity, indicating the level of financial leverage.
22. Inventory Turnover: A measure of how quickly a company sells its inventory within a specific period, calculated by dividing the cost of goods sold by the average inventory balance.
23. Retained Earnings: The accumulated profits or losses of a company that have not been distributed to shareholders as dividends, reinvested in the business to support growth.
24. Working Capital: The difference between a company's current assets and current liabilities, representing its ability to meet short-term
obligations and fund its day-to-day operations. A positive working capital indicates that a company has enough liquid assets to cover its short-term liabilities.
25. Return on Investment (ROI): A financial metric that measures the profitability of an investment by comparing the return generated to the initial cost incurred.
26. Break-even Point: The level of sales at which a company's total revenues equal its total expenses, resulting in neither a profit nor a loss.
27. Goodwill: The intangible asset that represents the value of a company's reputation, customer relationships, and brand recognition, typically acquired through mergers or acquisitions.
28. Cash Flow Forecast: A projection of a company's expected cash inflows and outflows over a future period, helping to anticipate potential cash shortages or surpluses.
29. Dividends: Distributions of profits made by a company to its shareholders as a return on their investment, typically paid out in cash or additional shares.
30. Cost Allocation: The process of assigning indirect costs to specific cost centres or products based on a predetermined allocation method, such as activity-based costing or overhead rates.
31. Fixed Costs: Expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance premiums.
32. Variable Costs: Expenses that fluctuate in direct proportion to changes in production or sales volume, such as raw materials, labour, and shipping costs.
33. Capital Lease: A lease agreement that transfers substantially all the risks and rewards of ownership to the lessee, typically resulting in the lease being treated as a purchase for accounting purposes.
34. Operating Lease: A lease agreement that does not transfer ownership of the leased asset to the lessee, allowing for more flexibility and shorter lease terms.
35. Financial Statements: Reports that summarize a company's financial performance and position, including the income statement, balance sheet, and cash flow statement.
36. Net Income: The profit or loss earned by a company after deducting all expenses, taxes, and interest from its total revenues.
37. Reconciliation: The process of comparing two sets of financial records to ensure they are consistent and accurate, often performed for bank statements, accounts payable, and accounts receivable.
38. Tax Deduction: A reduction in taxable income that lowers the amount of tax owed by a company, typically allowed for certain expenses, investments, or charitable contributions.
39.
39. Audit Trail: A detailed record of all transactions and accounting entries, showing the chronological sequence of events and providing a clear audit trail for verification.
40. Cost Accounting: A branch of accounting that focuses on analyzing and allocating costs to products, services, or activities to help management make informed decisions and control expenses.
41. Financial Ratio: A quantitative measure calculated by comparing two financial variables to assess a company's performance, profitability, liquidity, and solvency.
42. Impairment: A reduction in the value of an asset below its carrying amount on the balance sheet, typically resulting in an impairment charge and adjustment to the asset's book value.
43. Materiality: A concept in accounting that states that financial information should only be disclosed if it could influence the decisions of users, based on the significance or impact of the information.
44. Operating Income: The profit generated from a company's primary business activities, calculated by subtracting operating expenses from gross profit.
45. Prepaid Expenses: Costs paid in advance for goods or services that have not yet been consumed or used, typically recorded as assets on the balance sheet and gradually expensed over time.
46. Working Capital Ratio: A financial ratio that measures a company's ability to cover its short-term liabilities with its current
assets, calculated by dividing current assets by current liabilities.
47. Contingent Liability: A potential obligation that may arise in the future depending on the outcome of certain events, such as lawsuits, warranties, or environmental claims.
48. Cost of Capital: The rate of return required by investors to compensate for the risk of investing in a company, representing the cost of financing through debt and equity.
49. Equity Method: An accounting method used to account for investments in other companies where the investor has significant influence, typically between 20% and 50% ownership.
50. Internal Controls: Policies, procedures, and practices implemented by a company to safeguard assets, ensure accuracy in financial reporting and prevent fraud or mismanagement.
51. Net Present Value (NPV): A financial metric that calculates the present value of future cash flows generated by an investment, taking into account the time value of money.
52. Residual Value: The estimated value of an asset at the end of its useful life, used in calculating depreciation and determining the total cost of ownership.
53. Segmented Reporting: The practice of reporting financial information for different segments or divisions of a company to provide a more detailed analysis of performance and profitability.
54. Stockholders' Equity: The total value of a company's assets that belong to its shareholders, including common stock, retained earnings, and additional paid-in capital.
55. Taxable Income: The amount of income that is subject to taxation after deductions, exemptions, and credits have been applied, used to calculate the tax liability of a company.
56. Underwriting: The process of evaluating and assuming financial risk for insurance policies, securities offerings, or loans, typically done by underwriters on behalf of an insurance company or investment bank.
57. Weighted Average Cost of Capital (WACC): A calculation that determines the average cost of financing a company's operations through a combination of debt and equity, taking into account the respective weights of each component.
58. Equity Financing: The process of raising capital by issuing shares of stock to investors, and providing ownership stakes in the company in exchange for funding.
59. Financial Forecast: A projection of a company's future financial performance based on historical data, market trends, and management's expectations.
60. Going Concern Assumption: The assumption that a company will continue to operate indefinitely, allowing financial statements to be prepared on the basis that the business will remain in operation.
61. Intangible Assets: Non-physical assets that have value but do not have a physical form, such as patents, trademarks, copyrights, and goodwill.
62. Operating Income: The profit generated from a company's primary business activities, calculated by subtracting operating expenses from gross profit.
63. Tax Credits: Incentives offered by governments to reduce the tax liability of businesses, typically granted for specific activities such as research and development, renewable energy investments, or hiring disadvantaged workers.
65. Cost of Goods Manufactured (COGM): The total cost incurred by a company to produce finished goods during a specific period, including direct materials, labour, and overhead expenses.
66. Deferred Revenue: Income received in advance for goods or services that have not yet been delivered or earned, typically recorded as a liability on the balance sheet until the revenue is recognised.
67. Earnings Per Share (EPS): A financial metric that calculates the portion of a company's profit attributable to each outstanding share of common stock, used to evaluate a company's profitability on a per-share basis.
68. Financial Leverage: The use of debt or borrowed funds to increase the potential return on investment, amplifying both profits and losses for a company.
69. Gross Margin: A financial metric that measures the profitability of a company's core business activities by calculating the percentage of revenue that exceeds the cost of goods sold.
70. Imprest System: A method of controlling cash disbursements by maintaining a fixed amount of funds in a petty cash account, and replenishing it periodically to maintain a constant balance.
2. Liabilities: Debts or obligations owed by a company to creditors, such as loans, accounts payable, and accrued expenses.
3. Equity: The difference between a company's assets and liabilities, representing the owner's stake in the business.
4. Revenue: Income earned by a company from its primary business activities, such as sales of goods or services.
5. Expenses: Costs incurred by a company to generate revenue, such as salaries, rent, and utilities.
6. Income Statement: A financial statement that shows a company's revenues, expenses, and net income or loss over a specific period.
7. Balance Sheet: A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
8. Cash Flow Statement: A financial statement that shows the inflows and outflows of cash from a company's operating, investing, and financing activities.
Statement of Cash Flows: A financial statement that shows how changes in a company's balance sheet accounts and income affect its cash position, providing insights into cash inflows and outflows.
9. Depreciation: The allocation of the cost of a long-term asset over its useful life, reflecting the decrease in value of the asset over time.
10. Accrual Accounting: An accounting method that recognizes revenues and expenses when
they are incurred, regardless of when cash is exchanged. This method provides a more accurate representation of a company's financial performance.
11. GAAP (Generally Accepted Accounting Principles): A set of accounting standards and guidelines used in the United States to ensure consistency and transparency in financial reporting.
12. FIFO (First-In, First-Out): A method of inventory valuation where the oldest inventory items are sold first, typically resulting in lower cost of goods sold and higher ending inventory values.
13. LIFO (Last-In, First-Out): A method of inventory valuation where the newest inventory items are sold first, typically resulting in higher cost of goods sold and lower ending inventory values.
14. Trial Balance: A list of all the accounts in the general ledger with their respective debit and credit balances, used to ensure that debits equal credits.
15. Audit: A systematic examination of a company's financial records and internal controls by an independent third party to ensure accuracy and compliance with laws and regulations.
16. Amortization: The gradual reduction of the value of intangible assets over time, such as patents, trademarks, and goodwill.
17. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance that excludes
interest, taxes, depreciation, and amortization, providing a clearer picture of its profitability before non-operating expenses.
18. Accruals: Expenses or revenues that have been incurred but not yet paid or received, which are recorded in the accounting period in which they are earned or owed.
19. Capital Expenditure: Funds spent by a company to acquire or upgrade physical assets, such as property, equipment, or machinery, with the expectation of generating future benefits.
20. Cost of Goods Sold (COGS): The direct costs associated with producing goods or services that are sold by a company, including materials, labor, and overhead expenses.
21. Equity Ratio: A financial ratio that measures the proportion of a company's assets that are financed by shareholders' equity, indicating the level of financial leverage.
22. Inventory Turnover: A measure of how quickly a company sells its inventory within a specific period, calculated by dividing the cost of goods sold by the average inventory balance.
23. Retained Earnings: The accumulated profits or losses of a company that have not been distributed to shareholders as dividends, reinvested in the business to support growth.
24. Working Capital: The difference between a company's current assets and current liabilities, representing its ability to meet short-term
obligations and fund its day-to-day operations. A positive working capital indicates that a company has enough liquid assets to cover its short-term liabilities.
25. Return on Investment (ROI): A financial metric that measures the profitability of an investment by comparing the return generated to the initial cost incurred.
26. Break-even Point: The level of sales at which a company's total revenues equal its total expenses, resulting in neither a profit nor a loss.
27. Goodwill: The intangible asset that represents the value of a company's reputation, customer relationships, and brand recognition, typically acquired through mergers or acquisitions.
28. Cash Flow Forecast: A projection of a company's expected cash inflows and outflows over a future period, helping to anticipate potential cash shortages or surpluses.
29. Dividends: Distributions of profits made by a company to its shareholders as a return on their investment, typically paid out in cash or additional shares.
30. Cost Allocation: The process of assigning indirect costs to specific cost centres or products based on a predetermined allocation method, such as activity-based costing or overhead rates.
31. Fixed Costs: Expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance premiums.
32. Variable Costs: Expenses that fluctuate in direct proportion to changes in production or sales volume, such as raw materials, labour, and shipping costs.
33. Capital Lease: A lease agreement that transfers substantially all the risks and rewards of ownership to the lessee, typically resulting in the lease being treated as a purchase for accounting purposes.
34. Operating Lease: A lease agreement that does not transfer ownership of the leased asset to the lessee, allowing for more flexibility and shorter lease terms.
35. Financial Statements: Reports that summarize a company's financial performance and position, including the income statement, balance sheet, and cash flow statement.
36. Net Income: The profit or loss earned by a company after deducting all expenses, taxes, and interest from its total revenues.
37. Reconciliation: The process of comparing two sets of financial records to ensure they are consistent and accurate, often performed for bank statements, accounts payable, and accounts receivable.
38. Tax Deduction: A reduction in taxable income that lowers the amount of tax owed by a company, typically allowed for certain expenses, investments, or charitable contributions.
39.
39. Audit Trail: A detailed record of all transactions and accounting entries, showing the chronological sequence of events and providing a clear audit trail for verification.
40. Cost Accounting: A branch of accounting that focuses on analyzing and allocating costs to products, services, or activities to help management make informed decisions and control expenses.
41. Financial Ratio: A quantitative measure calculated by comparing two financial variables to assess a company's performance, profitability, liquidity, and solvency.
42. Impairment: A reduction in the value of an asset below its carrying amount on the balance sheet, typically resulting in an impairment charge and adjustment to the asset's book value.
43. Materiality: A concept in accounting that states that financial information should only be disclosed if it could influence the decisions of users, based on the significance or impact of the information.
44. Operating Income: The profit generated from a company's primary business activities, calculated by subtracting operating expenses from gross profit.
45. Prepaid Expenses: Costs paid in advance for goods or services that have not yet been consumed or used, typically recorded as assets on the balance sheet and gradually expensed over time.
46. Working Capital Ratio: A financial ratio that measures a company's ability to cover its short-term liabilities with its current
assets, calculated by dividing current assets by current liabilities.
47. Contingent Liability: A potential obligation that may arise in the future depending on the outcome of certain events, such as lawsuits, warranties, or environmental claims.
48. Cost of Capital: The rate of return required by investors to compensate for the risk of investing in a company, representing the cost of financing through debt and equity.
49. Equity Method: An accounting method used to account for investments in other companies where the investor has significant influence, typically between 20% and 50% ownership.
50. Internal Controls: Policies, procedures, and practices implemented by a company to safeguard assets, ensure accuracy in financial reporting and prevent fraud or mismanagement.
51. Net Present Value (NPV): A financial metric that calculates the present value of future cash flows generated by an investment, taking into account the time value of money.
52. Residual Value: The estimated value of an asset at the end of its useful life, used in calculating depreciation and determining the total cost of ownership.
53. Segmented Reporting: The practice of reporting financial information for different segments or divisions of a company to provide a more detailed analysis of performance and profitability.
54. Stockholders' Equity: The total value of a company's assets that belong to its shareholders, including common stock, retained earnings, and additional paid-in capital.
55. Taxable Income: The amount of income that is subject to taxation after deductions, exemptions, and credits have been applied, used to calculate the tax liability of a company.
56. Underwriting: The process of evaluating and assuming financial risk for insurance policies, securities offerings, or loans, typically done by underwriters on behalf of an insurance company or investment bank.
57. Weighted Average Cost of Capital (WACC): A calculation that determines the average cost of financing a company's operations through a combination of debt and equity, taking into account the respective weights of each component.
58. Equity Financing: The process of raising capital by issuing shares of stock to investors, and providing ownership stakes in the company in exchange for funding.
59. Financial Forecast: A projection of a company's future financial performance based on historical data, market trends, and management's expectations.
60. Going Concern Assumption: The assumption that a company will continue to operate indefinitely, allowing financial statements to be prepared on the basis that the business will remain in operation.
61. Intangible Assets: Non-physical assets that have value but do not have a physical form, such as patents, trademarks, copyrights, and goodwill.
62. Operating Income: The profit generated from a company's primary business activities, calculated by subtracting operating expenses from gross profit.
63. Tax Credits: Incentives offered by governments to reduce the tax liability of businesses, typically granted for specific activities such as research and development, renewable energy investments, or hiring disadvantaged workers.
65. Cost of Goods Manufactured (COGM): The total cost incurred by a company to produce finished goods during a specific period, including direct materials, labour, and overhead expenses.
66. Deferred Revenue: Income received in advance for goods or services that have not yet been delivered or earned, typically recorded as a liability on the balance sheet until the revenue is recognised.
67. Earnings Per Share (EPS): A financial metric that calculates the portion of a company's profit attributable to each outstanding share of common stock, used to evaluate a company's profitability on a per-share basis.
68. Financial Leverage: The use of debt or borrowed funds to increase the potential return on investment, amplifying both profits and losses for a company.
69. Gross Margin: A financial metric that measures the profitability of a company's core business activities by calculating the percentage of revenue that exceeds the cost of goods sold.
70. Imprest System: A method of controlling cash disbursements by maintaining a fixed amount of funds in a petty cash account, and replenishing it periodically to maintain a constant balance.