Have you ever felt so confused after speaking with your accountant? If so, don’t fret! We’ve compiled different accounting terms and abbreviations along with their meanings. However, while this would do great for a business owner, it’s for anyone interested in building their accounting vocabulary.
Accounts Receivable (AR)
Accounts receivable are lawfully enforceable claims for payments taken by a business for services rendered, or goods supplied that consumers have bought but not paid for. In essence, it is the money customers owe after goods or services have been provided to them.
Accounts Payable (AP)
Accounts Payable is the amount of money a company owes creditors (suppliers) in return for goods or services they have provided.
Accrual (ACR)
Accrual is a list of expenses a company has incurred or agreed upon but has not yet paid for. It is also a list of sales that have been made but not yet billed.
Asset
Asset refers to anything of monetary value that a company owns. It’s the wealth that has been accumulated and owned by a company without a loan or lien.
These may be goods sold to customers, cash, investments, land, property, equipment and supplies, warehouse inventory, and more.
Bad Debt Expenses
Bad debt is incurred when customers owing don’t pay up and are likely not to pay.
Balance Sheet (BS)
Balance Sheet is a snapshot of a company’s financial status, including assets, liabilities and equity at a particular time. The accounting equation when it comes to a balance sheet is: Assets = Equity + Liabilities.
Book Value (BV)
When an asset depreciates, it loses its value. The book value shows the original value of assets.
Capital (CAP)
The amount of cash, goods, assets used to start up a company is called capital. You can calculate capital by subtracting the current asset from the current liabilities.
Cash Flow (CF)
Cash flow is the revenue expected to be generated by a company through business activities over some time after you made payments (e.g. rent, taxes) and received payments from goods or services sold to customers.
Credit (Cr)
Credit is an accounting entry that may either increase liabilities and equities or decrease the assets of a company’s balance sheet.
Debit (Dr)
An accounting entry that may either increase assets or decrease the liabilities of a company’s balance sheet depending on the type of transaction made.
Depreciation (DEPR)
Depreciation occurs when business assets such as goods or equipment decrease in value over time due to use or abandonment.
Dividends (DIV)
These are distributions of the portion of a company’s earnings to shareholders of the business. It is usually issued as cash, property or stock market value.
Expenses (EXP)
Expenses show the cost incurred by a business to generate income or maintain business activities.
This could be;
- Fixed Expenses, like rent, workers’ salaries, paid at a scheduled period.
- Variables: include expenses like labour costs that fluctuate based on the increase or decrease in production or sales.
- Accrued: expenses which haven’t been paid yet.
- Operating Expenses: These are expenses that are not directly associated with the production of goods and services.
Equity (EQ)
Equity is the amount of money invested in the company by shareholders. This is usually the money left over after liabilities have been subtracted from assets.
Fiscal Year (FY)
A Fiscal year is a measured amount of time (usually 12 months period) that marks the beginning and end of the financial records of a company. The fiscal year doesn’t always correspond with the calendar year. For example, a company’s fiscal year can run from March to February.
Inventory (INV)
These are assets purchased by a company to sell to customers but remain unsold.
Liability (LIAB)
Liability is a debt a company has to pay. It includes salaries, taxes, the amount payable, utilities, loans etc.
General Ledger (GL)
General Ledger is the total record of transactions over the life of a company.
Gross Margin (GM)
Also known as Profits, it’s the total number of sales made subtracted from the associated costs such as manufacturing costs, suppliers cost, etc.
Net Income (NI)
Net Income is a company’s total earnings. You can calculate Net Income by subtracting total expenses from total revenues.
Liquidation (LIQ)
Liquidation happens when assets are converted into cash to pay off debts.
Revenue (REV)
Revenue is the sum of all the money generated by a company, usually through sales, before you subtract expenses.
Return on Investment (ROI)
ROI is calculated by dividing the net profit of a company by the total cost of the investment. This shows how successful an investment is by showing profits gained or loss.
Variable Cost (VC)
Variable costs changes as the number of goods that a business offers changes. These costs are the total marginal costs over every unit produced. For instance, if a business produces a commodity and sells more of those goods, it will need more raw materials to meet the increase in demand.
Improve your accounting vocabulary today! It would be worthwhile to devote time to learn the terms mentioned above. As you do so, apply these basic accounting terms in your conversation, and you’ll be amazed at how you’ll improve! If you find any of them confusing or need help, contact us at Sound Accounts, because our strength is your numbers!
