42 Basic Accounting Terms

Accounts Payable (AP)

expenses that a business has incurred but has not yet paid.

Accounts Receivable (AR)

include all of the revenue (sales) that a company has provided but has not yet collected payment on.

Accrued Expense

An expense that been incurred but hasn't been paid .

Asset (A)

Anything that has monetary value.

Balance Sheet (BS)

A financial statement that reports on all of a company's assets, liabilities, and equity.

Book Value (BV)

As an asset is depreciated, it loses value.

Equity (E)

Equity denotes the value left over after liabilities have been removed.

Inventory

Inventory is the term used to classify the assets that a company has purchased to sell to its customers that remain unsold.

Liability (L)

All debts that a company has yet to pay are referred to as Liabilities.

Cost of Goods Sold (COGS)

Cost of Goods Sold are the expenses that directly relate to the creation of a product or service.

Depreciation (Dep)

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.

Expense (Cost)

An Expense is any cost incurred by the business.

Gross Margin (GM)

Gross Margin is a percentage calculated by taking Gross Profit and dividing by Revenue for the same period.

Gross Profit (GP)

It is calculated by subtracting the Cost of Goods Sold from Revenue for the same period.

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

The Income Statement is the financial statement that shows the revenues, expenses, and profits over a given time period.

Net Income (NI)

Net Income is the dollar amount that is earned in profits.

Net Margin

Net Margin is the percent amount that illustrates the profit of a company in relation to its Revenue.

Revenue (Sales) (Rev)

Revenue is any money earned by the business.

Accounting Period

An Accounting Period is designated in all Financial Statements.

Allocation

The term Allocation describes the procedure of assigning funds to various accounts or periods.

Business (or Legal) Entity

This is the legal structure, or type, of a business.

Cash Flow (CF)

Cash Flow is the term that describes the inflow and outflow of cash in a business.

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.

Credit

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

Debit

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

Diversification

Diversification is a method of reducing risk.

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.

Fixed Cost (FC)

A Fixed Cost is one that does not change with the volume of sales.

General Ledger (GL)

A General Ledger is the complete record of a company's financial transactions.

Generally Accepted Accounting Principles (GAAP)

These are the rules that all accountants abide by when performing the act of accounting.

Interest

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

Journal Entry (JE)

Journal Entries are how updates and changes are made to a company's books.

Liquidity

A term referencing how quickly something can be converted into cash.

Material

Material is the term that refers whether information influences decisions.

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. "

Overhead

Overhead are those Expenses that relate to running the business. s.

Payroll

Payroll is the account that shows payments to employee salaries, wages, bonuses, and deductions.

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.

Receipts

A Receipt is a document that proves payment was made.

Return on Investment (ROI)

Originally, this term referred to the profit that a company was making (Return), divided by the Investment required.

Trial Balance (TB)

Trial Balance is a listing of all accounts in the General Ledger with their balance amount (either debit or credit).

Variable Cost (VC)

These are costs that change with the volume of sales and are the opposite of Fixed Costs.