Business 102: The Simplest Accounting Dictionary Ever

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The Basics Of Accounting
  • Account – A standardized record that represents a single categorized financial aspect of a business
  • Accounting Period – The time period when financial statements are prepared, usually on a monthly, quarterly or yearly basis
  • Accounting – The process of recording and reporting financial transactions
  • Accounts Payable – The outgoing amount that has been owed but not paid for goods or services bought
  • Accounts Receivable – The incoming amount due that hasn’t been paid, usually after a sale or service has been completed
  • Accrual Method – A system used by most businesses to record revenues and expenses when the transaction occurs, as opposed to the Cash Method when the money actually exchanges hands
  • Accruals – Expenses that have been incurred but not paid, like salaries or the interest built up on a loan, which are usually included in accounts and adjusted once the invoice is received
  • Acquisition – A company that is somehow absorbed into another company
  • Aging – Accounts receivables are sorted by age, and aging is often used to focus on accounts that are overdue
  • Amortization – Regular repaying of an loan of an asset over fixed time periods
  • Annual Report – A report for shareholders that breaks down a company’s annual statements, cash flows and any other important financial information
  • Appreciation – The opposite of depreciation, when an asset increases in value, which only happens in special circumstances
  • Arrears – Bills that were due but haven’t been paid
  • Assets – Things of value that a business either owns or is due, which includes physical items, money and certain legal rights
  • Audit – The process of reviewing financial records to verify their accuracy and completeness, which includes internal auditing that accountants perform within an organization and independent audits by an outside party
  • Average Cost Method – an inventory method that averages out the total value of all the inventory purchased to determine the Cost of Goods Sold
  • Bad Debt – debts that can’t be paid, which is usually a tax-deductible expense
  • Balance Sheet – An annual statement that shows the financial position of a business with a summary of its assets and liabilities
  • Bankrupt – A state where a person or group has more liabilities than assets, LLCs use the word “insolvent” instead
  • Bond – A loan that doesn’t have to be paid off until a certain number of years, also known as a debenture or loan stock
  • Book Value – The original cost paid for an asset (Historical Value) or its current value (Fair Market Value), whichever is lower
  • Capital – Money that business owners invest to acquire assets and start operating, also known as Start-Up Costs
  • Capital Allowances – Deductions from the total taxes a company has to pay, usually based on something the company has to do, also known as a tax credit
  • Capital Gains Tax – The tax on an asset that is sold for a profit, which is subject to adjustments from inflation, allowances and other factors to determine its taxable amount
  • Cash Accounting – A system used by most businesses where only paid invoices are accounted for, as opposed to the Accrual Method that tracks it when it is incurred
  • Cash Flow – the amount of money coming into and out of a business during an accounting period, usually shown on a Cash Flow Statement or Statement of Cash Flows
  • Cash Flow Forecast – A prediction of the cash flows of an upcoming financial period
  • Chart of Accounts – A big list of all of the accounts that a business uses to organize and record financial transactions
  • Charge Back – The act of cancelling a credit or debit card transaction before it has been processed, which will probably still charge the seller a fee
  • CIF – Cost, Insurance and Flight – An international contract for sale where the seller agrees to pay shipping, insurance and freight charges before the item is delivered and the buyer is fully responsible after delivery
  • Circulating Assets – Assets that turn from cash to goods and then back to cash again, which includes manufacturing materials and inventory
  • Closing the Books – A term for making the final entries that bring the profit and loss accounts to zero for the next period and closing out the transactions that happened in that period, followed by Opening the Books
  • COGS – Cost Of Goods Sold, the reported cost of items that have been sold
  • Common Stock – A share of a company that allows shareholders a portion of the Dividend, usually the highest risk but the highest rewards
  • Compensating Error – Two mistakes that curiously cancelled each other out
  • Compound Interest – interest accrued on the principal and interest based on the amounts every period, as opposed to Simple Interest
  • Consolidated Financial Statements – Combined financial statements of a parent company and all of its subsidiaries
  • Consolidation – Combining all of a company’s accounts into one single parent company
  • Cost-Based Pricing – A pricing method where companies base their fees on the price of manufacturing
  • Cost Center – A portion of a business that is focused on maintaining the business in a way that doesn’t generate profit such as accounting or custodial
  • Creative Accounting – An underhanded way of making accounts appear more or less appealing to shareholders than they actually are, which many accountants would call fraud
  • Credit – In bookkeeping it is any recordkeeping that decreases assets or expenses or increases capital or liability, in business it is when a supplier agrees to allow the buyer to pay after receiving the goods or services, the opposite of a Debit
  • Credit Note – A document sent to a customer that cancel’s their debt, usually for defective goods or poor service
  • Creditors – Suppliers that a business owes money to
  • Current – Generally, “current” in accounting means that it happens within the next 12 month cycle
  • Current Assets – Assets than can be turned into cash quickly and include money in banks, money owed, petty cash, raw materials and stock, also known as Convertible Assets
  • Current Cost Accounting – A type of accounting where assets are valued at their current market value instead of their historical cost, also just known as Cost Accounting
  • Current Liabilities – Things that are owed within the next 12 months, which includes things essential to day-to-day operating such as include bank overdrafts, short-term loans and lines of credit with suppliers
  • Cut-off Procedures – Methods used to separate out transactions into different accounting periods
  • Debit – Any recordkeeping that increases assets or expenses or decreases capital or liability, the opposite of a Credit
  • Debtors – Customers who owe money
  • Default – When a financial obligation cannot be met
  • Deferred Expenditure – Expenses that can’t be applied to the present accounting period and are treated as an expense later
  • Deferred Income – Income received or recorded before it is earned
  • Deficit – When income or liabilities are more than assets
  • Depreciation – A systematic lowering of the value of an asset over time to reflect how it slowly becomes worthless, usually measured as a percentage and calculated yearly
  • Disclosure – Being transparent about accounting information so that financial statements can be understood
  • Discounted Cash Flow – A method for investors to see if an investment is worth their time by adjusting the cash flows based on time
  • Dividend – The profit that ultimately gets to a shareholder
  • Double-Entry Bookkeeping – A universal accounting system where everything is recorded as both a debit and credit
  • Drawing – Money that a company owner takes out of a company for their own personal use, which is not wages
  • Earned Income – Cash or equivalents that someone gets as compensation for goods or services
  • Earnings Per Share – The total profit of a company divided by the number of shares
  • EBIT – Earnings Before Interest and Tax
  • EBITA – Earnings Before Interest, Tax and Amortization
  • EBITDA – Earnings Before Interest, Tax, Depreciation and Amortization
  • Encumbrance – Money that has to be put aside for any purpose
  • Entry – The information put into a Journal or Ledger
  • Equity – The total incomes and assets minus the total expenses and liabilities of something
  • Escrow – Assets a third party holds onto until specified conditions have been met
  • Exclusions – Things excluded from a taxpayer’s gross income such as gifts and inheritances, also known as excluded income
  • Exemption – The amount of income that isn’t taxed, but sometimes refers to a specific amount for a specific thing
  • Expenditure – Anything that is purchased for a business like inventory or salaries, also known as an Expense
  • Fair Market Value – The price a reasonable person would pay someone who wants to sell for something assuming both people know everything relevant to the product or service, also known as FMV
  • FASB – Financial Accounting Standards Board, a group that spends all day making standards on accounting practices, sometimes against the IASB
  • FIFO – First In, First Out, an inventory method that values inventory sold by the cost of the earliest inventory purchased
  • Financial Statements – Documents that show financial information, the most popular ones being the Balance Sheet, Income Statement and Cash Flow Statement
  • Financing Activities – one of the three Cash Flow Statement categories of financial activity with Operating Activities and Investing Activities that refers to managing debts and managing the company’s stock
  • Finished Goods – The processed inventory made from Raw Materials
  • Fiscal Year – A 12 month period that can begin on any date that a business chooses as their accounting year
  • Fixed Assets – Things that a business owns that will be around for more than a year and include land, buildings, machinery, vehicles and other long-term investments that will affect day-to-day operations if it’s turned into cash, also known as Non-Current Assets
  • Fixed Cost – A cost that remains about the same from period to period like salaries and rental agreements
  • Forecast – An estimate of the future finances of a company with concrete numbers based on how the company has done in the past
  • Fraud – Intentionally misusing a company’s resources
  • Flow of Funds – A report that shows how the balance sheets have changed from one accounting period to the next
  • Future Value – The value of something in the future after accounting for inflation and the inability to spend it during that time, as opposed to Present Value
  • GAAP – Generally Accepted Accounting Principles, a century-old standard for how accountants should think and work
  • Gain – When revenue is more than expenses, the opposite of a Loss, sometimes called Profit
  • General Ledger – A big bank of all of a company’s accounting information that all of the financial statements pull from, also known as the Book of Entry
  • Goodwill – The difference between the Book Value and Fair Market Value of an asset, which includes overpaying to buy a company for its reputation and rewarding customers for their loyalty
  • Gross – Total profits before making any deductions or discounts, also known as Gross Income
  • Gross Margin – The difference between the cost of making or getting something and the cost of selling it
  • Growth and Acquisition – How a business grows, either by getting bigger and expanding operations or by buying other companies
  • Historical Cost – The original price of something
  • IASB – International Accounting Standards Board, a group that spends all day making standards on accounting practices, sometimes against the FASB
  • Impairment – The decreased value of an asset that can no longer be depreciated
  • Impersonal Accounts – Accounts not held in the name of a person for any other entity outside of a company
  • Imprest System – A method of restoring an account, usually petty cash, to its original value when it starts running out
  • Income – Revenue minus Expenses, also known as Turnover or Yield
  • Income Statement – A financial statement that is a summary of revenue, expenses and profit, also known as a Profit and Loss Account
  • Incorporation – The date a business is legally established
  • Intangible Assets – Assets that have value but cannot be physically touched such as patents, copyrights, trademarks and licenses
  • Interest – A payment to a money lender, usually a percentage of the principal
  • Inventory – Goods that are manufactured for sale or purchased for re-sale
  • Inventory Obsolescence – Inventory that can no longer be sold like out-of-style clothing or rotten food
  • Inventory Shrinkage – A reduction of inventory for non-selling reasons such as theft
  • Inventory Turnover Rate – The number of days inventory stays in storage before being sold, also known as Stock Holding Period
  • Investing Activities – One of the three Cash Flow Statement categories of financial activity with Operating Activities and Financing Activities that refers to buying things that can keep the company going in the long run or help the company expand
  • Investment – Buying goods or services that are likely to increase profit
  • Investors – People or businesses who have invested money into a business to become part-owner
  • Journal – A system that records chronological business transactions that get posted to the General Ledger
  • Joint Venture – Capital that is combined to provide products or services, usually as business partnerships where everyone involved is fully responsible for the business
  • Key Performance Indicators – A numerical measurement that calculates the performance of a business
  • Leasing – A rental agreement lets someone use an asset for a set amount of time
  • Ledger – The financial record that keeps track of business transactions posted from Journal Entries
  • Leveraging – Borrowing against an asset to do something productive, also known as Gearing
  • Liabilities – Things one entity owes for money, goods or services
  • LIFO – Last In, First Out, an inventory method that values inventory sold by the cost of the last inventory purchased
  • Limited Liability Company – LLC or LTD, a company where the owners’ liability is limited to how much they’ve put into the company
  • Limited Liability Partnership – LLP, a partnership that is a Limited Liability Company
  • Listed Company – A company that you can buy and sell on the stock market
  • Listing Requirements – Stock market rules to companies that want to buy and sell on the stock market
  • Long-Term – Generally, “long-term” in accounting means anything that extends beyond the next 12 month cycle
  • Long-Term Asset – An asset that expected to be around for over a year, like a factory machine or a car
  • Long-Term Liabilities – Things owed  that aren’t due for more than one year like mortgages and bonds
  • Loss – Where expenses are more than revenue, the opposite of a Gain or Profit depending on the context
  • Management Accounting – The profession of creating specially-made reports to fit the needs of the people who run a company
  • Matching – Combining sales and expenses together in an accounting period
  • Maturity – The date a liability is first due
  • Merger – When two organizations share their assets and liabilities and combine into one organization without becoming a new third entity in the process
  • Money Laundering – The process of hiding illegally obtained money so it seems legal, usually by  transactions alongside or inside legal money
  • Moving Average – A method of showing data on graphs to display trends that averages out the numbers to make smooth lines instead of jagged points
  • Negligence – When a person fails to show enough care for something they are responsible for
  • Net Worth – The “true” worth of something after adding together all incomes and assets and then subtracting all expenses and liabilities, also called Net Worth, Net Profit or just Net
  • Net Assets – all of something’s assets minus all of their liabilities
  • Nominal Value – The first value that a share is when it is issued
  • Not-For-Profit Organization – NPO, a company that takes all of its income and uses it for a specific purpose outside of the company, trustees and shareholders do not receive financial benefits
  • Opening the Books – After a business has Closed the Books, they start the recordkeeping for the next period
  • Operating Activities – one of the three Cash Flow Statement categories of financial activity with Financing Activities and Investing Activities that refers to the day-to-day operations of the company
  • Operating Cycle – The amount of time between things being bought and things being delivered or fulfilled
  • Operating Risk – When the cost of fixed operating costs is high and could cause a fluctuation in profits
  • Option – The rights to buy (Call) or sell (Put) a stock or asset for a certain period of time
  • Overhead – The costs of running a business that are not tied directly to production or sales
  • Parent Company – A company that controls at least one subsidiaries
  • Partnership – An agreement between at least two people where they agree to conduct profitable business together and be liable for the debts of a company
  • Pay on Delivery – Where goods and services are only paid after they have been received
  • PE Ratio – Profit-Equity Ratio, an equation used to see how confident the shareholders are about profits
  • Perpetual Inventory – A system where the inventory balance is updated after every transaction
  • Petty Cash – A small account companies use for tiny purchases, with bank cards this idea has become largely obsolete
  • Plug – A small number used to correct rounding errors that can show up on financial statements
  • Point of Sale – The place where a transaction is conducted
    Preferred Stock – A type of share that allows the shareholder to have preference to receive a dividend before common shares’ dividends are declared
  • Premium – The amount paid over face value
  • Pre-Payment – An amount paid in advance such as insurance or rent, usually for the coming year
  • Present Value – The current value of an amount of something, used to analyze investment opportunities, as opposed to Future Value
  • Price-Sensitive Information – Knowledge that would change a company’s stock price if the public knew about it
  • Principal – The original or remaining amount of a loan
  • Profit – The revenue of a business minus expenses, also known as Margin
  • Profit Center – A portion of a business that is focused on generating profits for a company
  • Profit Margin – The percentage difference between the cost of a product or service and the price it’s sold for, also known as the Markup
  • Projection – Hypothetical assumptions that estimate future financial statements
  • Prospectus – A document used to advertise shares an investor can buy which usually contains financial statements and detailed supporting information
  • Provisions – Amounts put aside in accounts to cover future Liabilities
  • Qualified Opinion – A report an accountant issues when the information presented is not sound in their professional opinion, as opposed to an Unqualified Opinion
  • Quality of Earnings – The earnings that can be attributed to higher sales or lower costs instead of accounting anomalies
  • Raw Materials – Materials bought to be processed into Finished Goods
  • Refinancing Agreement – A company’s arrangement to replace existing financing with other funding instead of defaulting
  • Realization Principle – A principle of GAAP where revenue can only be recognized when the goods or services that created that revenue have been delivered
  • Rebate – A partial refund for overpaying or services that were cancelled before they ended
  • Receipt – A record of payment, usually written or printed
  • Replacement Cost – The cost of replacing an asset or liability
  • Reserve Account – An account set up to retain earnings, usually to make balance sheets clearer or to reserve money against future purchases or liabilities
  • Retained Earnings – Net income that a company keeps rather than distributed to shareholders as Dividends
  • Return on Investment (ROI) – A very popular profitability ratio most frequently calculated by dividing the gain from the investment by the cost of the investment
  • Revenue – The money a business receives for its commercial activities
  • Risk – The possibility of financial loss, used in investing to determine the most marketable return
  • Sales – The total income from selling goods or services
  • Secured Loan – A loan where the borrower pledges an asset in exchange for a loan that the lender then uses as collateral
  • Segment Reporting – Where divisions of a business are separated for individual reporting
  • Shareholder – The owner of shares in a company, also known as Stockholders
  • Share – An evenly divided part of a company, also known as Stock
  • Simple Interest – Interest that is applied to the original Principal of a loan
  • Sinking Fund – Money set aside over time to repay a debt or replace a wasting asset
  • Statement of Cash Flows – A common financial statement that shows how changes in the Balance Sheet affects the movement of cash, categorized as Operating, Investing and Financing Activities
  • Stock Exchange – An organization that sets legal standards for buying and selling publicly traded Shares, also known as the Stock Market
  • Subordinated Debt – The amount of Unsecured Debt a company owes if the company is liquidated
  • Subsidiary Company – A company a Parent Company owns
  • Subtotal – Smaller items grouped together to create a Total
  • Sunk Costs – Money that cannot be recovered from being spent
  • Suspense Account – A temporary account where funds are deposited before being sent to the correct place
  • Tangible Assets – Physical assets, such as buildings, vehicles and machinery
  • Tax – A mandatory contribution to a government based on some form of money being transferred
  • Taxation – The act of taxing people and businesses
  • Total – the “bottom line”, usually represented by a line above and two lines below
  • Total Cost of Ownership – TCO, the real total cost of an asset, which include renewal fees and other mandatory expenses
  • Undeposited Funds Account – An account that shows the money that a company has received but not banked or spent, also known as a Cash-in-Hand Account
  • Unlisted Company – A Limited Liability Company not listed on a Stock Exchange
    Unqualified Opinion – A report an accountant issues when the information presented is sound in their professional opinion, as opposed to a Qualified Opinion
  • Unsecured Creditor – A creditor who doesn’t have a claim against a particular Asset, meaning they will only get whatever is left if a company is liquidated
  • Unsecured Loan – A debt without any collateral attached to it
  • Valuation – A process that determines the worth of a company’s assets
  • Variance – The difference between the estimated cost and the actual cost
  • Wages – An expense made to employees for their services
  • Withholding – The amount of money withheld from salaries and paid by the employer to the correct authority
  • Working Capital – The excess of Current Assets minus Current Liabilities
  • Work-in-progress – WIP, Partially completed goods or services that will be recorded as an asset upon completion
  • Write-down – A non-cash partial-value expensed reduction of an asset
  • Write-off – The non-cash total-value expensed reduction of an asset
  • ZBA – Zero Based Account, a bank account that is always kept as close to zero as possible
  • ZBB – Zero Based Budget, where every dollar is allocated to a specific purpose to make the starting and ending balances zero
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