Accounting terms and definitions with examples
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. Accounts receivable (AR)
Definition: The amount of money owed by customers or clients to a business after goods or services have been delivered and/or used.
2. Accounting (ACCG)
Definition: A systematic way of recording and reporting financial transactions for a business or organization.
3. Accounts payable (AP)
Definition: The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services they have delivered.
4. Assets (fixed and current) (FA, CA)
Definition: Current assets are those that will be converted to cash within one year. Typically, this could be cash, inventory or accounts receivable. Fixed assets are long-term and will likely provide benefits to a company for more than one year, such as a real estate, land or major machinery.
5. Asset classes
Definition: An asset class is a group of securities that behaves similarly in the marketplace. The three main asset classes are equities or stocks, fixed income or bonds, and cash equivalents or money market instruments.
6. Balance sheet (BS)
Definition: A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.
7. Capital (CAP)
Definition: A financial asset or the value of a financial asset, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities—basically the money or assets an organization can put to work.
8. Cash flow (CF)
Definition: The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time.
9. Certified public accountant (CPA)
Definition: A designation given to an accountant who has passed a standardized CPA exam and met government-mandated work experience and educational requirements to become a CPA.
10. Cost of goods sold (COGS)
Definition: The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is being produced, but as an example this may include the cost of the raw materials (parts) and the amount of employee labor used in production.
11. Credit (CR)
Definition: An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction: A credit and a debit.
12. Debit (DR)
Definition: An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet.
13. Diversification
Definition: The process of allocating or spreading capital investments into varied assets to avoid over-exposure to risk.
14. Enrolled agent (EA)
Definition: A tax professional who represents taxpayers in matters where they are dealing with the Internal Revenue Service (IRS).
15. Expenses (fixed, variable, accrued, operation) (FE, VE, AE, OE)
Definition: The fixed, variable, accrued or day-to-day costs that a business may incur through its operations.
Fixed expenses: payments like rent that will happen in a regularly scheduled cadence.
Variable expenses: expenses, like labor costs, that may change in a given time period.
Accrued expense: an incurred expense that hasn’t been paid yet.
Operation expenses: business expenditures not directly associated with the production of goods or services—for example, advertising costs, property taxes or insurance expenditures.
16. Equity and owner's equity (OE)
Definition: In the most general sense, equity is assets minus liabilities. An owner’s equity is typically explained in terms of the percentage of stock a person has ownership interest in the company. The owners of the stock are known as shareholders.
17. Insolvency
Definition: A state where an individual or organization can no longer meet financial obligations with lender(s) when their debts come due.
18. Generally accepted accounting principles (GAAP)
Definition: A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.
19. General ledger (GL)
Definition: A complete record of the financial transactions over the life of a company.
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Definition: The amount of money owed by customers or clients to a business after goods or services have been delivered and/or used.
2. Accounting (ACCG)
Definition: A systematic way of recording and reporting financial transactions for a business or organization.
3. Accounts payable (AP)
Definition: The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services they have delivered.
4. Assets (fixed and current) (FA, CA)
Definition: Current assets are those that will be converted to cash within one year. Typically, this could be cash, inventory or accounts receivable. Fixed assets are long-term and will likely provide benefits to a company for more than one year, such as a real estate, land or major machinery.
5. Asset classes
Definition: An asset class is a group of securities that behaves similarly in the marketplace. The three main asset classes are equities or stocks, fixed income or bonds, and cash equivalents or money market instruments.
6. Balance sheet (BS)
Definition: A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.
7. Capital (CAP)
Definition: A financial asset or the value of a financial asset, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities—basically the money or assets an organization can put to work.
8. Cash flow (CF)
Definition: The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time.
9. Certified public accountant (CPA)
Definition: A designation given to an accountant who has passed a standardized CPA exam and met government-mandated work experience and educational requirements to become a CPA.
10. Cost of goods sold (COGS)
Definition: The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is being produced, but as an example this may include the cost of the raw materials (parts) and the amount of employee labor used in production.
11. Credit (CR)
Definition: An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction: A credit and a debit.
12. Debit (DR)
Definition: An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet.
13. Diversification
Definition: The process of allocating or spreading capital investments into varied assets to avoid over-exposure to risk.
14. Enrolled agent (EA)
Definition: A tax professional who represents taxpayers in matters where they are dealing with the Internal Revenue Service (IRS).
15. Expenses (fixed, variable, accrued, operation) (FE, VE, AE, OE)
Definition: The fixed, variable, accrued or day-to-day costs that a business may incur through its operations.
Fixed expenses: payments like rent that will happen in a regularly scheduled cadence.
Variable expenses: expenses, like labor costs, that may change in a given time period.
Accrued expense: an incurred expense that hasn’t been paid yet.
Operation expenses: business expenditures not directly associated with the production of goods or services—for example, advertising costs, property taxes or insurance expenditures.
16. Equity and owner's equity (OE)
Definition: In the most general sense, equity is assets minus liabilities. An owner’s equity is typically explained in terms of the percentage of stock a person has ownership interest in the company. The owners of the stock are known as shareholders.
17. Insolvency
Definition: A state where an individual or organization can no longer meet financial obligations with lender(s) when their debts come due.
18. Generally accepted accounting principles (GAAP)
Definition: A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.
19. General ledger (GL)
Definition: A complete record of the financial transactions over the life of a company.
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