74 Accounting Terms

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The Top 74 Accounting Terms to Know:  

A

Abatement: the reduction or elimination of a tax, fine, or penalty that is owed by an individual or business. This can occur due to various reasons, such as a mistake made by the tax authority, a negotiated settlement, or a judgment in favor of the taxpayer.

Accounting method: The regulations a business adheres to when reporting its revenue, such as accrual accounting and cash accounting. 

Accounting period: a defined span of time in which accounting operations are executed

Accounting practice: collecting and keeping records of day to day debits, credits, and expenses

Accounts payable: the amount owed to a creditor. 

Accounts receivable: the amount owed by a debtor from a transaction.  

Accounts receivable turnover: a formula used to measure a company’s ability to collect from its customers. Net sales divided by the net accounts receivable. 

Accrual: an expense or revenue that has been incurred but not yet paid or received. Accrual accounting is a method of accounting that recognizes revenue and expenses when they are earned or incurred, regardless of when the cash actually flows.

Accrual accounting: a method of measuring payments that have been pledged but not sent over

Amortization: amortization is the process of spreading the cost of an intangible asset over its useful life. Intangible assets are long-term assets that lack physical substance, such as patents, copyrights, and trademarks. The process of amortization involves dividing the total cost of the asset by its estimated useful life and then allocating a portion of that cost as an expense on the company's income statement each period.

Audit: an examination of a company’s financial statement to ensure that the statement has been prepared accurately. 

B

Balance sheet: a financial document that shows a business’ assets, equity, and liabilities

Bank statement: a report that shows the balance of a checking account. Usually sent  to the account holder at the beginning, middle, and end of the month. 

Bankruptcy: a legal process where debts are satisfied by liquidating a debtor’s assets. 

Basic accounting: a type of accounting that divides all transactions into credits and debits

Book value: the worth of an asset that was entered onto a company’s books

Bookkeeping: the process of recording a business’ financial transactions

Break-even point: when total revenue equals total costs

Business owner: the individual in charge of operating and managing the funds of a business

C

Calendar year: a period of time quantified from January 1 to December 31

Cash accounting: a bookkeeping method in which revenue and expenses are recorded as received

Cash basis: a bookkeeping method where revenue is recorded when cash is received, as well as when expenses are paid. 

Cash equivalents: highly liquid assets that can be readily converted into cash within three months or less. Cash equivalents include short-term investments such as treasury bills, commercial paper, and money market funds.

Cash flow: the overall balance of cash moving through a business at a specific time, including cash receipts and cash disbursements. 

CPA (certified public accountant): a financial advisor that helps a business reach its goals

Chart of accounts: a directory of all the accounts in a company’s ledger

COGS (Cost of goods sold): the total amount a business paid to buy raw materials and produce final goods

Current assets: cash or other assets that businesses expect to turn into cash within a year

Current liabilities: a company’s short-term financial obligations that are required to be paid within the year

D

Debit: in a double-entry bookkeeping system, debit is an entry made on the left hand side of a ledger to represent the addition of an asset or a reduction from an expense. 

Debtors: an individual or entity that owes money or assets to another party, known as a creditor. 

Default: when a borrower fails to meet the terms of a loan or debt agreement. This can include failing to make payments on time, failing to make the full payment required, or violating other terms of the loan agreement.

Depreciation: the process of an asset losing monetary value over time

Double-entry bookkeeping: a recording transaction wherein an entry is recorded in at least two accounts

E

Expenditures: a payment made by either paying in cash, assuming a liability, or by surrendering an asset.

Expense: an amount spent on an item or for a particular purpose

Expense ratio: a portion of a total investment — represented as a percentage — that shareholders pay for mutual fund operating expenses and management fees. 

Extension: additional time granted to file tax returns

F

Financial accounting standards board: a private body that issues financial accounting standards

Financial position: current balances of the recorded assets, liabilities, and equity of a business

Financial reporting: documenting and communicating financial activities over certain time periods

Financial statements: the combination of the statement of cash flows, the income statement, and the balance sheet

Financial transactions: a financial event that impacts the value of an asset, liability, or the owner’s equity

Fiscal year: a 12 month accounting period chosen by a company to report financial information. 

Fixed cost: a cost that is unchanged with an increase of decrease in goods or services sold

G

GAAP (generally accepted accounting principles): a collection of commonly followed accounting standards

General ledger: a set of accounts a business uses to keep track of its financial transactions

Gross profit: a profit a business makes after subtracting all the costs associating with manufacturing and selling its products or services

I

Income statement: a financial statement that shows a company’s income and expenditures

Income tax: a type of tax levied by a government directly on income generated by people and companies

Interest rate: a percentage of the principal of a loan that is given use of the loan

IRS (Internal Revenue Service): a US federal agency that collects taxes and enforces tax laws

J

Journal entry: a record of a transaction in business accounting

L

Lien: a legal claim against an asset that is used as collateral for a debt or other financial obligation. It is an important consideration in accounting and can impact financial reporting and performance.

Liquidity: a measure of a company’s ability to pay off its long and short term liabilities, based on how much money they have available to pay bills when they are due. 

Long-term liabilities: debts a company owes a third party that can be paid over the course of more than a year

M

Management accounting: collecting, analyzing and reporting information about a company’s operations to assist management personnel in decision making and planning

Market value: represents the value of a business in accordance with the stock market

N

Net assets: the difference between a company's total assets and its total liabilities. In other words, net assets represent the residual interest in the assets of a company after all of its liabilities have been paid off.

Net income: excess revenue compared to total expenses and losses during an accounting period. 

Net profit: money a business earns after subtracting all operating, interest, and tax expenses over a certain period

Noncurrent assets: assets that won’t appreciate to full value until at least one year. 

O

Operating expenses: an expense in business that a company incurs through normal operations

Owner’s equity: the proportion of a company’s value that can be claimed by its owners

P

Present value: the current value of some amount of money in the future

Profit & Loss Statement: a financial report that includes the revenue, cost, and expenses incurred over time. 

R

Return on investment: an equation divides the net income of an investment by its cost, then multiply by 100. 

S

Short-term: less than a 12 month period

Statement of cash flows: a financial statement that summarizes cash moving in and out of the company. It helps companies understand how well it manages its cash. 

T

Trial balance: a bookkeeping sheet where ledgers are split into debit and credit accounts to ensure than they are equal

U

Useful life: an estimate number of years an asset is expected to remain in service

V

Valuation: the process of valuing a company’s assets and liabilities according to generally accepted accounting principles (GAAP).

Variable costs: costs that change in direct proportion to a company’s output or other measure of volume. 

W

Working capital: a financial metric calculated as the difference between current assets and current liabilities

Interested in learning more about how to maximize your company’s accounting success? Contact an accountant today!

Additional Resources:

• Why Small Businesses Lack Accounting Resources
• Accounting Strategy: Tips to Manage Small Business Finances
• How Small Businesses Budget