Accounting terminology bamboozling you?
Ever had that feeling of inadequacy or embarrassment when you are in a meeting and you don’t understand the accounting terminology being used? It’s easy to pretend you understand and hope nobody pushes you.
Better yet, arm yourself with actual, genuine knowledge instead!
The amount of money owed by customers or clients to a business after goods or services have been delivered and/or used.
The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services they have delivered.
A list of expenses that have been incurred and expensed, but not paid or a list of sales that have been completed, but not yet billed.
A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
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.
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.
A financial asset or the value of a financial asset, such as cash or goods. This is different to ‘working capital’ which is calculated by taking your current assets subtracted from current liabilities—basically the money or assets an organisation can put to work.
Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business.
Cost of goods sold
Cost of goods sold are the costs associated with the creation of a product or service. Not included in this category are those costs that are needed to run the business.
The term used for recognising that an asset reduces in value over time due to various factors such as use, wear and tear and obsolescence.
System of accounting in which every transaction has a corresponding positive and negative entry (debits and credits).
Equity and owner’s equity
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.
A state where an individual or organisation can no longer meet financial obligations with lender(s) when their debts come due.
Assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment. Also known as tangible assets.
A complete record of the financial transactions over the life of a company.
All debts that a company has yet to pay are referred to as Liabilities. Common liabilities include Accounts Payable, Payroll, and Loans.
Cash or other property that can be easily converted to cash.
The process of matching one set of data to another; i.e. the bank statement to the check register, the accounts payable journal to the general ledger, etc.
Your total income before expenses.
Return on investment (ROI)
A measure used to evaluate the financial performance relative to the amount of money that was invested. The ROI is calculated by dividing the net profit by the cost of the investment. The result is often expressed as a percentage.
A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market.
A business document in which all ledgers are compiled into debit and credit columns in order to ensure a company’s bookkeeping system is mathematically correct.
An accounting entry that reduces the book value of an asset due to economic or fundamental changes/impairments in the asset.