Accounting Terms

Here are some of the most common terms used in Accounting today:

  • AR = Accounts Receivable – The amount of money owed by customers or clients to a business after goods and/or services have been delivered or used.
  • AP = Accounts Payable – The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services they have delivered.
  • FA = Fixed Assets – These are long term assets and will likely provide benefits to a company for more than one year, such as real estate, land or major machinery.
  • CA = Current Assets – These assets will be converted to cash within one year.  Typically, this could be cash, inventory or accounts receivable.
  • FE = Fixed Expense – Payments like rent that will happen in a regularly scheduled cadence.
  • VE = Variable Expense – Expenses like Labour costs that may change in a given time period.
  • AE = Accrued Expense – An incurred expense that hasn’t been paid yet.
  • OE = Operation Expense – Business expenditures not directly associated with the production of goods or services – for example, advertising costs, property taxes or insurance expenditures.
  • P&L = Profit and Loss Statement – A financial statement that is used to summarize a company’s performance and financial position by reviewing revenues, costs and expenses during a specific period of time, such as quarterly or annually.
  • ROI = Return on Investment – 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.
  • GL = General Ledger – A complete record of the financial transactions over the life of a company.
  • CL = Current Liability – These are the debts that are payable within a year, such as a debt to suppliers,
  • LTL = Long-term Liability – These are typically payable over a period of time greater than one year.  An example would be a multi-year mortgage for office space.
  • NI = Net Income – A company’s total earnings, also called Net Profit.  Net income is calculated by subtracting total expenses from total revenues.
  • PV = Present Value – The current value of a future sum of money based on a specific rate of return.  Present Value helps us understand how receiving $100 now is worth more than receiving $100 a year from now, as money in hand now has the ability to be invested at a higher rate of return.
  • OE = Owners 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.
  • BS = Balance Sheet – A financial report that summarizes a company’s assets, liabilities and owner or shareholder equity; at a given time.
  • COGS = Cost of Goods Sold – The direct expenses related to producing the goods sold by a business.
  • CR = Credit – An accounting entry that may decrease assets or increase liabilities and equity on the company’s balance sheet, depending on the transaction.
  • DR = Debit – An accounting entry where there is either an increase in assets or a decrease in liabilities on a company’s balance sheet.
  • INC. = this is the abbreviation for Incorporated.  An incorporated company, or corporation, is a separate legal entity from the person or people forming it.
  • LTD. = the abbreviation stands for “Limited Company”.  The name is attached to businesses

 

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