32 Basic Accounting Terms, Acronyms and Abbreviations :
Does n’t matter what
career you are pursuing, you will need to learn the language used in your field
or industry. All industries have their own unique blend of terms, acronyms and
abbreviations, it is depend on the nature of industries, and mostly there are
some terms which are common.
If you want to fully
understand the industry and your organization in order to do your job
effectively, it’s very important you understand this language from the start.
"Accounting is
the language of business. Knowing the language is critical for success in any
corporate function because the information is communicated using these terms,”
Because of the strange accounting job titles, different accounting myths and these industry terms, it’s not
uncommon for people to think working in accounting is complicated or confusing
when really it’s just got its own unique language.
As someone new to the accounting industry, you will
be introduced to a variety of new terms. Beware: they may seem intimidating at
first. But familiarizing yourself with these basic accounting terms,
acronyms and abbreviations early on will help you better prepare for a
successful accounting career. Knowing how to talk the talk will
allow you to quickly shift your focus in the classroom beyond these terms
and toward learning the accounting techniques you will use in your job.
Read through these basic accounting terms, study them
and commit them to memory. By the time you finish your accounting degree, they
will be second nature to you and you will be on your way to a promising career.
1. Accounts
Receivable
Definition: The amount of money owed by your customers after
goods or services have been delivered and/or used. See how it works here.
2. Accounting
Definition: A
systematic way of recording and reporting financial transactions.
3. Accounts Payable
Definition: The
amount of money you owe creditors (suppliers, etc.) in return for good and/or
services they have delivered. See how it works here.
4. Assets (Fixed and Current)
Definition: Current
assets are those that will be used within one year. Typically this could be
cash, inventory or accounts receivable. Fixed assets (non current) are more
long-term and will likely provide benefits to a company for more than one year,
such as a building, land or machinery.
5. Balance Sheet
Definition: A financial report that summarizes
a company's assets (what it owns), liabilities (what it owes) and owner’s
equity at a given time.
6. Capital
Definition: A
financial asset and its value, such as cash or goods. Working capital is calculated by taking your current
assets subtracted from current liabilities.
7. Cash Flow
Definition: The
revenue or expense expected to be generated through business activities (sales,
manufacturing, etc.) over a period of time. Having a positive cash flow is essential in order for businesses to survive in
the long run.
8. Certified Public Accountant
Definition: A
designation given to someone who has passed a standardized CPA exam and met government-mandated work
experience and educational requirements to become a CPA.
9. Cost of Goods Sold
Definition: The direct expense related
to producing the goods sold by a company. This may include the cost of the raw
materials (parts) and amount of employee labor used in production.
10. Credit
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.
11. Debit
Definition: An
accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance
sheet.
12. Expenses (Fixed, Variable, Accrued,
Operation)
Definition: The fixed,
variable, accrued or day-to-day costs that a business may incur
through its operations. Examples of expenses include payments to banks,
suppliers, employees or equipment.
13. Generally Accepted Accounting Principles
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.
14. General Ledger
Definition: A
complete record of the financial transactions over the life of a company.
15. Liabilities (Current and Long-Term)
Definition: A company's
debts or financial obligations it incurred during business operations. Current
liabilities are those debts that are payable within a year, such as a debt to
suppliers. Long-term liabilities are typically payable over a period of time
greater than one year. An example of a long-term liability would be a bank
loan.
16. Net Income
Definition: A
company's total earnings, also called net profit or the “bottom line.” Net income is calculated by subtracting
totally expenses from total revenues.
17. Owner's Equity
Definition: An
owner’s equity is typically explained in terms of the percentage amount of
stock a person has ownership interest in the company. The owners of the
stock are commonly referred to as the shareholders.
18. Present Value
Definition: The value of
how much a future sum of money is worth today. Present value helps us
understand how receiving $100 now is worth more than receiving $100 a year from
now. See an example of the time value of money here.
19. Profit and Loss Statement
Definition: 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 a quarterly or
annually.
20. Return on Investment
Definition: 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. See an example here.
21. Accountant
Definition: The person who categories and pass
financial data to a bookkeeping system or in any accounting information system,
People often thinks that bookkeeper and accountant is the same thing. Similarly
Accountant refers to the person who makes the annual financial statements and
tax calculations
22. Amortization
Definition: The intangible assets whose property
right is obtained for specific period of time, diminishes in value with passage
of time this called as amortization.
The example are patient rights, copy right, goodwill
etc similarly, the value of leasehold property also decreases with the passage
of time.
23. Bookkeeper
Definition: A qualified person who collects, records
and report on the financial transactions carried out by a business is called
Bookkeeper.
24. Bankrupt
A company inability to pays debts is called bankrupt or insolvent.
A company inability to pays debts is called bankrupt or insolvent.
25. Budget
The budget is a financial plan in which a business
decides what it estimates it will earn in the year ahead, where these estimated
will be spend, and then comparing/checking the actual figures and budgeted
figures.
The amount which cannot be received from debtors is
called bad debts.
Chart
of Accounts is a listing of all accounts used in
the general ledger, usually organized in order by account number. The
accounts are usually numeric, but can also be alphabetic or alphanumeric. The
account numbering system is used by the accounting software to aggregate
information into an entity’s financial statements.
28. Cash Discount
A
discount, which allowed or received at the time of cash payment on credit sale
or purchase is called cash discount. It has two types.
- Discount
received
- Discount
allowed.
29. Commission
Remuneration
for services performed by one person to another normally on the percentage
basic is called commission.
30. Drawings
The cash or commodities withdraw by the owner for his
personal uses from business are known as drawings
The basic accounting term “financial statements”
means that the statements shows the financial positions of a business
organization after a year are called Financial Statements.
32. Trade Discount
Trade
Discount is a basic accounting terms which means when concession or allowance
or rebate is given by seller to buyer on listed or scheduled price of goods at
the spot of sale is called trade discount and there is no accounting of trade
discount.
Trade
discount is usually allowed or granted in following circumstances.
- When selling to
a fellow trade.
- When the buyer
is an old customer.
- When sale are
made in bulk.
- As a custom of
trade.
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