Accounts Payable (AP) | Money that a business owes to its vendors or suppliers for goods or services purchased on credit. |
Accounts Receivable (AR) | Money that a business is owed by its customers for goods or services sold on credit. |
Accruals | Accounting entries that recognize expenses or revenues when they are incurred or earned, regardless of when payment is actually received or made. |
Accrued interest | Interest that has been earned but not yet paid or received. |
Adjusted Gross Income (AGI) | The total amount of income earned during the year, minus certain deductions and exemptions. |
Amortization | The process of spreading the cost of an intangible asset (such as a patent or trademark) over its useful life. |
Asset | Anything that a business owns or controls that has value, such as cash, inventory, or equipment. |
Audit | An independent examination of a company’s financial records and systems by an external auditor to determine if they are accurate and in compliance with accounting standards. |
Balance Sheet | A financial statement that summarizes a company’s assets, liabilities, and equity at a specific point in time. |
Bank reconciliation | A process of comparing a company’s bank statement with its accounting records to identify any discrepancies. |
Break-Even Point | The level of sales at which a business’s revenue equals its total costs, resulting in neither a profit nor a loss. |
Book Value | The value of an asset as recorded on a company’s balance sheet. |
Bond | A debt security in which an investor loans money to an entity (such as a corporation or government) for a fixed period of time at a fixed interest rate. |
Budget | A financial plan that outlines a company’s expected income and expenses over a specific period of time. |
Capital | Money invested in a business by its owners or shareholders. |
Capital expenditure | An expense that is incurred to acquire or improve a long-term asset, such as property or equipment. |
Cash basis accounting | A method of accounting that records revenue and expenses when cash is received or paid. |
Cash Flow | The amount of cash that flows in and out of a business during a specific period of time. |
Cash flow statement | A financial statement that shows the inflows and outflows of cash from a company over a period of time. |
Closing the books | Equalizing revenue, expense and income statements to ensure financial accuracy |
Cost accounting | The process of tracking and analyzing the costs of producing a product or service. |
Cost of Goods Sold (COGS) | The direct costs associated with producing or delivering a product or service, such as materials and labor. |
Credit | An entry in a financial record that increases a liability or equity account. |
Debt | Money that is borrowed and must be repaid with interest. |
Debit | An entry in a financial record that increases an asset or expense account. |
Departmental accounting | An accounting practice that shows the revenue, expenses and income of each department within an organization |
Depreciation | The reduction in the value of an asset over time, due to wear and tear or obsolescence. |
Dividend | A portion of a company’s profits that is distributed to its shareholders. |
Dividend yield | The dividend per share divided by the stock price, used to measure the return on investment in a stock. |
EBITDA | Earnings before interest, taxes, depreciation, and amortization, used to measure a company’s operating performance. |
Equity | The portion of a company’s assets that is owned by its shareholders. |
Expense | A cost incurred by a business in the process of generating revenue. |
Financial leverage | The use of debt to finance a company’s operations or investments. |
Financial Statements | Reports that summarize a company’s financial performance and position, including the income statement, balance sheet, and cash flow statement. |
Fixed Asset | A long-term asset that a company uses to produce goods or services, such as equipment or property. |
GAAP (Generally Accepted Accounting Principles) | The set of accounting standards and guidelines used by companies to prepare financial statements. |
General ledger | A complete record of the financial transactions over a company’s life that an accountant posts into individual sub-ledger accounts according to a company chart of accounts |
Gross Profit | The difference between a company’s revenue and the cost of goods sold. |
Hedge | a strategy used to reduce the risk of an investment by taking a counteracting position in the market |
IFRS | International Financial Reporting Standards, a set of accounting standards used in many countries outside of the United States. |
Income Statement | A financial statement that shows a company’s revenues, expenses, and net income over a specific period of time. |
Inflation | The rising costs of goods and services |
Insured account | An account at a bank, savings and loan association, credit union or brokerage firm covered by a federal or private insurance organization |
Intangible asset | An asset that has no physical form, such as intellectual property or goodwill. |
Interest | The cost of borrowing money. |
Internal audit | An audit performed by a company’s staff rather than an independent CPA |
Inventory | The goods that a company has in stock and available |
Inventory turnover | The number of times a company’s inventory is sold and replaced over a period of time. |
Joint Account | An account owned by two or more individuals who share equal rights to deposit and withdraw funds. |
Journal | A record of all transactions in the accounting system, typically organized by date and account. |
Journal entry | A record of a transaction in the accounting system, typically consisting of a debit and a credit to different accounts. |
Last in, first out (LIFO) | An accounting method for valuing inventory where the costs of the last goods acquired are the first costs charged to expense records |
Ledger | A book of accounts containing summaries of debit and credit entries that is essential for preparing a company’s financial statement |
Leverage | the use of borrowed funds to increase the potential return on an investment |
Leverage Ratio | a measure of a company’s debt relative to its assets or equity |
Liabilities | a company’s financial obligations or debts to other parties |
Liquidity | the ability of a company to meet its short-term financial obligations |
Loan | a sum of money borrowed by a company or individual that must be repaid with interest |
Margin | the difference between the market value of an asset and the amount of debt used to finance it |
Marginal cost | The cost of producing one additional unit of a product or service. |
Market Capitalization | the total value of a company’s outstanding shares of stock, calculated by multiplying the current stock price by the number of shares |
Mutual Fund | a type of investment fund that pools money from multiple investors to purchase securities |
Net Income | a company’s total revenue minus its expenses and taxes |
Net worth | The value of a company’s assets minus its liabilities, also known as shareholders’ equity. |
Non-Current Asset | an asset that is not expected to be converted into cash within a year |
On account/on credit | A purchase that the buyer pays later but that the buyer can use immediately |
Operating Expenses | the costs associated with running a business, such as rent, salaries, and utilities |
Operating Income | a company’s revenue minus its operating expenses Overhead – the indirect costs associated with running a business, such as administrative expenses |
Payroll | the total amount paid to employees for their work, including salaries, wages, and benefits |
Profit | The amount of money that a company earns after subtracting all expenses from revenue. |
Profit Margin | the percentage of revenue that remains after deducting all costs and expenses |
Profit and Loss (P&L) Statement | a financial statement that shows a company’s revenues, expenses, and net income over a specific period of time |
Quick Ratio | a measure of a company’s ability to meet its short-term financial obligations, calculated by dividing its current assets (excluding inventory) by its current liabilities |
Ratios | a comparison of two or more financial variables to help analyze a company’s financial health |
Receipt | A document that proves a buyer has paid for a product or service, that customers keep for their records and businesses use in business-to-business dealings and stock market transactions |
Retained earnings | The remaining cash after paying all outstanding bills and distributing shareholder dividends |
Return on Investment (ROI) | a measure of the profitability of an investment, calculated as the profit earned divided by the amount invested |
Revenue | the income earned by a company from the sale of goods or services |
Securities | financial instruments that can be traded, such as stocks, bonds, and options |
Securities and Exchange Commission (SEC) | A government agency that regulates and oversees financial markets and securities. |
Solvency | a company’s ability to meet its long-term financial obligations, calculated by dividing its total assets by its total liabilities |
Stock | a share of ownership in a company |
Stockholder | an individual or entity that owns shares of stock in a company |
Straight-Line Depreciation | a method of calculating the depreciation expense of an asset by dividing its cost by its estimated useful life |
Tax | A financial charge imposed by a government on income, goods, or services. |
Tax deduction | An expense that can be subtracted from taxable income to reduce the amount of tax owed. |
Taxable Income | a company’s income that is subject to taxation |
Trial balance | A report that lists all accounts in the general ledger and their balances to ensure that debits equal credits. |
Treasury Stock | stock that a company has repurchased from its shareholders |
Underwriting | the process of evaluating and assuming risk for an insurance policy or investment |
Unearned revenue | A liability that arises when a company receives payment for goods or services that have not yet been delivered or performed. |
Unit of account | A standard monetary unit that is used to measure and compare the value of goods and services. |
Unrealized gain/loss | An increase or decrease in the value of an asset that has not yet been sold or realized. |
Valuation | the process of determining the worth of an asset or company |
Variable Cost | Variable cost is one of two main types of costs that a company incurs when it produces goods or services. Variable costs vary with the amount of production and may include labor, commissions and raw materials. |
WACC (Weighted Average Cost of Capital) | the average cost of all the capital a company has raised to finance its assets |
Working capital | The difference between a company’s current assets and current liabilities, used to measure its short-term liquidity. |
Write-off | An action that businesses use to account for unpaid loan obligations, receivables or losses on stored inventory with the intent of lowering their annual tax bill |
Yield | The return on an investment, expressed as a percentage of the initial investment. |
Zero-based budgeting | A budgeting technique that requires all expenses to be justified for each new period, rather than basing the budget on the previous period’s expenses. |