Glossary of Finance and Accounting terms

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.


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.


The process of spreading the cost of an intangible asset (such as a patent or trademark) over its useful life.


Anything that a business owns or controls that has value, such as cash, inventory, or equipment.


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.


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.


A financial plan that outlines a company’s expected income and expenses over a specific period of time.


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.


An entry in a financial record that increases a liability or equity account.


Money that is borrowed and must be repaid with interest.


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


The reduction in the value of an asset over time, due to wear and tear or obsolescence.


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.


Earnings before interest, taxes, depreciation, and amortization, used to measure a company’s operating performance.


The portion of a company’s assets that is owned by its shareholders.


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.


a strategy used to reduce the risk of an investment by taking a counteracting position in the market


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.


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.


The cost of borrowing money.

Internal audit

An audit performed by a company’s staff rather than an independent CPA


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.


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


A book of accounts containing summaries of debit and credit entries that is essential for preparing a company’s financial statement


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


a company’s financial obligations or debts to other parties


the ability of a company to meet its short-term financial obligations


a sum of money borrowed by a company or individual that must be repaid with interest


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


the total amount paid to employees for their work, including salaries, wages, and benefits


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


a comparison of two or more financial variables to help analyze a company’s financial health


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


the income earned by a company from the sale of goods or services


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.


a company’s ability to meet its long-term financial obligations, calculated by dividing its total assets by its total liabilities


a share of ownership in a company


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


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


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.


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.


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


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.