Let’s face it. Accounting terms are unusual because accountants are an unusual group of people.
They enjoy numbers, they find spreadsheets exciting, and they love the fact that “bookkeeper” is the only word in the English language with 3 double letters. So it’s only natural that they would have the strangest language!
To an outsider, listening to a bunch of accountants talking to each other can sound an awful lot like Charlie Brown’s teacher.
We completely understand. All of the terms, acronyms, and phrases that accountants use can be confusing. But the good news is, you don’t have to struggle through accounting conversations anymore.
We’ve put together a list of some of the more common accounting terms business owners just like you are likely to run into. Being familiar with these terms and concepts will help you control your finances better and grow your business.
Accounting Terms Made Simple
Accounting (often abbreviated as ACCG or ACCT) – An orderly way of recording and reporting financial data
Accounts Receivable (AR) – The money a client or customer owes you after goods or services have been delivered; money due to go out
Accounts Payable (AP) – The money you owe a company after they have delivered goods or services to you; money due to come in
Assets – there are two kinds: Fixed Assets (FA) are the long-term things of value that you own (equipment, property, etc.); Current Assets (CA) are things that could be liquidated within a year (cash, Accounts Receivable, inventory)
Balance Sheet – a brief financial report that lists your company’s assets and liabilities
Capital – the total value of your assets; working capital refers to money that is available to cover the day-to-day operations of your company; generally speaking, the more working capital available…the healthier the company
Cash Flow – a report that gives you a snapshot of the flow of cash into and out of your company during a specific period of time
Cost of Goods Sold (CoGS) – the total expense directly involved in making whatever it is you sell (raw materials, labor, etc.); it does not cover secondary costs such as distribution or marketing
Credit – a bookkeeping entry that decreases assets and increases liabilities
Debit – a bookkeeping entry that increases assets and decreases liabilities
Expenses – there are 4 different types:
- Fixed Expenses (FE) – regular costs that do not change from month to month, like rent or insurance
- Variable Expenses (VE) – costs that vary from month to month that may even be unpredictable, such as labor, fuel, supplies, or discretionary spending
- Accrued Expenses (AE) – something you bought but haven’t paid for yet
- Operation Expenses (OE) – costs that are part of doing business but are not directly associated with CoGS, including advertising or property taxes; the IRS allows you to deduct these expenses
General Ledger – the total picture of a company’s finances based on its debits and credits throughout its lifetime
Generally Accepted Accounting Principles (GAAP) – the predictable rules accountants everywhere agree to play by to ensure uniformity and transparency throughout the business world
Liabilities – when you owe someone else money; short-term liabilities can be resolved in less than a year while long-term liabilities will take more than one year to pay back
Net Income – your company’s total earnings, a.k.a. “Profits”; calculated by subtracting all of your expenses from all of the money you’ve brought in
Profit & Loss Statement (P&L) – a report that summarizes your company’s financial health over a specific period of time, usually annually or quarterly
Return on Investment (ROI) – a way to measure how much money an investment brought in versus how much it cost; ROI is expressed as a percentage and is calculated by dividing the net profit by the cost of the investment
Want to become fluent in accountant speak? The New York State Society of CPA’s has published an extensive Accounting Terminology Guide that might be helpful if you come across any accounting terms we haven’t covered here.
Sometimes You Still Need A Real Guide
We realize that unless your business is an accounting firm, knowing the ins and outs of accounting words is probably low on your list of priorities. While you certainly need to understand what’s happening with your money, you’ve got plenty of other things to think about. You’re focused on growing your company. We’re focused on helping you do it. Here are 2 ways you can win today:
- Download a free PDF we put together for our key clients on “9 Simple Accounting Mistakes That Are Costing Your Business Money.” It’s a quick read that will start saving you money right away.
- Every growing business eventually reaches a point when the owner needs to hand the day-to-day finances over to someone else. But not every business can afford an in-house finance team. One solution we’ve developed to help small business owners is our Part-time CFO Service. Take a look. It could be just what you’ve been missing.
Accounting Terms Aren’t All That We Make Simple
CRS CPA is an accounting firm that does more than you’d expect. We go beyond basic accounting and tax services to partnering with you to actually help you grow your business and win.
Schedule a call today to find out how we can help your business, farm, or nonprofit be even more efficient and profitable.
