A Glossary of Essential Accounting Terms

Bookkeeping Bizz |

A Glossary of Essential Accounting TermsEvery industry has its own language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific industry, and the accounting and bookkeeping business is no exception.

To help you understand the terms, acronyms, and phrases regularly used when availing of accounting services, Bookkeeping Bizz has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your needs effectively to your accountant.

Accounts receivable (AR).

The amount of money owed by customers or clients to a business after goods or services have been delivered or used.

Accounts payable (AP).

The amount of money a company owes creditors (suppliers, etc.) in return for goods or services they have delivered.

Current assets (CA).

Assets that that will be converted to cash within one year. Typically, this could be cash, inventory, or accounts receivable.

Fixed assets (FA).

Assets that are long-term in nature and will likely provide benefits to a company for more than one year, such as real estate, land, or major machinery.

Balance sheet (BS).

A financial report that summarizes a company’s assets (what it owns), liabilities (what it owes) and the owner or shareholder equity; at a given time.

Cost of goods sold (COGS).

The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is being produced, but as an example, this may include the cost of the raw materials (parts) and the amount of employee labor used in production.

Cash flow (CF).

The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time.

Credit (CR).

An accounting entry that may either decrease assets or increase liabilities and equity on the company’s balance sheet, depending on the transaction.

Debit (DR).

An accounting entry where there is either an increase in assets or a decrease in liabilities on a company’s balance sheet.

Expenses (FE, VE, AE, OE).

The fixed, variable, accrued or day-to-day costs that a business may incur through its operations.

a Fixed expenses (FE).

These are payments like rent that will happen in a regularly scheduled cadence.

b Variable expenses (VE).

These are expenses like labor costs that may change in a given time period.

c Accrued expense (AE).

These are incurred expenses that haven’t been paid yet.

d Operation expenses (OE).

These are business expenditures not directly associated with the production of goods or services. For example, advertising costs, property taxes, or insurance expenditures.

Equity and owner’s equity (OE).

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.

Liabilities (current and long-term).

A company’s debts or financial obligations incurred during business operations.

a Current liabilities (CL).

These are those debts that are payable within a year, such as a debt to suppliers.

b Long-term liabilities (LTL).

These are typically payable over a period of time greater than one year. An example of a long-term liability would be a multi-year mortgage for office space.

Net income (NI).

A company’s total earnings are also called net profit. Net income is calculated by subtracting total expenses from total revenues.

Profit and loss statement or Income statement(P&L).

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.

Trial balance.

A business document in which all ledgers are compiled into debit and credit columns in order to ensure a company’s bookkeeping system is mathematically correct.

General ledger (GL).

A complete record of the financial transactions over the life of a company.

Depreciation.

The apportionment of the cost (or value) of a fixed asset against profits over its useful life.

If you’re looking for business accounting and tax services in North York, Toronto, ON, reach out to the experts at Bookkeeping Bizz. Our team of accountants includes dedicated professionals with expertise in accounting, bookkeeping, business tax, advisory, business consulting services, personal tax, and payroll services. We aspire to provide businesses and individuals with efficient solutions, and we’ve been managing this goal well over the years.

We are currently one of the top accounting and bookkeeping experts in Toronto. View our full list of services hereread customer reviews here, or get in touch with us here.

BACK

Top