A Glossary Of Common Accounting And Financial Terms
Every industry has its language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the accounting industry is no exception.
To help you understand the terms, acronyms, and phrases regularly used when dealing with bookkeeping and accounting solutions, Misic Accounting has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate your accounting and bookkeeping needs effectively.
A write-off is a reduction of the recognized value of something. In accounting, this is a recognition of an asset’s reduced or zero value. In income tax statements, this is a reduction of taxable income as a recognition of certain expenses required to produce the income.
An income statement is a financial statement that shows an enterprise’s income and expenditures. It also indicates whether a company is making a profit or loss for a given period. Annual statements use revenues and expenses over twelve months, while quarterly statements focus on revenues and expenses incurred during a three-month period.
A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholder equity. The balance sheet is one of the three core financial statements used to evaluate a business. It provides a snapshot of a company’s finances and shows what it owns and owes as of the date of publication.
Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered and received but not paid for.
Accounts payable (AP) are amounts due to vendors or suppliers for goods or services received that have not yet been paid for. The sum of all outstanding amounts owed to vendors is shown as the accounts payable balance on the company’s balance sheet.
Cash basis refers to a significant accounting method that recognizes revenues and expenses at the time cash is received or paid out.
Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. For example, one would record revenue when a project is complete rather than when they get paid.
Accrued revenue is revenue that has been earned by providing a good or service but for which no cash has been received. Accrued revenues are recorded as receivables on the balance sheet to reflect the amount of money customers owe the business for the goods or services they purchased.
Deferred revenue, also known as unearned revenue, refers to advance payments a company receives for products or services that are to be delivered or performed in the future. The company that receives the prepayment records the amount as deferred revenue, a liability, on its balance sheet.
In business and accounting, net income is an entity’s income minus the cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period.
This represents any funds that a shareholder has contributed to the business. Alternatively, it also means any funds that the shareholder may have withdrawn from the company and is required to pay back.
The accounting book value is represented by an asset’s original value, minus any accumulated depreciation. This also may be referred to as the Net Asset Value (NAV) of a company’s assets.
Revolving debt usually refers to any money one owes from an account that allows them to borrow against a credit line. Revolving debt often comes with a variable interest rate. And while one may have to pay back whatever they borrow, they don’t have to pay a fixed amount every month according to a schedule. Examples would include credit cards and lines of credit.
When the term “non-revolving” is used, it basically means the credit facility is granted on a one-off basis and disbursed fully. The borrower will typically service regular installment payments against the loan principal. The most common form of non-revolving credit facility would be the unsecured business term loan, mortgages, and car loans.
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise’s financial statements. These are created using values from a company’s financial statements to gain meaningful information about the company. These are also often used to determine the company’s liquidity and future viability.
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