Improve communication with banks, investors and accountants with an accounting dictionary. A lack of knowledge is the number one reason for failure. Increase financial success (profitability) with an accounting dictionary at hand. Below is a list of 34 common accounting terms that a person must know to be financially successful in business.
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Accrued Expenses: Bills for items that were not bought on credit; such as salaries, lawyer bills, interest due on loans, etc. Reported on the Balance Sheet.
Accounts Payable: Bills for material and equipment bought on credit that the entity must bay in less than 12 months. Reported on the Balance Sheet.
Accounts Receivable: An agreement between an entity and customer through an invoice to receive money at a future date for delivery of a product or service. Reported on the Balance Sheet.
Assets: Everything an entity owns with a dollar value, such as cash in the bank, inventory, machines, buildings, automobiles, and stocks. In addition, “rights” owned that have a monetary value such as an invoice to collect cash from a customer. Assets are grouped on the Balance Sheet as Cash, Accounts Receivable, Inventory, Prepaid Expenses, Fixed, and Depreciation.
Balance Sheet: A financial picture of the entity at a specific day in time. It presents the assets, liabilities and worth of the entity. Assets = Liabilities + Worth
Capital Stock: The original money to start and any add-on money invested in the business for shares of ownership in the entity. Reported on the Balance Sheet.
Cash: Money in the bank or in petty cash. Reported on the Balance Sheet and Cash Flow Statement
Cash Flow Statement: Tracks the movement of cash trough the entity over a period of time.
Costs: Money spent to make a product or provide a service. Reported on the Income Statement.
Current Portion of Debt: money due with in 12 months to repay a loan. Reported on the Balance Sheet.
Depreciation: The decline in useful valued of a fixed asset due to normal wear and tear from usage and passage of time. Reported on the Balance Sheet.
Earnings: Same meaning as profits. It is the money left over after subtracting costs and expenses from sales.
Expenses: Money spent to develop, sell, account and manage a product or service. Reported on the Income Statement.
Financial Statement: Presents the financial health of an entity during a specified period of time. There are three main statements used: the Balance Sheet, the Income Statement and the Cash Flow Statement.
Fixed Asset: Property, plant, and equipment (PP&E) used to produce, store and ship the product or service. These items are not attended for sale. Reported on the Balance Sheet
Gross Margin: The difference between sales and manufacturing costs. Reported on the Income Statement.
Income: Same meaning as profits. It is the money left over after subtracting costs and expenses from sales. Net Income is reported as the “bottom line” on the Income Statement.
Income Statement: Reports the profitability of a company during a specific period of time.
Income Taxes Payable: Income taxes the entity owes the government that is not yet paid. Reported on the Balance Sheet.
Insolvent: Not having enough money in the bank to pay the bills.
Inventory: Raw material, work-in-process and finished goods that have not been sold. Reported on the Balance Sheet.
Journal: A book of which the companies financial transactions are recorded in chronological order.
Ledger: a book of items of which the entity wants to keep track. Items are grouped into accounts. Therefore a ledger is a book of accounts to keep track of transactions. There are Cash Ledgers, Accounts Payable Ledgers, Accrued Expenses Ledgers, Inventory Ledgers, etc.
Liabilities: Money owed to suppliers, lenders, employees and owners. Liabilities are grouped on the Balance Sheet as Accounts Payable, Accrued Expenses, Current Portion of Debt, Income Taxes Payable, Long-Term Debt and Shareholders’ equity.
Long-Term Debt: money due in 13 or more months to repay a loan. Reported on the Balance Sheet.
Orders: A request from a customer for the delivery of a product or service. Orders are not reported on any financial statement.
Prepaid Expenses: Bills the entity has paid in advanced for services not yet received; such as insurance premiums, prepayment of rent, deposits to utility companies, salary advances, and retainer fees.
Profits: The difference between sales and the sum of cost and expenses. It is the money left over after subtracting costs and expenses from sales. Profits are reported as Net Income on the Income Statement.Profits = Sales – (Costs + Expenses)
Retained Earnings: A company’s profit not returned to shareholders as dividends.
Revenue: Same meaning as sales. Money received from providing a product or service to a customer. The exchange is reported at the top of the Income Statement.
Sales: Money received from providing a product or service to a customer. The exchange is reported at the top of the Income Statement.
Shareholder’s Equity: The value of the company to its owners. Also called net worth and book value. Reported on the Balance Sheet.
Shipments: An order that is delivered to a customer with an invoice. Once product is shipped it can be recorded as a sale on the accrual accounting method.
Solvency: Having enough money in the bank to pay the bills.
Congratulations! You have just improved your finances. Print this page to have the Entrepreneur-Starter-Kit accounting dictionary at hand. The 34 basic accounting terms are all you need to successfully be able to understand the three financial statements: Balance Sheet, Income Statement and Cash Flow Statement.
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