ROE (Return on equity) – A measure of how profitable a company is relative to the money that shareholders have invested in it. PP&E (Property, plant, and equipment) – Company’s physical assets used to produce products or provide services. PAT (Profit after tax) – A business’s total amount of earnings after all its taxes are deducted. IPO (Initial public offering) – The process by which a company sells shares of its stock to the public for the first time. IMA (Institute of Management Accountants) – A professional organization that promotes and supports the practice of management accounting. FIFO (First in, first out) – A method of inventory accounting that assumes that the first items to be added to inventory are also the first items to be sold.
The Income Statement (often referred to as a Profit and Loss, or P&L) is the financial statement that shows the revenues, expenses, and profits over a given time period. Revenue earned is shown at the top of the report and various costs (expenses) are subtracted from it until all costs are accounted for; the result being Net Income. Liability refers to something a person or company owes, usually a sum of money. Liabilities are resolved through the transfer of economic benefits such as money, goods, or services. Current liabilities are a company’s short-term financial obligations due within one year or a standard operating cycle.
Income Statement Terms
Accounts payable (abbreviated as AP) are invoices that your vendors and suppliers have sent to you for payment. One thing that confuses business owners sometimes is that if they want to collect an invoice, they must call accounts payable at their customer’s office. In other words, your receivable is somebody else’s payable, and vice versa.
- FFE (Furniture, fixtures, and equipment) – A company’s tangible assets used in the operation of its business.
- Current Assets are those that will be converted to cash within one year, including cash, inventory or accounts receivable.
- REIT (Real estate investment trust) A company that owns and operates a portfolio of real estate assets.
- CONT (Continuing operations) – Operations that are ongoing and expected to generate future revenue and income.
- With this method, the performance of individual assets will not affect the results of others.
- Common abbreviations mentioned by researchers and experts alike during self-introductions.
Seasoned accountants know the abbreviations and lingo of accounting like it’s a second language. But, if you find yourself confused when reading a balance sheet or income statement, it might help to clarify the meanings of common terminology. Keep reading for a list of 50 accounting abbreviations that will clear up any misunderstandings. A ledger is a book of accounts with debit and credit entry summaries. Ledger accounts are crucial for preparing a company’s financial statement. If an accountant provides a ledger for a construction company, information about assets, liabilities, and revenue sources will be presented.
Balance Sheet
Wages, salaries, bonuses, tips, and investment income are some examples of taxable income. Since deductions reduce it, taxable income is often less than adjusted gross income. When businesses file taxes, they do not address revenue directly as taxable income. Instead, they subtract their business expenses from their revenue to determine their business income. Afterward, they subtract deductions to calculate their taxable income.
If any changes are discovered on an invoice, they have to be approved by the proper management personnel. Accounting terms consist of all the processes and items involved in accounting procedures every year. There are different types of accounting terms and concepts for different accounting types and activities. The concepts of bookkeeping, and the terms for payroll, are different from each other. Thus, an accountant should know especially the fundamental accounting terms for his or her own area of accounting.
Liability (L)
This refers to the foundational financial statement of any company that charts the revenue, cost, and expenses accrued within a given time period. Obviously essential for investors and accountants to get a basic understanding of a company’s financials. A financial statement that reports on all of a company’s assets, liabilities, federal income and equity. As suggested by its name, a balance sheet abides by the equation . In the most common definition of the term, credit refers to an agreement to buy a good or service with the guarantee to pay for it later. There are many different credit forms, with the most popular form being bank credit or financial credit.
What is the jargon of accounting?
Accounting Jargon and Terminology Bus. Accounting – process of identifying, measuring, and reporting financial information by use of a double entry accounting system. Accounts Payable – (AP) money owed to creditors, to other businesses; the company must pay money to vendors for the purchase services or goods.
Write-offs are not the same as write-downs, which partially reduce an asset’s book value. Unearned income (also known as passive income) is not gained through work. Interest from savings accounts, bond interest, alimony, and dividends from stocks are examples of unearned income. Taxation will vary for this type of income due to qualitative differences.
Accounts Payable
The P&L document is crucial since it shows how much a business generated profit or loss. Payroll accounting tracks operations that record, administrate, and analyze the compensation paid to employees. Payroll also involves fringe benefits distributed to employees and income taxes withheld from their paychecks. In addition to paying for raw materials to make its cakes, ABC Bakery has monthly overhead costs like rent, administrative costs, utilities, and insurance. If a printing company sells old machinery for $20,000, that amount would be considered non-operating income.
It is a more complete and exact alternative to single-entry accounting, which only records transactions once. While single-entry systems only apply to revenues and expenses, double-entry systems add assets, liabilities, and equity to the organization’s financial tracking. Some asset types are fixed, current, liquid, and prepaid expenses. Liquid means how quickly a business can convert the asset into spendable revenue without losing value.
Some organizations use monthly periods since it is more convenient. The accounting cycle is eight-step system accountants use to track transactions for a certain period. Fixed Assets are long term and will likely provide benefits to a company for more than one year, such as a real estate, land or major office purchases. Current Assets are those that will be converted to cash within one year, including cash, inventory or accounts receivable.
If handled properly, your GL should provide a complete history of your organization’s finances and accounting. VAT (Value-added tax) – One of the most widely known accounting abbreviations, this one describes the type of sales tax assessed on the value of goods and services. IS (Income statement) – The income statement abbreviation expresses the financial paper, which reveals the incomes and expenses of a business at a specific time. DR (Derivative) – This is one of the accounting abbreviations describing a financial instrument that derives its value from the performance of another asset or group of assets.
What are the 5 accounting rules?
- Revenue Recognition Principle. When you are recording information about your business, you need to consider the revenue recognition principle.
- Cost Principle.
- Matching Principle.
- Full Disclosure Principle.
- Objectivity Principle.