Handling business finances is not an easy task. That’s why you have an accounting professional to assist you! But do you ever get utterly confused after having a conversation with your accountant? Understanding some of the key accounting terms will help you grasp what your accounting professional is talking about. By the end, you may just have a deeper understanding of what it is that your accounting professional does.
Here is a list of fifteen common accounting terms that you can refer to when trying to figure out what your accountant just said.
Accounts Payable (AP)
The expenses a business has incurred and recorded, but not yet paid.
Accounts Receivable (AR)
The total amount of a company’s sales where the revenue has not yet been collected.
Anything the business owns that has monetary value.
Balance Sheet (BS)
A financial statement that reports a company’s assets (what they own), liabilities (what they owe), and equity (assets – liabilities or the owner’s balance).
An expense that has not yet been received or paid but your business has agreed to pay in the future.
Book Value (NBV)
The original value of an asset less any depreciation or amortization recorded against it.
Cost of Goods Sold (COGS)
Expenses and costs related to the production of a product or service including materials and labor.
Gross Margin (GM)
A company’s profitability as a percentage after deducting the COGS from the revenue earned.
Gross Profit (GP)
A company’s profitability as a dollar amount after deducting the COGS from the revenue earned.
Income or Profit & Loss Statement (P&L)
A financial statement showing revenue, expenses, and profits over a specified period of time.
The length of time specified in a set of financial statements.
Cash Flow (CF)
The inflow and outflow of cash in a business. Positive cash flow means more money came in than out and vice versa.
A consistent cost that does not change regardless of the amount of sales. Rent and employee salaries are examples of fixed costs.
A cost that changes as the amount of sales changes. Production supplies and raw materials are examples of variable costs.
How quickly something can be converted into cash.
Understanding these terms will help you understand your accounting professional and feel less confused about what information they need from you. Use this accounting jargon when talking with your accountant if you really want to impress them. Or simply refer to this list later to further understand what they are talking about.
At CSB Creative Business Solutions, we are here to help business owners and accountants. Contact us to learn how we can help you.
Cathy Badry, BComm, CPB