Top 10 Accounting Terms
Speak Like an Accountant
Being well-versed in the language of accounting speaks volumes about your seriousness for the profession. The more you learn through the course of your education, the more natural these terms will become.
Top 10 Terms for Technical Talks
A transaction is any financial activity – a payment, withdrawal, receipt or deposit – that is recorded in an accounting system (or ledger) and consequently has an impact on the bottom line.
The general ledger summarizes all of the individual ledgers that a company might keep. Individual ledgers might include travel, payroll, or sales – each of which will be made up of a series of transactions.
Current assets are assets that can easily be converted to cash, typically within a one-year period. These are known as liquid assets. Conversely, fixed assets include property, buildings, equipment, and any other assets that are not as easily liquidated.
Current liabilities are those that can be repaid within one year’s time. This would include short-term loans, invoices, paychecks, and regular expenses. Fixed liabilities are larger, longer-term expenses like mortgages, vehicle payments, corporate bonds, secured loans, and other major costs.
Equity is what is left over after you subtract business liabilities from business assets. Equity is also commonly referred to as net worth.
Depreciation is the loss in value of a fixed asset that is calculated over time. There are several methods for calculating depreciation, with the simplest being straight-line deprecation.
Variance is the difference between an estimated budget (expenses and income) over a set period of time and the actual financial results during that same period.
Cash Flow Statement
A cash flow statement tracks all of sources of cash within a company, including inflow and outflow. There are several different kinds of cash flow statements for internal use, for creditors, and for reporting to investors.
Forecasts can be for the short term or long term. Forecasts take a number of factors into consideration (such as cash, sales revenue, profit/loss, assets, liabilities and net worth) to predict financial outcomes with a fair degree of accuracy.
Return on Investment (ROI)
Return on investment is the number of net dollars earned per each dollar of invested monies. It is how investors and shareholders calculate their returns, as well as a method for determining the value of services rendered.