Deciphering Financial Jargon: Your A-Z Glossary by Elite Accounting
Accounts Payable:
Liabilities or money owed by a business to its creditors/suppliers.
Accounts Receivable:
Money owed to a business by its customers for goods or services delivered.
Accrual:
Recognition of revenues and expenses when earned or incurred, not necessarily when received or paid.
Accrual Basis:
Accounting method that records revenues and expenses when they are earned or incurred, regardless of cash flow.
Amortization:
Gradual reduction of a debt over a period of time or spreading an intangible asset’s cost over its useful life.
Amortization Schedule:
A table detailing each periodic payment on an amortizing loan (like a mortgage) over time.
Assets:
Resources owned by a business or individual with economic value and expected future benefits.
Audit:
A systematic review and assessment of financial records to ensure accuracy and compliance with accounting standards and regulations.
Balance Sheet:
A financial statement that shows a company’s assets, liabilities, and equity at a particular point in time.
Bank Reconciliation:
Process of matching and comparing a company’s accounting records with its bank statements to ensure consistency.
Bankruptcy:
A legal proceeding involving a person or business that is unable to repay outstanding debts.
Benchmarking:
The process of comparing one’s business processes and performance metrics to industry bests or best practices.
Bond:
A fixed-income investment representing a loan made by an investor to a borrower, typically corporate or governmental.
Book Value:
The value of an asset as it appears on a balance sheet, accounting for depreciation and amortization.
Bookkeeping:
The process of recording, classifying, and organizing every financial transaction that occurs in a business.
Budget:
An estimate of income and expenditure over a set period, often used as a financial plan.
Capital:
Wealth in the form of money or other assets owned or employed in a business.
Capital Expenditure:
Funds used by a company to acquire, upgrade, and maintain physical assets like property, industrial buildings, or equipment.
Capital Gains:
The increase in value of a capital asset that gives it a higher worth than the purchase price.
Cash Basis:
An accounting method that records revenues and expenses only when money changes hands.
Cash Flow:
The net amount of cash being transferred into and out of a business.
Chart of Accounts:
A listing of all the accounts in the general ledger, each account accompanied by a reference number.
COGS (Cost of Goods Sold):
The direct costs attributable to the production of the goods sold in a company.
Credit:
An accounting entry that increases a liability or equity account, or decreases an asset or expense account.
Credit Rating:
An evaluation of the creditworthiness of an individual, corporation, or country.
Current Assets:
Assets that are expected to be converted into cash, sold, or consumed within a year.
Current Liabilities:
A company’s debts or obligations due within one year.
Debit:
An accounting entry that increases an asset or expense account, or decreases a liability or equity account.
Deferred Tax:
Tax that is assessed or is due for the current period but has not yet been paid.
Depreciation:
The systematic allocation of the cost of a tangible asset over its useful life.
Dividend:
A payment made by a company to its shareholders, usually as a distribution of profits.
Double-Entry Accounting:
An accounting technique where each transaction is entered twice, as both a debit and a credit.
Earnings Before Interest and Taxes (EBIT):
An indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest.
Earnings per Share (EPS):
The portion of a company’s profit allocated to each outstanding share of common stock.
Equity:
The value of the shares issued by a company, representing ownership interest.
Equity Financing:
The process of raising capital through the sale of shares in a company.
Expenses:
The economic costs a business incurs through its operations.
Financial Statements:
Formal records of the financial activities and position of a business.
Fiscal Year:
A one-year period that companies and governments use for financial reporting and budgeting.
Fixed Assets:
Assets and property owned by a business that are used in its operations and are not easily converted to cash.
Fixed Costs:
Costs that do not fluctuate with changes in production level or sales volume.
General Ledger:
The master set of accounts that aggregates all transactions recorded for a business.
Goodwill:
An intangible asset associated with a business acquisition, representing the value of a company’s brand, customer relations, employee relations, and other factors.
Gross Income:
The total revenue from all sources before deductions or expenses are subtracted.
Gross Margin:
A company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue.
Hedge:
An investment made to reduce the risk of adverse price movements in an asset.
Income Statement:
A financial statement that reports a company’s financial performance over a specific period.
Interest:
The charge for borrowing money, typically expressed as an annual percentage rate.
Internal Control:
Processes and procedures implemented to ensure the integrity of financial and accounting information.
Inventory:
The raw materials, work-in-process products, and finished goods considered to be the portion of a business’s assets that are ready or will be ready for sale.
Job Costing:
A method of calculating the costs involved in a job or manufacturing a product.
Journal:
A record where financial transactions are initially entered.
Key Performance Indicator (KPI):
A measurable value that demonstrates how effectively a company is achieving key objectives.
Lease:
A contract by which one party conveys land, property, services, etc., to another for a specified time, usually in return for periodic payments.
Liabilities:
Financial obligations or debts of a business.
Liquidity:
The ease with which an asset or security can be converted into ready cash without affecting its market price.
Loan:
A sum of money borrowed expected to be paid back with interest.
Market Value:
The price at which an asset would trade in a competitive auction setting.
Mortgage:
A loan taken out to buy property or land, where the property/land itself is the security.
Net Income:
Profit of a company after all expenses and taxes have been deducted from revenue.
Net Worth:
The value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities.
Non-Operating Expenses:
Expenses not related to the core business operations.
Operating Expenses:
Expenses incurred during regular business operations.
Operating Income:
The profit realized from a business’s core operations.
Overhead:
All ongoing business expenses not directly attributed to creating a product or service.
Payroll:
The list of a company’s employees and the amount of compensation due to each of them.
P&L Statement:
Profit and Loss statement, a financial report that shows revenues and expenses over a set period.
Preferred Stock:
A class of ownership in a corporation that has a higher claim on assets and earnings than common stock.
Profit Margin:
A measure of profitability calculated as net income divided by revenues.
Quick Ratio:
An indicator of a company’s short-term liquidity, measuring its ability to meet its short-term obligations with its most liquid assets.
Receivables:
Money owed to a company by its customers for goods or services delivered.
Return on Investment (ROI):
A measure used to evaluate the efficiency of an investment.
Revenue:
The income generated from normal business operations.
Risk Management:
The process of identifying, assessing, and controlling threats to an organization’s capital and earnings.
Securities:
Tradable financial instruments like stocks, bonds, and options.
Shareholder:
An individual or institution that legally owns a share of stock in a public or private corporation.
Solvency:
The ability of a company to meet its long-term debts and financial obligations.
Tangible Assets:
Physical assets such as buildings, machinery, and equipment.
Tax Deduction:
A deduction that lowers a person’s tax liability by lowering taxable income.
Trial Balance:
A bookkeeping report that lists the balances in each of an organization’s general ledger accounts.
Underwriter:
An individual or organization that evaluates and assumes another entity’s risk for a fee, such as in insurance policies.
Unearned Revenue:
Money received by a company for goods or services yet to be delivered or provided.
Unrealized Gain/Loss:
A profit or loss that results from holding an asset but has not yet been realized through a transaction.
Valuation: The process of determining the present value of an asset or company.
Variable Costs:
Costs that vary depending on a company’s production volume.
Variable Interest Entity:
A legal business structure in which an investor has a controlling interest despite not having a majority of voting rights.
Wage:
Payment to an employee from an employer for work or services rendered.
Working Capital:
The difference between a company’s current assets and current liabilities.
Write-Off:
A reduction in the recognized value of an asset, or elimination of an asset or liability from the books.
XBRL (eXtensible Business Reporting Language):
A standard for digitally communicating business and financial data.
Year-End:
The end of a fiscal year.
Year-to-Date (YTD):
The period from the beginning of the current year to a specified date.
Yield:
The income return on an investment, such as interest or dividends received.
Zero Coupon Bond:
A bond bought at a price lower than its face value, with the face value repaid at the time of maturity.
Zero-Based Budgeting:
A budgeting process where all expenses must be justified for each new period.