Every business has its secret language, and awareness of that secret language provides you access to the inner circle. Knowing the basic terms indicate your belongingness to the entity. So, those seeking a career in accounting need to know the basic accounting terms that all business owners and employers use during conversations.
The article here will help you to enhance your accounting vocabulary and start a career in accounting. These key terms will also facilitate your understanding of various accounting courses, including AAT qualification, ACCA, CIMA, bookkeeping courses, and accounting software training.
The common accounting terms often used in business settings include:
Accounting is the process of systematically recording and reporting the financial transaction for an organisation or a business.
A general ledger refers to completing the financial transaction of record of business over a company’s life.
The balance sheet are the financial statements informing about the company’s resources, liabilities, and equity. The balance sheet equation is as under:
Company’s resources = Liabilities + Equity
Trade debtor refers to your customer’s invoices, also known as accounts receivable or debtor. It also relates to customers who owe you cash as part of invoices.
Accounts payable are money owed to suppliers or vendors for received products and services that are still unpaid. The net outstanding amount owed to suppliers appears as an accounts payable balance in the company’s balance sheet.
The accounting period refers to the period reported in important financial statements, including balance sheet, income statement, and statement of Cash Flows.
Business is a legal entity, type, or structure with various formations, including Sole Owner, Partnership, C Corporation, S Corporation, and Limited Liability Corp (LLC). Each entity has its own set of laws, structure, requirements, and tax implications.
Cash Flow refers to the inflow and outflow of all money in the business. The positive answer indicates that businesses generated more revenues than their spending, and the negative number shows that the company was at a loss.
Payroll refers to an account that depicts the employees’ payments, including salaries, bonuses, wages, and deductions. On the balance sheet, payroll appears as a liability owed by the company in case of any unpaid wages or increased vacation pay.
Certified Public Accountant (CPA)
Certified Public Accountant (CPA) is a designated profession that an individual earns after passing the CPA exam to fulfil education and job experience needs. The requirements for CPA vary for different states.
Return on Investment (ROI)
Return on Investment (ROI) originally referred to company profit that it made, divided by the required investment. Now the term refers to company returns on different objectives and projects. That is, if a company make £1000 while spending £500, then the ROI of the company is 50%.
Trail Balance refers to the process of account listing in a general ledger with a balanced amount of either credit or debit. The total credits must be equal to total debits to create a balance.
Variable Cost (VC)
Variable Costs is opposite to Fixed Cost and refer to costs that change with sales volume. If the business offers service and sells more of that service, they need to produce more raw material to meet the product demand. The increase in sales increases the variable cost as they are the expenses incurred for sale delivery.
Accrued Expense are the expense that has been incurred but not paid.
The asset is anything that the businesses own and has monetary value for them. The investments are in order of liquidity, from cash to land.
Inventory refers to the classification of the company’s assets to sell to their customers and remain unsold. When these items are sold to the clients, the inventory account decreases.
The debts owed by the company and are yet to be paid known as liabilities. The liabilities include payroll, accounts payable, and loans.
Depreciation refers to the accounts for the value loss in assets over time. An investment must have significant value to justify depreciating it. It appears on the income statement as an expense and is classified as a non-cash expense as it does not impact the company’ cash position.
Expense refers to eh cost acquired by the company or business.
Gross Margin (GM)
Gross Margin refers to the percentage obtained by dividing the Gross Profit by Revenue for the same period. It depicts the company’s profitability after deduction of the cost of sold products.
Gross Profit (GP)
Gross Profit refers to the company’s profitability without considering the overhead expenses. It can be obtained by deducting the cost of sold products from revenue for the same period.
Net Margin refers to the percentage amount that shows the company’s Profit related to its revenue. It can be obtained by dividing the net income by payment in a given time.
Revenues are the amounts that the company or business earns.
Knowing these basic terminologies will allow you to become an accounting expert and easily grasp the concept during your studies. Moreover, it will enable us to communicate better and comprehend the tasks and talks in the company.
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