Accounting Abbreviations: If you’re considering a career in accounting, the first step is to learn some of the most commonly used accounting terms, acronyms, and abbreviations. Every industry appears to have its own secret code. Knowing the jargon is also a method to gain access to the inner circle, demonstrating that you are a member.
It’s not uncommon for people to feel that working in accounting is out of reach because of the complicated credentials, many accounting misunderstandings, and these industry terms, yet it’s only a matter of learning a new language. Knowing how to “talk the talk” can help you focus on the important training. Rather than accounting definitions and abbreviations, you’ll need to develop a successful accounting career.
It’s time to roll up your sleeves and brush up on your accounting jargon. To help you get started, we’ve put together a beginner’s accounting dictionary with a list of essential financial words and acronyms.
Accounting abbreviations are like a second language to seasoned accountants. If you’re having problems reading a balance sheet or income statement, looking up the definitions of key phrases may be beneficial. Continue reading for a list of accounting abbreviations that will clear up any misunderstandings.
Let’s start with some common accounting abbreviations.
Of course, those fundamental accounting terms have nothing to do with any particular financial statement. They’ve been assigned to the “generic” category. Let’s start with some common accounting abbreviations.
Accounting by Accrual
Accrual accounting is a method of accounting in which revenue and expenses are recorded at the time of the transaction rather than when the payment is received. The matching principle stipulates that revenues and expenses should be reported in the same period.
Allocating funds to separate accounts or periods is referred to as “allocation.” A cost, for example, can be spread out over several months (like in insurance) or split over multiple departments (as is often done with administrative costs for companies with multiple divisions).
Period of Accounting
There is a designated accounting period (Income Statement, Balance Sheet, and Statement of Cash Flows). The time span for which the statements are being prepared is specified by the period.
Entity (legal or business)
Business structures include sole proprietorship, partnership, limited liability corporation (LLC), S-Corp, and C-Corp. Each company has its own set of rules, laws, and tax implications.
Cash Flow (CF)
The influx and outflow of funds in a company is referred to as “cash flow.” Subtracting the Beginning Cash Balance from the Ending Cash Balance yields the Net Cash Flow for a given period. A positive number indicates that more money has entered the firm than has left it, whilst a negative number indicates the opposite.
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A credit is the difference between a rise in a liability or equity account and a drop in an asset or cost account.
Certified Public Accountant (CPA):
A CPA stands for certified public accountant, and it is a professional credential that an accountant can obtain by passing the CPA exam and meeting state-specific educational and work experience requirements.
Diversification is a risk-mitigation technique. The objective is to disperse capital over a number of assets such that the performance of any one does not dictate the overall performance.
A debit occurs when an asset or cost account increases while a liability or equity account decreases.
OE: Owner’s equity and equity
In the broadest sense, equity is defined as assets minus liabilities. The percentage of a company’s shares that a person owns is commonly used to represent an owner’s equity. The persons who own the shares are called shareholders.
Enrolled Agent (EA)
Enrolled Agent is a professional accounting designation awarded to persons who have passed tests demonstrating their understanding of business and personal taxes. Enrolled Agents are routinely employed to draught business tax filings and ensure compliance with the Internal Revenue Service.
Fixed Cost (FC)
Regardless of sales volume, the term fixed cost remains constant. If a company sells more, rent and compensation, for example, will not alter. The polar opposite of a Fixed Cost is a Variable Cost.
The acronym GAAP stands for “Generally Accepted Accounting Principles.”
All accountants must follow these rules when performing their duties. These broad criteria were created to make it easier to compare “apples to apples” while looking at a company’s financial reports.
GAAP is an abbreviation for Generally Accepted Accounting Principles, which is used in accounting. Although GAAP uses rules and standards, it does not always use them. Instead, GAAP is a set of basic concepts and specific methodologies that represent the best accounting practises at the time and, in many cases, within a single industry.
GAAP-compliant reporting ensures uniformity. Examiners of financial statements have a platform to compare performance to past periods or firms, as well as construct financial measurements based on GAAP-defined values.
General Ledger (GL)
The financial transactions of a corporation are documented in the General Ledger. The GL is used to prepare all of the financial statements.
Interest is the amount due on a loan or line of credit that exceeds the principal amount.
Default occurs when a person or an organisation is unable to meet their financial obligations to their lender(s) when their loans come due.
Journal Entry (JE)
Journal entries are used to make changes and updates to a company’s books. Every Journal Entry must include a unique identity (to record the entry), a date, a debit/credit, an amount, and an account code (which determines which account is altered).
A word that describes how quickly anything can be converted into money. Stocks, for example, are more liquid than real estate since they can be swiftly sold (and turned into cash).
LLC stands for “limited liability company.”
A limited liability corporation (LLC) is a corporate structure in which members are not liable for the debts or obligations of the company. This can save business owners their entire life savings if the company has problems.
The term “material” refers to how knowledge influences decisions. If a company’s revenue is in the millions of dollars, $1.50 is insignificant. GAAP must be followed for all material elements.
On Account/on Credit
Customers can enjoy the benefits of a purchase made on a credit or account right now because the item is paid for later. Many people, like you, use credit cards.
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Overhead expenses are those that are associated with the day-to-day operations of the company. They do not include the costs of making the product or providing the service. Rent and executive salaries, for example, are usually included in overhead.
Present Value (PV)
The term “present value” refers to the current value of an asset rather than its future value. It is based on the premise that due to inflation, cash today is more valuable than cash tomorrow.
The payroll account keeps track of employee salaries, wages, bonuses, and deductions. If the corporation owes any outstanding salary or vacation compensation, it will show up as a liability on the Balance Sheet.
A receipt is a piece of paper that acts as payment verification. Receipts are generated when a firm delivers a product or provides a service, and receipts are received when it pays for goods and services from other companies. Receipts should be kept and catalogued so that a company may prove that its expenses are correct.
ROI stands for Return on Investment.
This term originally referred to a company’s profit (Return) divided by the required investment amount. Today, the term is more loosely used to the financial outcomes of numerous initiatives and objectives. For example, if a company spends $500 on marketing and makes $1,000 in profit, it can claim a 50% return on investment in marketing.
TB: Trial and Error
A Trial Balance (TB) is a list of all General Ledger accounts with their current balances (either debit or credit). As a result, the total debits and credits must equal each other, resulting in a balance.
Variable Cost (VC)
Fixed and variable costs are diametrically opposed. Fixed costs are expenses that do not change based on sales volume. Variable expenses rise as the number of sales increases since they are an expense required to deliver the sale. If a company produces a product and sells more of it, more raw materials will be needed to meet the increased demand.
Accounting Abbreviations for the Balance Sheet
The balance sheet is one of the two most common financial statements generated by accountants. This section explains basic accounting abbreviations that are confusing and relevant to the balance sheet.
Anything the firm holds that has monetary value. Starting with cash (the most liquid) and ending with land, they are listed in order of liquidity (least liquid).
Accrued Expense (AE)
An expense that has been incurred but not yet paid is referred to as an accrued expense.
Balance Sheet (BS)
The assets, liabilities, and equity are summarised in a financial statement. A balance sheet follows the equation Assets = Liabilities + Equity, as its name suggests.
Book Value (BV)
As an asset depreciates, its value declines. The Book Value is the real value of an asset, less any depreciation that has accrued.
Accounts Payable (AP)
Accounts Payable is a category that contains all expenses incurred but not yet paid by a corporation. This account is depicted as a liability on the Balance Sheet because it is a corporate debt.
Accounts Receivable (AR)
Accounts Receivable includes any revenue that a company has generated but has not yet been paid. This account is noted on the Balance Sheet as an asset that will most likely convert to cash in the near future.
Any unpaid debts owing to a corporation are referred to as liabilities. Common liabilities are Accounts Payable, Payroll, and Loans.
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Equity refers to the value left over after all liabilities have been paid. Take a look at the equation Assets = Liabilities + Equity. When all of your liabilities are subtracted from your assets, you’re left with Equity.
Inventory refers to assets that a company has purchased but has yet to sell to its customers. The inventory account will shrink as these items are sold to clients.
Accounting abbreviations for terms on the income statement
The Income Statement, often known as the Profit and Loss Statement in accounting, is the second of two regularly used financial statements. The most commonly used fundamental accounting terms in this reporting tool are listed below. Let’s get started studying accounting abbreviations for income statement terms.
Depreciation is a phrase used in accounting as one of the acronyms to explain how an asset loses value over time. To be depreciated, an asset must have a considerable value. Automobiles and equipment are examples of depreciable assets. Depreciation is a line item on the Income Statement that is categorised as a “Non-Cash Expense” since it has no direct impact on a company’s cash flow.
COGS stands for Cost of Goods Sold.
The Cost of Goods Sold (COGS) is an accounting term that refers to the expenses directly associated to the creation of a product or service. This category excludes charges that are required to conduct business. COGS might include the cost of goods or direct labour to provide a service.
Net Income (NI)
The amount of profit earned is referred to as net income. It is calculated by taking Revenue and subtracting all Expenses for a given time, including COGS, Overhead, Depreciation, and Taxes.
The net margin is a percentage that shows how profitable a firm is in relation to its revenue. It’s calculated by dividing Net Income by Revenue over a specific time period.
An expense is a term used to describe any cost incurred by the company.
Gross Margin (GM)
Gross Margin is calculated by dividing Gross Profit by Revenue over the same time period to get a percentage. Its profitability is determined after subtracting the Cost of Goods Sold.
Gross Profit (GP)
Gross profit is a monetary measure of a company’s profitability, minus overhead costs. It’s calculated by subtracting Cost of Goods Sold from Revenue over the same time period.
Income Statement (IS or P&L) (Profit and Loss)
In accounting, an income statement (also known as a profit and loss statement or P&L) is a financial statement that illustrates or displays a company’s sales, expenses, and earnings during a certain time. At the top of the report, the entire money collected is shown, and various expenditures (expenses) are deducted until all costs are covered. The final result is Net Income.
With the essential abbreviations in accounting covered in this blog, you’re ready to start your trip into the world of accounting now that you’ve mastered the fundamentals.