A

Account: A record of financial transactions for a specific item, such as cash or inventory.

Accounts Payable: The amount a company owes to its suppliers for goods or services that have been received but not yet paid for.

Accounts Receivable Aging: A report that shows how long a company’s customers have owed it money and how much is owed in each category (e.g. current, 30 days past due, 60 days past due).

Accounts Receivable Turnover Ratio: This ratio shows how quickly a company collects payment from its customers. It’s calculated by dividing revenue by accounts receivable.

Accounts Receivable: The amount a customer owes a company for goods or services that have been sold but not yet paid for.

Accrual Accounting: An accounting method that records financial transactions when they are incurred, rather than when cash is received or paid.

Accrual: A recognition of revenue or expenses before the cash is received or paid.

Accrued Interest: Interest that has been earned but has not yet been paid or received.

Adjusting Entries: Changes made to a company’s financial records at the end of an accounting period to ensure they are accurate and up-to-date.

Allowance for Bad Debts: An estimate of the amount of a company’s accounts receivable that it expects will not be collected.

Amortization: A method of allocating the cost of an intangible asset, such as a patent, over its useful life.

Amortization: The gradual reduction of debt over time through regular payments of interest and principal.

Asset Turnover Ratio: This ratio shows how efficiently a company is using its assets to generate revenue. It’s calculated by dividing revenue by total assets.

Assets: Things a company owns that have value, such as money, buildings, and equipment.

Audit: An independent examination of a company’s financial records and practices to ensure they are accurate and in compliance with accounting standards.

B

Balance Sheet: A financial statement that reports a company’s assets, liabilities, and equity at a specific point in time.

Bank Reconciliation: The process of comparing a company’s records of its cash transactions with its bank statements to ensure they match and to identify any errors or discrepancies.

Bill of Lading: A document that acknowledges receipt of goods being shipped and acts as a contract of carriage between the shipper and the carrier.

Bookkeeping: The process of recording a company’s financial transactions in its accounting records.

Budget: A financial plan that outlines a company’s expected revenue, expenses, and cash flow for a future period.

C

Capital Expenditures: Money a company spends to acquire or improve long-term assets, such as buildings or equipment.

Capital: Money a company has invested in its business to purchase assets, fund operations, or grow the business.

Capitalization Ratio: This ratio shows how much of a company’s financing comes from debt compared to equity. It’s calculated by dividing total debt by total debt plus equity.

Cash Conversion Cycle (CCC): This ratio shows how long it takes for a company to convert its resources into cash. It’s calculated by adding days sales outstanding, days inventory outstanding, and days payable outstanding and subtracting days payable discount received.

Cash Flow Statement: A financial statement that reports the inflows and outflows of a company’s cash during a specific period.

Cash Flow: The amount of cash coming in and going out of a company over a period of time.

Certificate of Deposit (CD): A low-risk investment in which a person deposits money with a bank for a fixed term and receives a guaranteed interest rate.

Chart of Accounts: A list of all the accounts in a company’s accounting system, including accounts for assets, liabilities, equity, revenue, and expenses.

Collection Period: The average number of days it takes a company to collect its accounts receivable from its customers.

Commission: A fee paid to a salesperson for selling a product or service.

Consignment: An arrangement in which a company allows another company to sell its goods, but retains ownership until the goods are sold.

Cost of Goods Sold: The cost a company incurs to produce and sell its products, including direct costs such as raw materials and labor, and indirect costs such as overhead.

Credit Note: A document issued by a company to its customer to adjust a previous sale, such as when a customer returns goods or requests a price adjustment.

Credit: An agreement in which a company allows a customer to purchase goods or services now and pay for them later.

Current Ratio: This ratio measures a company’s ability to pay its short-term obligations with its current assets. It’s calculated by dividing current assets by current liabilities.

D

Days Sales in Inventory (DSI): This ratio shows how many days on average it takes for a company to sell its inventory. It’s calculated by dividing 365 days by inventory turnover.

Days Sales Outstanding (DSO): This ratio shows how long it takes for a company to collect payment from its customers. It’s calculated by dividing accounts receivable by average daily sales.

Debits and Credits: The two sides of a financial transaction, with debits representing an increase in assets or a decrease in liabilities and equity, and credits representing a decrease in assets or an increase in liabilities and equity.

Debt Service Coverage Ratio (DSCR): This ratio shows a company’s ability to pay off its debt obligations. It’s calculated by dividing net operating income by total debt service.

Debt to Asset Ratio: This ratio shows how much of a company’s assets are financed through debt. It’s calculated by dividing total debt by total assets.

Debt to Capital Ratio: This ratio shows the proportion of a company’s financing that comes from debt. It’s calculated by dividing total debt by total debt plus equity.

Debt to Equity Ratio: This ratio shows how much of a company’s financing comes from debt compared to equity. It’s calculated by dividing total liabilities by shareholder’s equity.

Debt to Income Ratio: This ratio shows how much of a person’s or a company’s income is being used to pay off debt. It’s calculated by dividing total debt by total income.

Deferral: Postponing the recognition of an expense or revenue until a future period.

Deferred Revenue: Revenue a company has received but has not yet earned, such as advance payment for a product or service that has not yet been delivered.

Depreciation: A method of allocating the cost of a long-term asset over its useful life to reflect the asset’s wear and tear.

Discount: A reduction in the price of a product or service, such as a cash discount or a volume discount.

Dividend Payout Ratio: This ratio shows what percentage of a company’s earnings is being paid out as dividends to shareholders. It’s calculated by dividing dividends by earnings.

Dividend Yield: This ratio shows what percentage of a company’s stock price is being paid out as dividends to shareholders. It’s calculated by dividing annual dividends per share by stock price per share.

Dividend: A portion of a company’s profit paid to its shareholders.

Double-Entry Accounting: An accounting method that requires each financial transaction to be recorded in two or more accounts, such as a debit to one account and a credit to another.

E

Earnings Before Interest and Taxes (EBIT): This ratio shows a company’s profit before paying interest on loans and taxes. It’s calculated by subtracting operating expenses from total revenue.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): This ratio shows a company’s profit before paying interest, taxes, depreciation, and amortization. It’s calculated by subtracting all expenses from total revenue.

Earnings per Share (EPS): This ratio shows a company’s profit per share of stock. It’s calculated by dividing net income by the number of outstanding shares.

Endorsement: The signature of a person, such as a bank customer or a check endorser, authorizing the transfer or negotiation of a financial instrument, such as a check or a note.

Equity: The difference between a company’s assets and liabilities, representing the owners’ interest in the business.

Expense: Money a company spends to run its business, such as salaries, rent, and utilities.

F

Factoring: The sale of a company’s accounts receivable to a financial institution in exchange for immediate cash, with the financial institution assuming the risk of non-payment by the customers.

Financial Statement: A document that reports a company’s financial performance, such as its income statement, balance sheet, and cash flow statement.

Fixed Asset Turnover Ratio: This ratio shows how efficiently a company is using its fixed assets (property, plant, and equipment) to generate revenue. It’s calculated by dividing revenue by total fixed assets.

Fixed Asset: A long-term asset, such as property, plant, and equipment, that a company uses in its business and expects to keep for more than one year.

Franchise: An agreement in which a company allows another company to use its brand name and business model in exchange for a fee or a percentage of sales.

G

GAAP (Generally Accepted Accounting Principles): The set of guidelines and rules that companies follow when preparing their financial statements.

General Ledger: A record of all a company’s financial transactions, including assets, liabilities, equity, revenues, and expenses.

Gross Debt Service Ratio (GDSR): This ratio shows how much of a person’s or a company’s income is being used to pay off debt related to housing. It’s calculated by dividing total housing expenses by total income.

Gross Margin Return on Investment (GMROI): This ratio shows a company’s profit margins on its investments in inventory. It’s calculated by dividing gross profit by average inventory investment.

Gross Margin: The amount of money a company earns after subtracting the cost of goods sold from its revenue.

Gross Profit Margin: This ratio shows how much of a company’s sales are left after paying for the cost of goods sold. It’s calculated by dividing gross profit by total revenue.

I

Income Statement: A financial statement that reports a company’s revenue, expenses, and profit for a specific period.

Indirect Cost: A cost that is not directly associated with a specific product or service, such as general and administrative expenses.

Insurance: A contract in which an insurance company agrees to provide financial protection against loss or damage in exchange for a premium.

Interest Coverage Ratio: This ratio shows how easily a company can pay off its interest expenses on loans. It’s calculated by dividing earnings before interest and taxes by total interest expenses.

Interest Expense: The cost a company incurs for borrowing money, such as from a bank or bondholders.

Internal Control: Procedures and processes a company has in place to ensure the accuracy and reliability of its financial information and to prevent fraud and error.

Inventory Turnover Ratio: This ratio shows how many times a company sells and replaces its inventory in a given period. It’s calculated by dividing cost of goods sold by average inventory.

Inventory: The raw materials, work-in-progress, and finished goods a company has on hand for sale.

Invoice: A document sent to a customer that outlines the goods or services the customer has purchased and the amount the customer owes.

J

Journal Entry: A record of a financial transaction in a company’s journal, which will later be transferred to the general ledger.

Journal: A book used to record financial transactions as they occur, which will later be transferred to the general ledger.

L

Lease: An agreement between a company and a lessor for the use of an asset, such as real estate or equipment.

Ledger Account: A record of all transactions for a specific item, such as cash or accounts payable, in a company’s ledger.

Ledger: A record of a company’s financial transactions, organized by account.

Liabilities: Debts or obligations a company owes to others, such as loans, accounts payable, or taxes.

Long-Term Debt: A debt a company expects to repay over a period of more than one year, such as a bond or a loan.

Loss: When expenses are greater than revenue, resulting in negative profit.

M

Margin: The difference between a company’s revenue and its cost of goods sold, representing its profit on each unit of goods sold.

N

Net Income: The amount of money a company earns after subtracting all its expenses from its revenue.

Net Profit Margin: This ratio shows how much of every dollar in revenue a company actually keeps as profit after accounting for all expenses. It’s calculated by dividing net profit by revenue.

O

Operating Profit Margin: This ratio shows the amount of profit a company generates from its operations after deducting operating expenses. It’s calculated by dividing operating profit by revenue.

Overhead: The indirect costs of a company, such as rent, utilities, and insurance, that are not directly associated with its products or services.

Owner’s Equity: The portion of a company’s assets that is owned by its shareholders, representing the residual value of the company after deducting its liabilities.

P

Payables: Money a company owes to others, such as suppliers for goods or services it has purchased on credit.

Payout Ratio: This ratio shows what percentage of a company’s earnings is being paid out as dividends to shareholders. It’s calculated by dividing dividends by earnings.

Payroll: The process of paying a company’s employees for their work, including calculating and paying their salaries, wages, and benefits.

Petty Cash: A small amount of cash a company keeps on hand for small expenditures, such as office supplies or taxi fares.

Price to Book Ratio (P/B Ratio): This ratio compares a company’s stock price to its book value. It’s calculated by dividing the stock price by book value per share.

Price to Earnings Growth (PEG) Ratio: This ratio compares a company’s stock price to its earnings growth. It’s calculated by dividing the price to earnings ratio by the company’s earnings growth rate.

Price to Earnings Ratio (P/E Ratio): This ratio compares a company’s stock price to its earnings per share. It’s calculated by dividing the stock price by earnings per share.

Price to Sales Ratio (P/S Ratio): This ratio compares a company’s stock price to its sales per share. It’s calculated by dividing the stock price by sales per share.

Profit and Loss Statement: A financial statement that shows a company’s revenues, expenses, and net income or loss over a period of time.

Profit: The amount of money a company earns after subtracting all expenses from revenue.

Purchasing: The process of acquiring goods or services a company needs to operate its business.

Q

Quick Ratio: This ratio is similar to the current ratio but excludes inventory from current assets. It’s calculated by dividing (current assets – inventory) by current liabilities.

R

Receipts: Records of money received by a company, either in cash or by check.

Receivables: Money a company is owed by its customers for goods or services it has sold on credit.

Return on Assets (ROA): This ratio shows how much profit a company is generating for each dollar invested in its assets. It’s calculated by dividing net income by total assets.

Return on Equity (ROE): This ratio shows how efficiently a company is using its shareholder’s equity to generate profit. It’s calculated by dividing net profit by shareholder’s equity.

Return on Invested Capital (ROIC): This ratio shows how much profit a company is generating for every dollar invested in its business. It’s calculated by dividing net operating profit after taxes by invested capital.

Revenue: The money a company earns from selling its goods or services.

S

Sales Tax: A tax a company must collect and remit to the government on behalf of its customers when it sells taxable goods or services.

Sales: The process of selling a company’s products or services to customers.

Statement of Cash Flows: A financial statement that shows the flow of cash into and out of a company over a period of time.

Stock or Share: A unit of ownership in a corporation, representing a claim on its assets and earnings.

Subsidiary Ledger: A record of detailed information for a specific type of account, such as accounts receivable or accounts payable, that is part of a company’s general ledger.

T

T-Account: A visual representation of a ledger account, showing debits on the left and credits on the right.

Tax: Money a company or individual must pay to the government to support public services and programs.

Transfer Pricing: The process of determining the prices that a company charges its various units or divisions for goods, services, or intellectual property they provide to each other.

Trial Balance: A report that shows the balance in each of a company’s accounts to verify that its books are in balance and its financial transactions have been recorded accurately.

U

Unearned Revenue: Money a company has received in advance for goods or services it has not yet provided.

V

Variance Analysis: The process of comparing actual results to budgeted or expected results to identify any differences and understand the reasons for them.

W

Working Capital: The difference between a company’s current assets and its current liabilities, representing its ability to pay its short-term obligations.

Write-Off: The process of removing an uncollectible account receivable from a company’s books, recognizing that it is unlikely to ever be collected.