19 Oct The Top 20 CPA and Accounting Terms You Need to Know

20 CPA and Accounting Terms You Need to Know

The certified public accountant (CPA) and accounting industry constantly change depending on current markets. If you don’t stay up-to-date on the latest terminology, your business could suffer. If you are concerned about keeping up-to-date with the latest CPA and accounting terms, here are the 20 most important terms to help your business thrive.

1. Accounts Payable (AR)

Accounts payable (AR) in the CPA and accounting industry includes all expenses your business has incurred but still needs to pay. Accounts payable is a liability on your company’s balance sheet, meaning that it is a debt that your company owes its suppliers, and AP equals how much you owe creditors for their goods and services.

2. Cash Flow (CF)

Cash flow is another essential term for anyone in the CPA and accounting industry. Cash flow (CF) refers to your company’s inflow and outflow of funds. Accountants find the net cash flow by subtracting your company’s ending cash balance from its beginning balance. If the resulting number is positive, more cash flows into your business than out; if negative, the opposite is true.

Your company’s CF is what you expect to generate in revenue for your activities during a specific period, such as sales and manufacturing.

3. Net Income (NI)

Net income refers to how much your company earns in profits. Your NI is found by taking your company’s revenue and subtracting expenses, taxes, depreciation, and interest.

4. Return on Investment (ROI)

Your company’s return on investment (ROI) helps you understand the financial performance of each investment. You can find your ROI by subtracting an initial investment value from its ultimate value or net return. You then divide your net return by your investment cost, then multiply it by 100.

Companies also use ROI to describe the general returns on projects and objectives and evaluate their financial performance compared to how much money they put into the project.

5. Accounts Receivable (AR)

Accounts receivable (AR) describes the amount of money that your company has not collected payment for. AR falls under assets on your firm’s balance sheet and can be short-term cash for your company.

6. Cost of Goods Sold (COGS)

The cost of goods sold (COGS) describes the expenses your company incurs when producing its services and goods for sale. COGS are direct costs and help determine your gross profit. Expenses that you might find in COGS are raw materials or manual labor.

7. Gross Profit (GP)

Your gross profit (GP) is your company’s profitability in dollars without adding any overhead expenses. Accountants find the GP by deducting COGS from revenue in a single period. Your GP will also show how much money your organization will likely earn within a period.

8. Gross Margin (GM)

A company’s gross margin (GM) is its overall profitability after subtracting its COGS. Your GM helps you determine how much working capital you can afford to spend.

9. Fixed Cost (FC)

Your company’s fixed cost (FC) remains constant regardless of your sales volume for a specific period. For example, your salary or rent is a fixed cost, as it does not change due to varying production levels.

10. Accrued Expense (AE)

An accrued expense (AE) is a cost that a company has incurred but has not paid.

11. Profit and Loss Statement (P&L)

Your organization’s profit and loss (P&L) statement is its financial statement that summarizes your performance and current financial position. A P&L statement reviews your company’s revenues, costs, and expenses during a specific period. Some companies refer to their P&L statement as income statements.

12. Book Value (BV)

Your company’s book value (BV) is the original value of an asset minus the asset’s depreciation or liability. Your BV shows the result of depreciation.

13. Depreciation (Dep)

Depreciation (Dep) describes the loss of value in one of your company’s assets, and depreciated assets typically have substantial value. Depreciation is on your company’s income statement and listed as an expense, and depreciation doesn’t directly affect your overall cash position.

14. Certified Public Accountant (CPA)

A certified public accountant (CPA) is a position that an accountant can earn if they pass the standardized CPA exam and fulfill requirements for education and work experience. CPA requirements typically vary by state.

15. Enrolled Agent (EA)

An enrolled agent (EA) is an accounting position for professionals demonstrating their expertise in personal and business taxes. EAs help complete your company’s tax filings in compliance with the IRS. EAs represent taxpayers dealing with the IRS and help companies accurately file taxes during every tax period.

16. Generally Accepted Accounting Principles (GAAP)

Generally accepted accounting principles (GAAP) are the rules that accountants follow when they perform various tasks and duties in a company to provide a standardized framework to assess the organization’s financial reports. GAAP significantly impacts publicly traded companies.

17. Trial Balance (TB)<

Your company’s trial balance (TB) is a report that contains all business ledgers and lists the balance amount in either debit or credit. Once calculated, the trial balance debits must be the same as the total credits. TB reports give companies a view of the ending balance in the general ledger’s accounts, such as balances regarding assets, equity, revenue, liabilities, expenses, losses, and gains.

18. Variable Cost (VC)

Variable cost (VC) is one of the main costs your company incurs when producing its goods and services. These costs vary depending on the production amount, and unlike fixed costs, variable costs will increase with your sales as they are expenses incurred for delivering each sale. Variable costs might change depending on demand for specific products and resources.

19. General Ledger (GL)

Your company’s general ledger (GL) records all financial transactions during its entire life, which accountants post into sub-ledger accounts. The general ledger helps prepare financial statements in your organization.

20. Bonds and Coupons (B&C)

Bonds and coupons (B&C) are a two-part process in the CPA and accounting industry. Bonds are debt investments in your company and are considered fixed-income security. Investors will loan money to companies with the promise that they will receive the money from their bond back with interest. The coupon describes the annual interest rate your company pays on its bonds.

CPA services in Middle Tennessee

If you’re looking for CPA services in Murfreesboro, Lebanon, or the midstate area, contact DVF today. Our team can help you brush up on any of these terms and take your accounting to the next level.