Accounting Equation – Assets = Liabilities + Owner’s Equity

Accounts Payable – Short term liabilities which reflect the amount owed vendors and suppliers

Accounts Receivable – Short term assets reflecting the amount owed by customers from the sale of product or services on credit

Accrual Accounting – The process of recognizing, in the financial statements, revenue when it is earned and expenses as they are incurred regardless of when the cash changes hands

Accumulative Depreciation – The total cumulative amount of depreciation expense that had been recorded since the fixed asset was acquired.

Assets – Everything of monetary value owned by the business including cash, accounts receivable, inventory, equipment, buildings and land.

Balance Sheet – A summary of the assets, liabilities and owner equity at a defined moment in time

Bottom Line – The last line on the income statement or the final amount of profit for the accounting period after all expenses and adjustments

Capital Assets – see Fixed Assets

Capital Expenditure – Expenditures for fixed assets

Cash Accounting – A method of accounting in which sales are recorded when the money is actually received, not when the services are delivered. Expenses are recognized when paid, not at the time they are incurred

Cash Flow – Net income for the accounting period adjusted for changes in certain assets, liabilities and depreciation

Cash Flow Statement – A summary of cash inflows and cash outflows during an accounting period

Chart of Accounts – A list of all the accounts in the company ledger summarized in a systematic manner representing the sequence on financial statements. Accounts are normally divided into five groups: assets, liabilities, owners equity, revenue and expenses

Cost of Goods Sold – Costs directly related to sales, such as product from inventory

Current Assets – Assets that should be a source of cash in the short term; cash, accounts receivable and inventory

Current Liabilities – Obligations due in the short term; accounts payable, rent, taxes and sometimes payments on long term liabilities due in the current period.

Depreciation Expense – The portion of an asset’s cost charged as an expense during the accounting period to adjust for a reduction in value due factors such as wear.

Expenses – Period costs other than the cost of goods sold usually called expenses

Equity Capital – see Owners’ Equity

Financial Statement – generally refers to one of the primary accounting reports: Balance Sheet, Income Statement and Cash Flow Statement

Fiscal Year – A tax year of twelve months beginning on a date selected by the business owner

Fixed Assets – Tangible resources with long life used in operation of the business: land, buildings, machinery, equipment and vehicles

Fixed Expense – Costs that do not change greatly over the short term and are not directly related to manufacturing or sales volume; such as rent, office expense, utilities and insurance

Gross Margin – Equals sales revenue less the cost of goods sold

Income – The money received from the sale of merchandise or performance of a service

Income Statement – The financial statement that summarized sales revenue and expenses for an accounting period

Inventory – Product or goods available for sale, work in the manufacturing process and raw material that will be used to manufacture products

Invoice – The written record of a sale

Liabilities – All obligations of the business including current and long term liabilities

Long Term Liabilities – Liabilities that will remain as debt for longer than one year, such as long term borrowing

Margin – Equals sales revenue minus the cost of goods sold and minus other variable expenses, such as shipping

Net Income – Equals sales revenue less all costs and expenses for the period

Net Sales – Total Sales minus customer Returns and Allowances

Other Assets – Assets other than current and fixed, normally deposits and prepaid expenses

Other Income – Revenue that is not part of normal income, such as interest or sale of an asset

Overhead Costs – Costs and expenses that cannot be directly matched to a product or sale, for example property tax

Owner’s Equity – The book value of the business comprised of the owner’s initial investment plus retained earnings, also the difference between total assets and total liabilities

Prepaid Expense – Expenses paid in advance, such as insurance premiums

Product Cost – The purchase cost of goods sold by a wholesaler or retainer or for a manufactured product the total of direct material, direct labor, variable and fixed manufacturing overhead

Profit - A general term that normally means sales revenue minus expenses over a defined period of time

Profit and Loss Statement – Normally an internal company report somewhat similar to an Income Statement

Retained Earnings – Generally the sum of earnings since the business began less dividends paid the owners

Revenue (or Sales) – The total amount obtained for products or services

Variable Expenses – Expenses or costs directly related to sales or manufacturing volume

Working Capital – Current assets minus current liabilities

Year End – The end of the business’s financial year. This will be December 31 for most businesses. If your year end is not December, you are considered to have a fiscal year.