Abbreviations In Accounting: Important Terms You Must Know

Abbreviations In Accounting: If you’re thinking about pursuing a career in accounting, the first step is to become familiar with some of the most common accounting words, acronyms, and abbreviations. Every industry, it appears, has its hidden code. Knowing the terminology is also a gateway into the inner circle, indicating that you are a part of it.

Because of the confusing credentials, many accounting misconceptions, and these industry phrases, it’s not uncommon for people to believe that working in accounting is out of reach when it’s simply a matter of learning a new language. Knowing how to “speak the talk” will allow you to concentrate on the critical training. You’ll need to establish a successful accounting career rather than accounting definitions and abbreviations in accounting.

It’s time to roll up your sleeves and get your accounting terminology up to speed. To assist you in getting started, we’ve assembled a list of basic financial terminology and acronyms into a beginner’s accounting dictionary.

Abbreviations in accounting are like a second language to experienced accountants. However, if you’re having trouble reading a balance sheet or income statement, it could be helpful to look up the definitions of key terms. Continue reading for a list of accounting abbreviations that will help you avoid any confusion.

Let us First Discuss Some General Abbreviations In Accounting

Those fundamental accounting terms, of course, have nothing to do with a specific financial statement. We’ve set aside the “generic” category for them. Let us start with generally used abbreviations in accounting.

Accrual Accounting

Accrual accounting is a style of accounting in which income and costs are recorded at the transaction time rather than when the payment is received. The method is based on the matching principle, which states that revenues and expenses should be recorded in the same period.

Allocation

The phrase “allocation” refers to allocating funds to different accounts or periods. For instance, a cost can be spread out across several months (as in the case of insurance) or distributed over multiple departments (as is often done with administrative costs for companies with multiple divisions).

Accounting Period

An accounting period is specified (Income Statement, Balance Sheet, and Statement of Cash Flows). The period specifies the time frame for which the statements are being prepared.

Business (or Legal) Entity

Sole proprietorship, partnership, limited liability corporation (LLC), S-Corp, and C-Corp are common business structures. Each organization has its own rules, laws, and tax ramifications.

CF: Cash Flow 

The term “cash flow” refers to the inflow and outflow of funds in a firm. The Net Cash Flow for a certain period is calculated by subtracting the Beginning Cash Balance from the Ending Cash Balance. A positive number implies that more money has gone into the firm than has flowed out, while a negative number suggests the inverse.

Credit

An increase in a liability or equity account, or a decrease in an asset or cost account, is a credit.

CPA: Certified Public Accountant 

A CPA is one of the abbreviations in accounting stands for a certified public accountant is a professional credential that an accountant can obtain by passing the CPA examlabs and meeting state-specific educational and work experience requirements.

Diversification

Diversification is a risk-reduction strategy. The idea is to spread capital over various assets so that the performance of any one asset does not determine the overall performance.

Debit

A rise in an asset or cost account, or a decrease in a liability or equity account, is a debit.

OE: Equity and owner’s equity 

Equity is defined as assets minus liabilities in the broadest sense. An owner’s equity is often expressed in terms of the percentage of the company’s shares that a person owns. Shareholders are the people who own the shares.

EA: Enrolled Agent 

Enrolled Agent is a professional accounting credential given to those who have passed tests demonstrating business and personal taxes knowledge. Enrolled Agents are frequently hired to prepare business tax forms and assure IRS compliance.

FC: Fixed Cost

The term fixed cost stays constant regardless of sales volume. Rent and salary, for example, will not change if a company sells more. A Variable Cost is the polar opposite of a Fixed Cost.

GAAP: Generally Accepted Accounting Principles 

These are the guidelines that all accountants follow when executing their duties. When looking at a company’s financial reports, these broad criteria were designed to make it easier to compare “apples to apples.” 

Generally Accepted Accounting Principles is one of the abbreviations in accounting as GAAP. GAAP is not always a set of rules and norms, though it does employ them. Instead, GAAP is a set of general principles and specific methods that represent optimal accounting practices as they are accepted at a given time and, in many cases, within a specific industry.

Reporting following GAAP ensures consistency. Those who examine financial accounts have a platform on which to compare performance to previous periods or companies and build financial measures based on GAAP-defined values.

GL: General Ledger

A company’s financial transactions are recorded in its General Ledger. All of the Financial Statements are prepared using the GL.

Interest

The amount to be paid on a loan or line of credit that exceeds the principal sum is known as interest.

Insolvency

When a person or a company can no longer satisfy their financial responsibilities to their lender(s) when their loans are due, they are said to default.

JE: Journal Entry

Updates and modifications to a company’s books are done through journal entries. A unique identification (to record the entry), a date, a debit/credit, an amount, and an account code must be included in every Journal Entry (which determines which account is altered).

Liquidity

A word refers to the speed with which something can be converted into money. Stocks, for example, are more liquid than real estate because they can be sold (and converted into cash) more quickly.

LLC: Limited liability company 

A limited liability corporation (LLC) is a business structure in which members are not responsible for the firm’s debts or liabilities. This can protect business owners from losing their whole life savings if the company issues.You must know that there are different regulations and fees for LLC in each state. For instance, LLC in California will cost you more annually than in Texas.

Material

The term “material” relates to whether or not knowledge impacts decisions. For example, if a company’s income is millions of dollars, $1.50 is minor. All Material factors must be stated according to GAAP.

On Credit/On Account

A purchase made on a credit or the account will be paid for later, but the Customers are able to enjoy the benefits of the purchase right away. Like lots of people use Credit cards. 

Overhead

Overhead expenses are those that are related to the operation of the business. They do not include costs associated with producing the product or providing the service. For example, rent and executive salaries are frequently included in overhead.

PV: Present Value

The word “present value” refers to the value of an asset right now rather than later. It is predicated on the idea that cash today is more valuable than cash tomorrow due to inflation.

Payroll

Employee salaries, wages, bonuses, and deductions are recorded in the payroll account. If there are any outstanding wages or accrued vacation pay, this will often display on the Balance Sheet as a Liability that the company owes.

Receipts

A receipt is a piece of document that serves as proof of payment. When a company delivers a product or service, it generates receipts, and when it pays for goods and services from other companies, it receives receipts. Receipts should be preserved and cataloged so that a business may demonstrate that its expenses are accurate.

ROI: Return on Investment 

Initially, this word referred to a company’s profit (Return) divided by the investment amount necessary. Today, the phrase is used more loosely to refer to the financial results of various programs and goals. For instance, if a company spent $500 on marketing and made $1,000 in profit, the corporation could claim a 50% return on marketing investment.

TB: Trial Balance

A TB Trial Balance is a list of all General Ledger accounts and their current balances (either debit or credit). As a result, the total debits must equal the total credits, resulting in a balance.

VC: Variable Cost 

Variable Costs are the polar opposite of Fixed Costs. Fixed Costs are costs that remain constant regardless of sales volume. Because variable costs are an expense required to deliver the sale, they rise as the number of sales rises. For instance, if a corporation makes a product and sells more of it, more raw resources will be required to match the increased demand.

Abbreviations in Accounting Related to Balance Sheet 

One of the two most typical financial statements created by accountants is the balance sheet. This section covers basic Abbreviations in accounting words that are related to the balance sheet and can be perplexing.

A: Asset

Anything with monetary value that the corporation owns. These are listed in liquidity, starting with cash (the most liquid) and ending with land (least liquid).

AE: Accrued Expense 

The word Accrued Expense refers to an expense that has been incurred but not yet paid.

BS: Balance Sheet

A financial statement summarises the assets, liabilities, and Equity. As its name suggests, a balance sheet follows the equation Assets = Liabilities + Equity.

BV: Book Value 

The value of an asset decreases as it depreciates. The actual worth of an asset, less any accrued Depreciation, is shown as the Book Value.

AP: Accounts Payable

Accounts Payable is a category that includes all expenses that a company has incurred but has not yet paid. Because it is a debt owing by the corporation, this account is represented as a liability on the Balance Sheet.

AR: Accounts Receivable

All revenue that a company has provided but has not yet been paid is included in Accounts Receivable. On the Balance Sheet, this account is listed as an asset that will most likely convert to cash shortly.

Liability 

Liabilities are any debts owed to a corporation that has not yet been paid. Accounts Payable, Payroll, and Loans are examples of common obligations.

Equity 

Equity means that the value left over after liabilities have been cleared is Equity. Consider the formula Assets = Liabilities + Equity. When you deduct all the liabilities from your assets, you’re left with Equity.

Inventory 

Inventory refers to the assets that a business has purchased to sell to its clients but has yet to sell. As these things are sold to clients, the inventory account will decrease.

Abbreviations in Accounting related to Income Statement Terms

Income Statement in accounting, often known as the Profit and Loss Statement, is the second of two financial statements that are commonly used. The following are the most frequently used fundamental accounting phrases in this reporting tool. Let’s start learning abbreviations in accounting related to Income statement terms.

Dep: Depreciation

Depreciation is the term used as one of the abbreviations in accounting to describe how an asset loses value over time. In general, an asset must have significant worth to be depreciated. Automobiles and equipment are common assets that are depreciated. Depreciation is an item that appears on the Income Statement and is generally classified as a “Non-Cash Expense” because it has no direct influence on a company’s cash situation.

COGS: Cost of Goods Sold

COGS is one of the abbreviations in accounting which means the expenses directly related to creating a product or service are referred to as the Cost of Goods Sold. Those charges required to conduct the business are not included in this category. The cost of materials or direct labor to offer a service is an example of COGS.

NI: Net Income

The dollar amount earned in profits is referred to as net income. It is computed by taking Revenue and deducting all Expenses, including COGS, Overhead, Depreciation, and Taxes, for a particular period.

Net Margin

The net margin is a percentage that depicts a company’s profit concerning its Revenue. It is determined by dividing Net Income by Revenue for a certain period.

(Cost) Expense

Any cost incurred by the firm is referred to as an expense.

GM: Gross Margin 

Gross Margin is a percentage obtained by dividing Gross Profit by Revenue over the same period. After deducting the Cost of Goods Sold, it shows its profitability.

GP: Gross Profit 

Gross profit measures a company’s profitability in dollars, excluding overhead costs. It’s computed by deducting the Cost of Goods Sold from Revenue for the same period.

(Profit and Loss) (IS or P&L) Income Statement 

An income Statement in accounting (also known as the Profit and Loss Statement or P&L) is a financial statement that displays or shows a company’s revenue, expenses, and profits over a specific period. The total revenue collected is indicated at the top of the report, and various expenditures (expenses) are deducted until all costs are covered. Net Income is the end outcome.

Conclusion

In this Blog, with the basic abbreviations in accounting, you’re ready to begin your journey into the world of accounting now that you have a firm understanding of basic accounting terms. 

If you need any accounting assignment-related help, you can contact us. We have a team of experts who can help you with your accounting assignment issues. 

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