18 Accounting terms that will help you understand financial statements

The A B C to understanding accounting and financial statements. These accounting terms that will help you understand financial statements

1. Fiscal Year :

A fiscal year is the twelve-month period that an organisation uses for budgeting, forecasting and reporting of financial statements and books of accounts. The fiscal year can coincide with the calendar year; however, it can also be different.

2. Revenue :

Revenue is the total amount of money collected for goods or services sold before deducting any expenses of business. It also includes any credits or discounts for returned merchandise.

3. Profit and Loss Statement :

A profit and loss statement is a report generated by the company that lists earnings, expenses and net profits for a given period of time. It’s also referred to as P&L.

4. Trial Balance :

A trial balance is a bookkeeping or accounting report that lists the balances in each of an organisation’s general ledger accounts. It requires placing debits and credits on a worksheet to ensure that all the current balances are correct.

5. Equity

Amount of money that has been invested in the company by its owners is called equity. If the company’s ownership has been bought out via stock options, equity can also refer to ownership collectively held by shareholders.

6. Dividends

A sum of money, percentage or part of profits (or reserves) of the company, paid regularly (typically annually) by a company to its shareholders are dividends.

7. Capital

Wealth in the form of money or assets, taken as a sign of the financial strength of an individual, organisation, nation or a business.

8. Accruals

A list of expenses that have been incurred but are not yet paid, or a list of sales that have been completed but have not yet been billed.

9. Accounts Receivable

Accounts receivable includes money owed by customers to a company or individual as payment in exchange for goods and/or services. It is an asset on a company’s balance sheet, because of the assumption that the clients that are legally obligated to pay this amount will pay in the given period of time.

10. Bad Debts

Non-collectible accounts receivable are recorded as bad debts in the financial statements of a company. The bad debts account, as the name suggests, shows the debt that is irrecoverable.

11. Depreciation

The reduction in the value of an asset due to, wear and tear and/or usage, over time is depreciation. There are different methods to calculate depreciation of an asset.It is very important for tax purposes; the amount of depreciation will be deducted from the value of the asset.

12. Amortization

The process of allocating the cost of an intangible asset over a period of time. Depreciation is for tangible, whereas amortization is for intangible assets.

13. Expenses

An item of expenditure.

14. Fixed Expense

Fixed expenses stay consistent from month-to-month, year-to-year. This typically includes expenses like salaries, rent and so forth. These costs are not affected by fluctuations in sales, production or the market.

15. Variable Expense

Variable expenses are tied to the company’s production. These costs can go up or down based on increases and decreases in production or sales.

16. Accrued Expense

Accrued expenses are single accounting expenses that are being reported but haven’t yet been paid.

18. Operational Expense

Operational expenses are costs that are necessary for a company to conduct business.

 

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