Question

42 Basic Accounting Terms All Business Owners Should Know

Please read the article 42 Basic Accounting Terms and explain why it is important to know these terms for Quickbooks. Please explain give me some examples .

Answer 1

Business iowners iuse iaccounting ito irecord ithe ifinancial itransactions iundertaken iover ithe icourse iof ibusiness. iThus, ithere iare iwell iestablished irules iand iprinciples ito irecord ithis iinformation iand iuse isuch iinformation ifor imaking idecisions.

Balance iSheet iTerms

The iBalance iSheet iis ione iof ithe itwo imost icommon ifinancial istatements iproduced iby iaccountants. iThis isection ipertains ito ipotentially iconfusing iterms ithat irelate ito ithe ibalance isheet.

1. iAccounts iPayable i(AP)

Accounts iPayable iinclude iall iof ithe iexpenses ithat ia ibusiness ihas iincurred ibut ihas inot iyet ipaid. iThis iaccount iis irecorded ias ia iliability ion ithe iBalance iSheet ias iit iis ia idebt iowed iby ithe icompany.

2. iAccounts iReceivable i(AR)

Accounts iReceivable iinclude iall iof ithe irevenue i(sales) ithat ia icompany ihas iprovided ibut ihas inot iyet icollected ipayment ion. iThis iaccount iis ion ithe iBalance iSheet, irecorded ias ian iasset ithat iwill ilikely iconvert ito icash iin ithe ishort-term.

3. iAccrued iExpense i

An iexpense ithat ibeen iincurred ibut ihasn’t ibeen ipaid iis idescribed iby ithe iterm iAccrued iExpense.

4. iAsset i(A)

Anything ithe icompany iowns ithat ihas imonetary ivalue. iThese iare ilisted iin iorder iof iliquidity, ifrom icash i(the imost iliquid) ito iland i(least iliquid).

5. iBalance iSheet i(BS)

A i ifinancial istatement ithat ireports ion iall iof ia icompany’s iassets, iliabilities, iand iequity. iAs isuggested iby iits iname, ia ibalance isheet iabides iby ithe iequation iAssets i= iLiabilities i+ iEquity

6. iBook iValue i(BV) i

As ian iasset iis idepreciated, iit iloses ivalue. iThe iBook iValue ishows ithe ioriginal ivalue iof ian iAsset, iless iany iaccumulated iDepreciation.

7. iEquity i(E) i

Equity idenotes ithe ivalue ileft iover iafter iliabilities ihave ibeen iremoved. iRecall ithe iequation iAssets i= iLiabilities i+ iEquity. iIf iyou itake iyour iAssets iand isubtract iyour iLiabilities, iyou iare ileft iwith iEquity, iwhich iis ithe iportion iof ithe icompany ithat iis iowned iby ithe iinvestors iand iowners.

8. iInventory i

Inventory iis ithe iterm iused ito iclassify ithe iassets ithat ia icompany ihas ipurchased ito isell ito iits icustomers ithat iremain iunsold. iAs ithese iitems iare isold ito icustomers, ithe iinventory iaccount iwill ilower.

9. iLiability i(L) i

All idebts ithat ia icompany ihas iyet ito ipay iare ireferred ito ias iLiabilities. iCommon iliabilities iinclude iAccounts iPayable, iPayroll, iand iLoans.

Income iStatement iTerms

The iIncome iStatement iAKA iProfit iand iLoss iStatement iis ithe isecond iof ithe itwo icommon ifinancial istatements. iThese iare ithe iterms ithat iare imost icommonly iused iin ireference iwith ithis ireporting itool.

10. iCost iof iGoods iSold i(COGS) i

Cost iof iGoods iSold iare ithe iexpenses ithat idirectly irelate ito ithe icreation iof ia iproduct ior iservice. iNot iincluded iin ithis icategory iare ithose icosts ithat iare ineeded ito irun ithe ibusiness.

11. iDepreciation i(Dep)

Depreciation iis ithe iterm ithat iaccounts ifor ithe iloss iof ivalue iin ian iasset iover itime. iGenerally, ian iasset ihas ito ihave isubstantial ivalue iin iorder ito iwarrant idepreciating iit. iCommon iassets ito ibe idepreciated iare iautomobiles iand iequipment. iDepreciation iappears ion ithe iIncome iStatement ias ian iexpense iand iis ioften icategorized ias ia i“Non-Cash iExpense” isince iit idoesn’t ihave ia idirect iimpact ion ia icompany’s icash iposition.

12. iExpense i(Cost)

An iExpense iis iany icost iincurred iby ithe ibusiness.

13. iGross iMargin i(GM)

Gross iMargin iis ia ipercentage icalculated iby itaking iGross iProfit iand idividing iby iRevenue ifor ithe isame iperiod. iIt irepresents ithe iprofitability iof ia icompany iafter ideducting ithe iCost iof iGoods iSold.

14. iGross iProfit i(GP)

Gross iProfit iindicates ithe iprofitability iof ia icompany iin idollars, iwithout itaking ioverhead iexpenses iinto iaccount. iIt iis icalculated iby isubtracting ithe iCost iof iGoods iSold ifrom iRevenue ifor ithe isame iperiod.

15. iIncome iStatement i(Profit iand iLoss) i(IS ior iP&L)

The iIncome iStatement i(often ireferred ito ias ia iProfit iand iLoss, ior iP&L) iis ithe ifinancial istatement ithat ishows ithe irevenues, iexpenses, iand iprofits iover ia igiven itime iperiod. iRevenue iearned iis ishown iat ithe itop iof ithe ireport iand ivarious icosts i(expenses) iare isubtracted ifrom iit iuntil iall icosts iare iaccounted ifor; ithe iresult ibeing iNet iIncome.

16. iNet iIncome i(NI)

Net iIncome iis ithe idollar iamount ithat iis iearned iin iprofits. iIt iis icalculated iby itaking iRevenue iand isubtracting iall iof ithe iExpenses iin ia igiven iperiod, iincluding iCOGS, iOverhead, iDepreciation, iand iTaxes.

17. iNet iMargin

Net iMargin iis ithe ipercent iamount ithat iillustrates ithe iprofit iof ia icompany iin irelation ito iits iRevenue. iIt iis icalculated iby itaking iNet iIncome iand idividing iit iby iRevenue ifor ia igiven iperiod.

18. iRevenue i(Sales) i(Rev)

Revenue iis iany imoney iearned iby ithe ibusiness.

General iTerms

Of icourse, ithere iare ithose iaccounting iterms ithat idon’t ipertain ito ia iparticular ifinancial istatement. iFor ithose, iwe’ve ireserved ithe i“general” icategory.

19. iAccounting iPeriod

An iAccounting iPeriod iis idesignated iin iall iFinancial iStatements i(Income iStatement, iBalance iSheet, iand iStatement iof iCash iFlows). iThe iperiod icommunicates ithe ispan iof itime ithat iis ireported iin ithe istatements.

20. iAllocation

The iterm iAllocation idescribes ithe iprocedure iof iassigning ifunds ito ivarious iaccounts ior iperiods. i

21. iBusiness i(or iLegal) iEntity

This iis ithe ilegal istructure, ior itype, iof ia ibusiness. iCommon icompany iformations iinclude iSole iProprietor, iPartnership, iLimited iLiability iCorp i(LLC), iS-Corp iand iC-Corp. iEach ientity ihas ia iunique iset iof irequirements, ilaws, iand itax iimplications.

22. iCash iFlow i(CF)

Cash iFlow iis ithe iterm ithat idescribes ithe iinflow iand ioutflow iof icash iin ia ibusiness. iThe iNet iCash iFlow ifor ia iperiod iof itime iis ifound iby itaking ithe iBeginning iCash iBalance iand isubtracting ithe iEnding iCash iBalance. iA ipositive inumber iindicates ithat imore icash iflowed iinto ithe ibusiness ithan iout, iwhere ia inegative inumber iindicates ithe iopposite

23. iCertified iPublic iAccountant i(CPA)

CPA iis ia iprofessional idesignation ithat ian iaccountant ican iearn iby ipassing ithe iCPAiand ifulfilling ithe irequirements ifor iboth ieducation iand iwork iexperience, iwhich ivary iby istate.

24. iCredit

A icredit iis ian iincrease iin ia iliability ior iequity iaccount, ior ia idecrease iin ian iasset ior iexpense iaccount.

25. iDebit

A idebit iis ian iincrease iin ian iasset ior iexpense iaccount, ior ia idecrease iin ia iliability ior iequity iaccount.

26. iDiversification

Diversification iis ia imethod iof ireducing irisk. iThe igoal iis ito iallocate icapital iacross ia imultitude iof iassets iso ithat ithe iperformance iof iany ione iasset idoesn’t idictate ithe iperformance iof ithe itotal.

27. iEnrolled iAgent i(EA)

An iEnrolled iAgent iis ia iprofessional iaccounting idesignation iassigned ito iprofessionals iwho ihave isuccessfully ipassed itests ishowcasing iexpertise iin ibusiness iand ipersonal itaxes. iEnrolled iAgents iare igenerally isought iout ito icomplete ibusiness itax ifilings ito iensure icompliance iwith ithe iIRS.

28. iFixed iCost i(FC)

A iFixed iCost iis ione ithat idoes inot ichange iwith ithe ivolume iof isales. i

29. iGeneral iLedger i(GL)

A iGeneral iLedger iis ithe icomplete irecord iof ia icompany’s ifinancial itransactions. iThe iGL iis iused iin iorder ito iprepare iall iof ithe iFinancial iStatements.

30. iGenerally iAccepted iAccounting iPrinciples i(GAAP)

These iare ithe irules ithat iall iaccountants iabide iby iwhen iperforming ithe iact iof iaccounting. iThese igeneral irules iwere iestablished iso ithat iit iis ieasier ito icompare i‘apples ito iapples’ iwhen ilooking iat ia ibusiness’s ifinancial ireports.

31. iInterest

Interest iis ithe iamount ipaid ion ia iloan ior iline iof icredit ithat iexceeds ithe irepayment iof ithe iprincipal ibalance.

32. iJournal iEntry i(JE)

Journal iEntries iare ihow iupdates iand ichanges iare imade ito ia icompany’s ibooks. iEvery iJournal iEntry imust iconsist iof ia iunique iidentifier i(to irecord ithe ientry), ia idate, ia idebit/credit, ian iamount, iand ian iaccount icode i(that idetermines iwhich iaccount iis ialtered).

33. iLiquidity

A iterm ireferencing ihow iquickly isomething ican ibe iconverted iinto icash. i

34. iMaterial

Material iis ithe iterm ithat irefers iwhether iinformation iinfluences idecisions. iGAAP irequires ithat iall iMaterial iconsiderations imust ibe idisclosed.

35. iOn iCredit/On iAccount

A ipurchase ithat ihappens iOn iCredit ior iOn iAccount iis ia ipurchase ithat iwill ibe ipaid iat ia ifuture itime, ibut ithe ibuyer igets ito ienjoy ithe ibenefit iof ithat ipurchase iimmediately. i

36. iOverhead

Overhead iare ithose iExpenses ithat irelate ito irunning ithe ibusiness. iThey ido inot iinclude iExpenses ithat imake ithe iproduct ior ideliver ithe iservice.

37. iPayroll

Payroll iis ithe iaccount ithat ishows ipayments ito iemployee isalaries, iwages, ibonuses, iand ideductions. iOften ithis iwill iappear ion ithe iBalance iSheet ias ia iLiability ithat ithe icompany iowes iif ithere iis iaccrued ivacation ipay ior iany iunpaid iwages.

38. iPresent iValue i(PV)

Present iValue iis ia iterm ithat irefers ito ithe ivalue iof ian iAsset itoday, ias iopposed ito ia idifferent ipoint iin itime. iIt iis ibased ion ithe itheory ithat icash itoday iis imore ivaluable ithan icash itomorrow, idue ito ithe iconcept iof iinflation.

39. iReceipts

A iReceipt iis ia idocument ithat iproves ipayment iwas imade. iA ibusiness iproduces ireceipts iwhen iit iprovides iits iproduct ior iservice iand iit ireceives ireceipts iwhen iit ipays ifor igoods iand iservices ifrom iother ibusinesses. iReceived iReceipts ishould ibe isaved iand icatalogued iso ithat ia icompany ican iprove ithat iits iincurred iexpenses iare iaccurate.

40. iReturn ion iInvestment i(ROI)

Originally, ithis iterm ireferred ito ithe iprofit ithat ia icompany iwas imaking i(Return), idivided iby ithe iInvestment irequired. iToday, ithe iterm iis iused imore iloosely ito iinclude ireturns ion ivarious iprojects iand iobjectives. iFor

41. iTrial iBalance i(TB)

Trial iBalance iis ia ilisting iof iall iaccounts iin ithe iGeneral iLedger iwith itheir ibalance iamount i(either idebit ior icredit). iThe itotal idebits imust iequal ithe itotal icredits, ihence ithe ibalance.

42. iVariable iCost i(VC)

These iare icosts ithat ichange iwith ithe ivolume iof isales iand iare ithe iopposite iof iFixed iCosts.