Important Terms Related To Finance and Accounting

Today, more people than ever before recognize the importance of accounting information to a business, its owners, its employees, its lenders, and the financial markets. In this article, we’ve listed out some important full forms and terms related to finance and accounting.

Accounting is an information system that measures, processes, and communicates financial information about an economic entity. An economic entity is a unit that exists independently, such as a business, a hospital, or a governmental body.

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Accounting is truly the language of business. No matter what your role may be, if you are involved in business, you can benefit from learning accounting.

1	AICPA	American Institute of Certified Public Accountants
2	GAAP	Generally accepted accounting principles
3	GASB	Governmental Accounting Standards Board
4	IMA	Institute of Management Accountants
5	PCAOB	Public Company Accounting Oversight Board
6	CPA	Certified public accountant
7	FASB	Financial Accounting Standards Board
8	SEC	Securities and Exchange Commission
9	IFRS	International financial reporting standards
10	IRS	Internal Revenue Service
11	IASB	International Accounting Standards Board
12	MIS	Management information system
13	LIFO	Last-in, first-out
14	FIFO	First-in, first-out
15	LCM	Lower-of-cost-or-market
16	EFT	Electronic funds transfer
17	IPO	Initial public offering
18	JIT	Just-in-time
19	ABC	Activity-based costing
20	ABM	Activity-based management
21	TOC	Theory of constraints
22	TQM	Total quality management
23	PVA	Process value analysis
24	C-V-P	Cost-volume-profit
25	CM	Contribution margin
26	EVA	Economic value added
27	RI	Residual income
28	ROI	Return on investment
29	CIM	Computer-integrated manufacturing
30	ERP	Enterprise resource planning
31	ROQ	Return on quality
32	TQM	Total quality management
33	CAD	Computer-aided design
34	VBM	Value-based management
35	EDS	Electronic Data Systems
36	CIM	Computer-integrated manufacturing
37	EPS	Earnings per share
38	DDB	Double-declining balance
39	GAAP	Generally accepted accounting principles
40	TQM	Total quality management
41	STMT	Statement
42	BS	Balance Sheet
43	IS	Income Statement
44	CF	Cash Flow

Accounting equation
The formula Assets = Liabilities + Equity.

Accounts payable
Amounts owed by the company for goods and services that have been received, but have not yet been paid for. Usually Accounts payable involves the receipt of an invoice from the company providing the services or goods.

Accounts receivable
Amounts owed to the company, generally for sales that it has made.

Accrued expenses payable
Expenses that have to be recorded in order for the financial statements to be accurate. Accrued expenses usually do not involve the receipt of an invoice from the company providing the goods or services.

Accumulated depreciation
A contra-fixed asset account representing the portion of the cost of a fixed asset that has been previously charged to expense. Each fixed asset account will have its own associated accumulated depreciation account.

Additional paid-in capital
Amounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with capital in excess of par.

Adjusting entries
The entries needed at the end of an accounting period to properly state certain account balances.

Allowance for doubtful accounts
A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.

Allowance method
A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.

Articulation
When numbers from different financial statements relate to one another.

Assets
Items owned by the company or expenses that have been paid for but have not been used up.

Authorized shares
The number of shares of stock that the company is legally authorized to sell.

Bad debts
The amount of accounts receivable that is not expected to be collected.

Balance Sheet
One of the basic financial statements; it lists the assets, liabilities, and equity accounts of the company. The Balance Sheet is prepared using the balances at the end of a specific day.

Bank reconciliation
The process of taking the balances from the bank statement and the general ledger and making adjustments so that they agree.

Bonds payable
Amounts owed by the company that have been formalized by a legal document called a bond.

Building
The cost of buildings owned by the company.

Capital in excess of par
Amounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with additional paid-in capital.

Cash
Amounts held in currency and coin (commonly referred to as petty cash) and amounts on deposit in financial institutions.

Cash disbursement journal
A journal used to record the transactions that result in a credit to cash.

Cash receipts journal
A journal used to record the transactions that result in a debit to cash.

Closing entries
The entries that transfer the balances in the revenue, expense, and dividend accounts to Retained earnings and zero out the revenue, expense, and dividend accounts for the next period.

Common stock
Shares of ownership sold to the public.

Contra-asset account
An offset to an asset account that reduces the balance of the asset account.

Contra-equity account
An account that reduces an equity account. An example is Treasury stock.

Contributed capital
The amount put into the business by the owners by purchasing stock and by paying more than the par value for the stock (additional paid-in capital or capital in excess of par).

Control account
An account maintained in the general ledger that holds the balance without the detail. The detail is maintained in a subsidiary ledger.

Cost of goods sold
The cost of the items that were sold during the current period.

Credit
One side of a journal entry, usually depicted as the right side.

Debit
One side of a journal entry, usually depicted as the left side.

Declaration date
The date on which the board of directors has declared a dividend.

Declining-balance
A method of depreciation.

Depreciation expense
An expense account that represents the portion of the cost of an asset that is being charged to expense during the current period.

Direct method
A method of preparing the operating section of the Statement of Cash Flows that uses the company’s actual cash inflows and cash outflows.

Direct write-off method
A method of adjusting accounts receivable to the amount that is expected to be collected by eliminating the account balances of specific nonpaying customers.

Dividend income
Income that a company receives in the form of dividends on stock in other companies that it holds.

Dividends
Amounts paid to the owners of a company that represent a share of the income of the company.

Equipment
The cost of equipment owned by the company.

Equity
Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).

Expenses
Costs involved in running the company.

First-in, first-out
A method of accounting for inventory.

Fixtures
The cost of fixtures owned by the company.

Furniture
The cost of furniture owned by the company.

General ledger
A book that contains all the accounts of the company and the balances of those accounts.

Gross profit
The result of subtracting cost of goods sold from sales. Synonymous with gross margin.

Income Statement
One of the basic financial statements; it lists the revenue and expense accounts of the company. The Income Statement is prepared for a given period of time.

Indirect method
A method of preparing the operating section of the Statement of Cash Flows that does not use the company’s actual cash inflows and cash outflows, but instead arrives at the net cash flow by taking net income and adjusting it for noncash expenses and the changes from last year in the current assets and current liabilities.

Intangible assets
Assets owned by the company that do not possess physical substance; they usually take the form of rights and privileges such as patents, copyrights, and franchises.

Interest income
Income that a company receives in the form of interest, usually as the result of keeping money in interest-bearing accounts at financial institutions and the lending of money to other companies.

Interest payable
The amount of interest that is owed but has not been paid at the end of a period.

Inventory
The cost of the goods that a company has available for resale.

Issued shares
The number of shares that the company has sold to the public.

Journalizing
The process of taking a transaction and putting it into a form that allows it to be recorded in the accounting records.

Land
The cost of land owned by the company.

Land improvements
The cost of improvements to land owned by the company, such as fencing and outdoor lighting.

Last-in, first-out
A method of accounting for inventory.

Leasehold improvements
The cost of improvements made to property that the company leases.

Liabilities
Amounts owed by the company.

Liquidity
A term that means nearness to cash; the closer an asset is to becoming cash or a liability is to using cash, the more liquid that asset or liability is.

Loans payable
Amounts that have been loaned to the company and that it still owes.

Machinery
The cost of machinery owned by the company.

Net income
The last line of the Income Statement; it represents the amount that the company earned during a specified period.

No par value stock
Stock issued by the company that does not have an arbitrary value (par value) assigned to it.

Notes payable
Amounts owed by the company that have been formalized by a legal document called a note.

Notes receivable
Amounts owed to the company that have been formalized by a legal agreement called a note.

Office expense
The amount of expense incurred for the general operation of an office.

Office supplies
The cost of the supplies used in running an office.

Outstanding shares
The number of shares that are in the hands of the public. The difference between issued shares and outstanding shares is the shares held as treasury stock.

Par value
An arbitrary value assigned by the company to each share of stock; it is used in the accounting for the sale of stock and in some jurisdictions for calculating taxes.

Payment date
The date established for the payment of a declared dividend.

Payroll expense
The amount paid to employees for services rendered; synonymous with salary expense and wage expense.

Payroll journal
A journal used to record the payroll of a company.

Payroll tax expense
The amount of tax associated with salaries that an employer pays to governments (federal, state, and local).

Payroll taxes payable
The amount of payroll taxes owed to the various governments at the end of a period.

Periodic inventory system
An inventory system in which the balance in the Inventory account is adjusted for the units sold only at the end of the period.

Permanent accounts
The accounts found on the Balance Sheet; these account balances are carried forward for the lifetime of the company.

Perpetual inventory system
An inventory system in which the balance in the Inventory account is adjusted for the units sold each time a sale is made.

Petty cash
The amount of currency and coin that a company keeps on hand to pay for small purchases and expenses.

Posting
The process of taking journal entries and recording them in the general ledger.

Prepaid expenses
Expenses that have been paid for but have not yet been used up; examples are prepaid insurance and prepaid rent.

Purchase discounts
A contra account that reduces purchases by the amount of the discounts taken for early payment.

Purchase returns
A contra account that reduces purchases by the amount of items purchased that were subsequently returned.

Purchases
Items purchased by the company for the purpose of resale.

Purchases journal
A journal used to record the transactions that result in a credit to accounts payable.

Ratio analysis
A method of relating numbers from the various financial statements to one another in order to get meaningful information for comparison.

Record date
The date used to decide which shareholders will receive the dividend. The owners of the shares at the end of this day are entitled to the dividend.

Rent expense
The amount of expense paid for the use of property.

Retained earnings
The residual earnings of the company.

Revenue
Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term sales.

Reversing entry
An entry that is made at the beginning of the current period so that the systems and procedures do not have to be altered to allow for previously accrued items.

Salaries payable
Salaries that are owed but have not been paid at the end of a period.

Salary expense
The amount paid to employees for services rendered; synonymous with payroll expense and wage expense.

Sales
Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.

Sales discounts
A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.

Sales journal
A journal used to record the transactions that result in a credit to sales.

Sales returns
A contra account that offsets revenue. It represents the amount of sales made that were later returned.

Shareholders’ equity
The total amount of contributed capital and retained earnings; synonymous with stockholders’ equity.

Specialized journals
Journals that are used to aid in segregating duties and making the accounting function efficient.

Specific identification
A method of accounting for inventory.

Stated value stock
Stock issued by the company that does not have a par value, but does have a stated value. For accounting purposes, stated value is functionally equivalent to par value.

Statement of Cash Flows
One of the basic financial statements; it lists the cash inflows and cash outflows of the company, grouped into the categories of operating activities, financing activities, and investing activities. The Statement of Cash Flows is prepared for a specified period of time.

Statement of Retained Earnings
One of the basic financial statements; it takes the beginning balance of retained earnings and adds net income, then subtracts dividends. The Statement of Retained Earnings is prepared for a specified period of time.

Stockholders’ equity
The total amount of contributed capital and retained earnings; synonymous with shareholders’ equity.

Straight-line
A method of depreciation.

Subsidiary ledger
An accounting record giving the detailed transactions in an account; the subtotals of the debits and credits are posted to the control account maintained in the general ledger. It helps to keep the general ledger free of clutter.

T account
The format used for a general ledger page. The name of the account is put on the top line, and a vertical line is dropped from the top line (hence the ‘‘T’’). Debits are recorded on the left side, and credits are recorded on the right.

Temporary accounts
The accounts found on the Income Statement and the Statement of Retained Earnings; these accounts are reduced to zero at the end of every accounting period.

Treasury stock
Shares that were sold to the public but have since been repurchased by the company in the open market. Treasury stock is deducted from the equity section, and is therefore a contraequity account.

Trial balance
A listing of all the accounts and their balances on a specified day.

Unearned revenue
Money that has been paid by customers for work yet to be done or goods yet to be provided.

Vehicles
The cost of transportation equipment owned by the company.

Wage expense
The amount paid to employees for services rendered; synonymous with salary expense and payroll expense.

Weighted average
A method of accounting for inventory.

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