Gross Margin is a percentage calculated by taking Gross Profit and dividing by Revenue for the same period. Expense (Cost)Īn Expense is any cost incurred by the business. Depreciation appears on the Income Statement as an expense and is often categorized as a “Non-Cash Expense” since it doesn’t have a direct impact on a company’s cash position. Common assets to be depreciated are automobiles and equipment. Generally, an asset has to have substantial value in order to warrant depreciating it. Depreciation (Dep)ĭepreciation is the term that accounts for the loss of value in an asset over time. An example of COGS would be the cost of Materials, or the Direct Labor to provide a service. Not included in this category are those costs that are needed to run the business. Cost of Goods Sold (COGS)Ĭost of Goods Sold are the expenses that directly relate to the creation of a product or service. These are the most common basic accounting terms used in reference with this reporting tool. The Income Statement AKA Profit and Loss Statement is the second of the two common financial statements. Common liabilities include Accounts Payable, Payroll, and Loans. Liability (L)Īll debts that a company has yet to pay are referred to as Liabilities. As these items are sold to customers, the inventory account will lower. Inventory is the term used to classify the assets that a company has purchased to sell to its customers that remain unsold. If you take your Assets and subtract your Liabilities, you are left with Equity, which is the portion of the company that is owned by the investors and owners. Recall the equation Assets = Liabilities + Equity. Equity (E)Įquity denotes the value left over after liabilities have been removed. The Book Value shows the original value of an Asset, less any accumulated Depreciation. Book Value (BV)Īs an asset is depreciated, it loses value. As suggested by its name, a balance sheet abides by the equation. Balance Sheet (BS)Ī financial statement that reports on all of a company’s assets, liabilities, and equity. These are listed in order of liquidity, from cash (the most liquid) to land (least liquid). Asset (A)Īnything the company owns that has monetary value. Accrued ExpenseĪn expense that been incurred but hasn’t been paid is described by the term Accrued Expense. This account is on the Balance Sheet, recorded as an asset that will likely convert to cash in the short-term. Accounts Receivable (AR)Īccounts Receivable include all of the revenue (sales) that a company has provided but has not yet collected payment on. This account is recorded as a liability on the Balance Sheet as it is a debt owed by the company. Accounts Payable (AP)Īccounts Payable include all of the expenses that a business has incurred but has not yet paid. This section pertains to potentially confusing basic accounting terms that relate to the balance sheet. The Balance Sheet is one of the two most common financial statements produced by accountants. How often have you ended a call with your accountant feeling more confused than before it started? If your response is a variation of “pretty much every time,” have no fear! We’ve compiled this handy list of 42 common accounting terms, along with their common abbreviations (where appropriate) and definitions.
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