Accounting Terms

Cost of Goods Sold (COGS)

/ / are the expenses that directly relate to the creation of a product or service. Not included in this category are those costs that are needed to run the business. An example of / / would be the cost of Materials, or the Direct Labor to provide a service.

Equity (E)

/ / denotes the value left over after liabilities have been removed. Recall the equation Assets = Liabilities + Equity. If you take your Assets and subtract your Liabilities, you are left with / /, which is the portion of the company that is owned by the investors and owners.

Accounts Payable

/ / include all of the expenses that a business has incurred but has not yet paid. This account is recorded as a liability on the Balance Sheet as it is a debt owed by the company.

Accounts Receivable

/ / include all of the revenue (sales) that a company has provided but has not yet collected payment on. This account is on the Balance Sheet, recorded as an asset that will likely convert to cash in the short-term.

Gross Profit (GP)

/ / indicates the profitability of a company in dollars, without taking overhead expenses into account. It is calculated by subtracting the Cost of Goods Sold from Revenue for the same period.

Gross Margin (GM)

/ / is a percentage calculated by taking Gross Profit and dividing by Revenue for the same period. It represents the profitability of a company after deducting the Cost of Goods Sold.

Revenue (Sales) (Rev)

/ / is any money earned by the business.

Balance Sheet

/ / is one of the two most common financial statements produced by accountants. This section pertains to potentially confusing terms that relate to the / /.

Net Income (NI)

/ / is the dollar amount that is earned in profits. It is calculated by taking Revenue and subtracting all of the Expenses in a given period, including COGS, Overhead, Depreciation, and Taxes.

Net Margin

/ / is the percent amount that illustrates the profit of a company in relation to its Revenue. It is calculated by taking Net Income and dividing it by Revenue for a given period.

Depreciation (Dep)

/ / is the term that accounts for the loss of value in an asset over time. Generally, an asset has to have substantial value in order to warrant / / it. Common assets to be / / are automobiles and equipment. / / 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.

Inventory

/ / is the term used to classify the assets that a company has purchased to sell to its customers that remain unsold. As these items are sold to customers, the inventory account will lower.

Balance Sheet (BS)

A financial statement that reports on all of a company's assets, liabilities, and equity. As suggested by its name, a / / abides by the equation <Assets = Liabilities + Equity>.

Liability (L)

All debts that a company has yet to pay are referred to as / /. Common liabilities include Accounts Payable, Payroll, and Loans.

Expense (Cost)

An / / is any cost incurred by the business.

Accrued Expense

An expense that been incurred but hasn't been paid is described by the term / /.

Asset (A)

Anything the company owns that has monetary value. These are listed in order of liquidity, from cash (the most liquid) to land (least liquid).

Book Value (BV)

As an asset is depreciated, it loses value. The / / shows the original value of an Asset, less any accumulated Depreciation.

Income Statement

The / / AKA Profit and Loss Statement is the second of the two common financial statements. These are the terms that are most commonly used in reference with this reporting tool.

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

The / / is the financial statement that shows the revenues, expenses, and profits over a given time period. Revenue earned is shown at the top of the report and various costs (expenses) are subtracted from it until all costs are accounted for; the result being Net Income.