Accounting

Accounting Terms

Financial reporting standards, accounting concepts, and income statement terms.

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Last updated Apr 2026
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Accounting

Absorption Costing

A costing method that includes all manufacturing costs — fixed and variable — in the cost of each unit produced.

Accounting

Accelerated Depreciation

A depreciation method that recognizes higher expense in the early years of an asset's life and lower expense in later years.

Accounting

Accounting Equation

The fundamental rule that total assets equal total liabilities plus total equity on every balance sheet.

Accounting

Accounting Period

A defined span of time used to prepare financial statements and report business results.

Accounting

AR Aging

A report that categorizes outstanding accounts receivable by the length of time each invoice has been unpaid, used to identify collection issues.

Accounting

Accounts Payable

Money a company owes to its suppliers and vendors for goods or services received but not yet paid for.

Accounting

Accounts Receivable

Money owed to a company by customers who have purchased goods or services on credit but have not yet paid.

Accounting

Accrual Accounting

Recording revenue and expenses when earned or incurred, regardless of when cash is received or paid.

Accounting

Accruals Basis

An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.

Accounting

Accrued Liabilities

Expenses a company has incurred but not yet paid, recorded as current obligations on the balance sheet.

Accounting

Accrued Revenue

Revenue earned but not yet received or recorded as cash.

Accounting

Accrued Wages

Employee compensation that has been earned during an accounting period but has not yet been paid as of the period-end date.

Accounting

Accumulated Deficit

A negative retained earnings balance indicating that cumulative net losses have exceeded cumulative profits since a company's founding.

Accounting

Accumulated Depreciation

The total depreciation expense recognized on an asset since it was placed in service, shown as a contra asset on the balance sheet.

Accounting

ABC Costing

A costing method that assigns overhead costs to products based on the specific activities that consume resources.

Accounting

Additional Paid-In Capital

The amount investors paid for shares above their par value, recorded in the equity section of the balance sheet.

Accounting

Adjusting Entries

Journal entries recorded at period-end to align revenues and expenses with the correct accounting period.

Accounting

Allowance for Doubtful Accounts

A contra-asset estimating the portion of receivables that will not be collected.

Accounting

Annual Report

A comprehensive yearly publication summarizing a public company's financial performance and strategy for shareholders.

Accounting

Asset

Any resource with economic value owned or controlled by an individual or business.

Accounting

Audit Committee

A board subcommittee overseeing financial reporting, internal controls, and external audits.

Accounting

Audit Trail

A sequential record of financial transactions and system events used to verify the accuracy of accounting records.

Accounting

Financial Audit

An independent examination of a company's financial statements to verify their accuracy and compliance with accounting standards.

Accounting

Auditor Opinion

The formal conclusion issued by an independent auditor on whether a company's financial statements are presented fairly in accordance with GAAP.

Accounting

Bad Debt Expense

The cost recognized when accounts receivable are deemed uncollectible, matched to the period revenue was earned.

Accounting

Balance Sheet

A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time.

Accounting

Bank Reconciliation

The process of matching a company's internal cash records to its bank statement.

Accounting

Bank Statement

A monthly or periodic document issued by a bank listing all transactions, beginning and ending balances, and fees for an account during a specific period.

Accounting

Book Value

The net asset value of a company as reported on its balance sheet: total assets minus total liabilities.

Accounting

Break-Even Analysis

A financial tool that identifies the sales volume at which total revenues equal total costs, yielding zero profit or loss.

Accounting

Burn Rate

The rate at which a company spends its cash reserves, typically expressed as a monthly figure, used to assess financial sustainability.

Accounting

By-Product

A secondary output of a manufacturing process that has minor sales value compared to the main product and is produced incidentally, not by design.

Accounting

CapEx

Funds used by a company to acquire, maintain, or improve physical assets such as property, equipment, or technology.

Accounting

Capital Lease

A lease that transfers substantially all ownership risks to the lessee, requiring the asset and liability to be recorded on the balance sheet.

Accounting

Capitalize vs. Expense

The accounting decision to record a cost as a long-term asset (capitalize) or charge it immediately to the income statement (expense).

Accounting

Cash Basis Accounting

An accounting method that records revenues when cash is received and expenses when cash is paid, regardless of when they are earned or incurred.

Accounting

Cash Flow Statement

A financial statement tracking cash inflows and outflows from operating, investing, and financing activities.

Accounting

Chart of Accounts

An organized list of all accounts in a company's general ledger, categorized by type and assigned unique codes.

Accounting

Closing Entries

Journal entries that zero out temporary accounts and transfer balances to retained earnings at period-end.

Accounting

Common-Size Statement

A financial statement that expresses each line item as a percentage of a base figure, enabling comparison across companies and time periods.

Accounting

Comparability Principle

The accounting requirement to use consistent methods so financial statements can be meaningfully compared across periods and companies.

Accounting

Comprehensive Income

The total change in a company's equity during a period from all sources except transactions with shareholders, combining net income and other comprehensive income.

Accounting

Conservatism Principle

An accounting guideline that directs companies to record losses and liabilities as soon as they are probable, but to delay recognizing gains until they are realized.

Accounting

Consistency Principle

An accounting rule requiring companies to use the same accounting methods and policies from period to period unless a justified change is made and disclosed.

Accounting

Consolidated Statements

Combined financial reports of a parent company and its subsidiaries, presenting them as a single entity.

Accounting

Consolidation

The process of combining financial statements of a parent company and its subsidiaries into a single set of financial statements.

Accounting

Contingent Liability

A potential obligation arising from a past event whose outcome depends on a future uncertain event, such as a pending lawsuit.

Accounting

Contra Account

An account that carries a balance opposite to its paired account, reducing it to show the net carrying value.

Accounting

Contra Liability

A balance sheet account with a debit balance that reduces a related liability account to its carrying value.

Accounting

Contribution Margin

Revenue minus variable costs, representing the amount each unit sold contributes toward covering fixed costs and generating profit.

Accounting

Corporation

A legal entity separate from its owners that can own property, enter contracts, and issue stock to raise capital.

Accounting

Cost Accounting

A branch of accounting focused on capturing and analyzing the costs of production to support internal management decisions.

Accounting

Cost Center

A department that incurs costs but does not directly generate revenue, evaluated on expense control.

Accounting

Cost Driver

Any factor that causes a change in the cost of a business activity or operation.

Accounting

COGM

The total cost of goods completed during an accounting period, including direct materials, direct labor, and manufacturing overhead.

Accounting

COGS

The direct costs attributable to producing the goods or services a company sells during a period.

Accounting

Cost of Revenue

The total direct costs incurred to deliver a product or service, used primarily by service and technology companies.

Accounting

CVP Analysis

A planning tool that examines the relationship between costs, sales volume, and profit to determine break-even points and profit targets.

Accounting

CPA

A licensed accounting professional who has passed the CPA Exam and met state education and experience requirements, qualified to perform audits and attest functions.

Accounting

Credit Note

A commercial document issued by a seller to reduce the amount owed by a buyer, typically following a return, error, or overpayment.

Accounting

Current Assets

Resources expected to be converted to cash or consumed within one year, listed at the top of the balance sheet.

Accounting

Current Liabilities

Financial obligations due within one year, shown on the balance sheet below current assets.

Accounting

CPLTD

The amount of a company's long-term debt that must be repaid within the next 12 months, reported as a current liability on the balance sheet.

Accounting

Debit Note

A commercial document issued by a buyer to a seller requesting a reduction in the amount owed on an invoice.

Accounting

Debt Covenant

A contractual condition in a loan agreement requiring the borrower to maintain specific financial ratios or behaviors.

Accounting

Deferred Compensation

A portion of an employee's earnings set aside to be paid at a future date, typically at retirement, providing a tax deferral benefit.

Accounting

Deferred Revenue

Cash received from customers before a company has delivered the corresponding goods or services.

Accounting

Deferred Tax Asset

A balance sheet asset representing future tax savings from temporary timing differences.

Accounting

Deferred Tax Liability

A balance sheet obligation representing taxes owed in the future because book income exceeds taxable income today.

Accounting

Deferred Tax

The future tax consequence of temporary differences between a company's book income and its taxable income.

Accounting

Depreciation Methods

The systematic approaches used to allocate the cost of a long-term asset over its useful life.

Accounting

Depreciation Recapture

The IRS process of taxing the gain on a sold depreciable asset as ordinary income, to the extent of prior depreciation deductions taken.

Accounting

Depreciation

The systematic allocation of a tangible asset's cost over its useful life as an accounting expense.

Accounting

Diluted Shares

The total number of shares outstanding including all potentially dilutive securities, used to calculate diluted EPS.

Accounting

Direct Costs

Costs that can be directly traced to the production of a specific product or service, such as raw materials and direct labor.

Accounting

Direct Labor

Wages paid to workers who are directly involved in converting raw materials into finished products and whose effort can be traced to specific units.

Accounting

Direct Write-Off Method

An accounting method that recognizes bad debt expense only when a specific receivable is confirmed to be uncollectible.

Accounting

Discontinued Operations

A business segment or component that has been sold, abandoned, or classified as held for sale, reported separately from continuing operations in financial statements.

Accounting

Double-Declining Balance

An accelerated depreciation method that applies twice the straight-line rate to the asset's remaining book value.

Accounting

Double-Entry Bookkeeping

An accounting system where every transaction is recorded in at least two accounts, keeping total debits equal to total credits.

Accounting

EBT

A company's profit after all operating and interest expenses, but before income tax is deducted.

Accounting

Earnings Management

The use of accounting discretion to influence reported financial results, either within or outside GAAP rules.

Accounting

Earnings Quality

A measure of how accurately and sustainably a company's reported net income reflects its true economic performance.

Accounting

Economic Entity Assumption

The accounting principle that a business's financial records must be kept completely separate from the owner's personal finances.

Accounting

EOQ

The optimal order size that minimizes total inventory costs by balancing ordering costs against holding costs.

Accounting

Effective Tax Rate

The actual percentage of pre-tax income a company pays in income taxes, as opposed to the statutory tax rate.

Accounting

Equity Method

An accounting approach used when an investor has significant influence over an investee, recognizing a proportional share of the investee's net income.

Accounting

Equity

The residual ownership interest in an asset after all liabilities have been deducted.

Accounting

Equivalent Units

A measure converting partially completed units into a fully completed unit equivalent for cost allocation.

Accounting

Expense Recognition

The accounting principle governing when expenses are recorded in financial statements.

Accounting

Extraordinary Items

Unusual and infrequent gains or losses that were formerly reported separately on the income statement under GAAP.

Accounting

Fair Value Accounting

An accounting framework that measures assets and liabilities at their current market value rather than original cost.

Accounting

Fair Value Hierarchy

A three-level classification system ranking the reliability of inputs used to measure the fair value of assets and liabilities.

Accounting

FASB

The Financial Accounting Standards Board, the private-sector body responsible for establishing US Generally Accepted Accounting Principles (GAAP).

Accounting

FIFO vs LIFO

Inventory costing methods that determine which unit costs flow to cost of goods sold: FIFO assumes oldest units sell first, LIFO assumes newest units sell first.

Accounting

Financial Accounting

The process of recording, summarizing, and reporting a company's financial transactions to external stakeholders using standardized GAAP or IFRS rules.

Accounting

Financial Modeling

The process of building a mathematical representation of a company's financial performance to support analysis and decision-making.

Accounting

Financial Statements

The four core reports — income statement, balance sheet, cash flow statement, and statement of changes in equity — that summarize a company's financial performance and position.

Accounting

Fiscal Quarter

One of four three-month reporting periods that divide a company's fiscal year.

Accounting

Fiscal Year

A 12-month accounting period used by a company for financial reporting purposes, which may differ from the calendar year.

Accounting

Fixed Assets

Long-term tangible assets used in business operations, such as buildings and equipment, that are not expected to be converted to cash within one year.

Accounting

Fixed Overhead

Indirect manufacturing costs that remain constant regardless of production output levels.

Accounting

Financial Footnotes

Disclosures attached to financial statements that explain accounting policies, estimates, commitments, and other details not visible in the main figures.

Accounting

Forensic Accounting

The application of accounting, auditing, and investigative skills to detect financial fraud, resolve disputes, and provide litigation support.

Accounting

Full Disclosure Principle

An accounting rule requiring companies to disclose all information that could materially affect users' understanding of financial statements.

Accounting

GAAP

Generally Accepted Accounting Principles — the standardized set of rules for financial reporting used by U.S. public companies.

Accounting

General Ledger

The master record of all financial transactions of a company, organized by account and used to prepare financial statements.

Accounting

Going Concern

The assumption that a company will continue operating for the foreseeable future, at least the next 12 months.

Accounting

Goodwill Impairment

A non-cash charge recognizing that acquired goodwill is worth less than its book value.

Accounting

Goodwill

An intangible asset recorded when a company acquires another for more than the fair value of its net identifiable assets.

Accounting

Gross Profit

Revenue minus the cost of goods sold; the profit a company makes before operating expenses, interest, and taxes.

Accounting

Hedge Accounting

An accounting method that allows gains and losses on a hedging instrument to be recognized in the same period as the risk being hedged, reducing earnings volatility.

Accounting

Historical Cost

The original purchase price of an asset, used as its recorded value on the balance sheet regardless of subsequent market value changes.

Accounting

Horizontal Analysis

A financial statement analysis technique that compares each line item across multiple periods to identify trends and growth rates.

Accounting

IFRS

A globally adopted set of accounting standards developed by the IASB, used in over 140 countries outside the United States.

Accounting

Impairment

A reduction in the carrying value of an asset on the balance sheet when its recoverable amount falls below its book value.

Accounting

Imputed Interest

Interest income that the IRS requires to be recognized on below-market or interest-free loans, even if no actual interest was paid.

Accounting

Income Statement

A financial statement summarizing a company's revenues, expenses, and profit over a specific period.

Accounting

Income Tax Expense

The total tax charge recognized on a company's income statement, including both taxes currently due and deferred tax effects.

Accounting

Indirect Costs

Costs that cannot be directly traced to a single product or service and must be allocated across multiple outputs using a cost driver.

Accounting

Intangible Assets

Non-physical assets with economic value, such as patents, trademarks, brand names, customer lists, and software.

Accounting

Intercompany Transaction

A financial transaction between entities within the same parent company or corporate group.

Accounting

Interest Expense

The cost incurred by a company for borrowed funds, recorded on the income statement before taxes.

Accounting

Interim Financials

Financial reports covering a period shorter than a full fiscal year, most commonly quarterly (Q1, Q2, Q3) reports.

Accounting

Internal Controls

Processes and procedures a company implements to ensure the accuracy of financial reporting, prevent fraud, and comply with laws.

Accounting

Inventory Write-Down

A reduction in the carrying value of inventory when its market value or net realizable value falls below its recorded cost.

Accounting

Inventory

The goods a company holds for sale or the raw materials and work-in-progress used to produce those goods.

Accounting

Job-Order Costing

A cost accounting method that tracks direct materials, direct labor, and overhead separately for each unique job, batch, or custom order.

Accounting

Joint Cost

The cost of a production process that simultaneously yields two or more separate products, incurred before the products can be individually identified.

Accounting

Joint Venture

A business arrangement where two or more parties create a separate entity to pursue a shared objective.

Accounting

Journal Entry

The fundamental record in double-entry bookkeeping that logs a financial transaction as debits and credits to specific accounts.

Accounting

Lease Accounting

The GAAP framework for recording lease agreements on financial statements, governed by ASC 842 for US companies.

Accounting

Lease Liability

The present value of future lease payments that a lessee is obligated to make, recognized on the balance sheet.

Accounting

Liability

A financial obligation or debt owed by an individual or business to another party.

Accounting

LLC

A business structure that combines the liability protection of a corporation with the tax flexibility of a partnership.

Accounting

Long-Term Debt

Borrowed funds that are due beyond one year, recorded as a non-current liability on the balance sheet.

Accounting

Lower of Cost or Market

An inventory rule requiring write-down when market value falls below original cost.

Accounting

Management Accounting

The practice of generating financial information for internal management use to support planning, decision-making, and control.

Accounting

MD&A

The section of an annual report where management explains financial results, risks, and outlook in their own words.

Accounting

Manufacturing Overhead

All indirect production costs that cannot be traced directly to a specific product, including factory rent, utilities, depreciation, and indirect labor.

Accounting

Mark-to-Market

The practice of revaluing an asset or liability to its current market price at the end of each reporting period.

Accounting

Matching Principle

An accounting rule requiring expenses to be recognized in the same period as the revenue they helped generate.

Accounting

Material Weakness

A deficiency in a company's internal controls over financial reporting significant enough that there is a reasonable possibility of a material misstatement going undetected.

Accounting

Materiality

The threshold above which an omission or misstatement in financial statements could influence the decisions of a reasonable investor.

Accounting

Minority Interest

The equity stake in a subsidiary not owned by the parent company, also called non-controlling interest.

Accounting

Mixed Cost

A cost that contains both a fixed component that remains constant regardless of activity and a variable component that changes in proportion to volume.

Accounting

Monetary Unit Assumption

The accounting assumption that all financial transactions are recorded in a stable, single monetary unit such as the US dollar.

Accounting

Multi-Step Income Statement

An income statement format that separates operating and non-operating results into distinct subtotals for gross profit, operating income, and net income.

Accounting

Net Assets

Total assets minus total liabilities, equivalent to shareholders' equity on the balance sheet.

Accounting

Net Income

A company's total profit after subtracting all expenses, taxes, and costs from revenue — the bottom line.

Accounting

NIM

A bank profitability metric measuring the difference between interest income earned and interest paid, relative to assets.

Accounting

Net Operating Loss

A tax designation arising when a company's allowable deductions exceed its taxable gross income, creating a loss that can offset future taxable income.

Accounting

Net Realizable Value

The estimated selling price of an asset minus costs to complete and sell it.

Accounting

Non-Cash Expenses

Accounting charges that reduce net income but do not require an actual cash outflow in the period recognized.

Accounting

Non-Current Assets

Long-term resources expected to provide economic value beyond one year, including property, equipment, and intangibles.

Accounting

Non-GAAP

Financial metrics that exclude certain items required by GAAP, presented alongside official figures to show adjusted performance.

Accounting

Non-Operating Income

Revenue and gains arising from activities outside a company's core business operations.

Accounting

Normal Spoilage

The expected, unavoidable waste or defective units that arise from a production process under efficient operating conditions.

Accounting

Notes Payable

A formal written promise to repay a specific amount of money by a set date, recorded as a liability on the balance sheet.

Accounting

Notes Receivable

Formal written promises from debtors to repay a specified principal amount plus interest by a specified date, classified as assets on the balance sheet.

Accounting

Off-Balance-Sheet

Financing arrangements that allow a company to keep assets or liabilities off its main balance sheet, reducing apparent leverage.

Accounting

Operating Cash Flow

Cash generated by a company's core business operations, before accounting for investing or financing activities.

Accounting

Operating Cycle

The average time it takes a company to convert raw materials into cash from sales, flowing through inventory, production, and receivables.

Accounting

Operating Expenses

The ongoing costs of running a business that are not directly tied to producing goods, including SG&A and R&D.

Accounting

Operating Income

Profit earned from core business operations, after deducting operating expenses but before interest and taxes.

Accounting

Operating Lease

A short-term rental agreement where the lessee uses an asset without assuming ownership risks.

Accounting

Operating Segment

A reportable component of a company whose financial results are reviewed separately by management.

Accounting

OCI

Gains and losses excluded from net income that flow directly to equity, such as currency translation adjustments.

Accounting

Overhead Absorption

The allocation of indirect manufacturing costs to products using a predetermined overhead rate.

Accounting

Overhead Rate

The ratio used to allocate indirect manufacturing costs to products based on a chosen activity driver such as labor hours or machine hours.

Accounting

Overhead

Indirect costs of running a business that cannot be traced to a specific product, such as rent, utilities, and administrative salaries.

Accounting

Par Value

The nominal face value assigned to a share of stock or a bond as stated in the corporate charter or bond indenture.

Accounting

Partnership

A business owned by two or more individuals who share profits, losses, management responsibilities, and liability.

Accounting

Pension Accounting

The accounting standards and methods governing how companies recognize and disclose defined benefit pension obligations and plan assets.

Accounting

Percentage-of-Completion

A revenue recognition method that records income proportionally as a long-term contract progresses toward completion.

Accounting

Percentage of Sales Method

A method of estimating bad debt expense by applying a historical percentage to total credit sales each period.

Accounting

Performance Obligation

A promise in a contract to transfer a distinct good or service to a customer.

Accounting

Period Cost

Costs that are expensed in the period they are incurred rather than being capitalized into inventory, including selling, general, and administrative expenses.

Accounting

Perpetual Inventory

An inventory tracking method that continuously updates stock balances after every purchase, sale, or return in real time.

Accounting

Petty Cash

A small cash fund maintained by businesses to pay for minor day-to-day expenses without going through formal payment processes.

Accounting

Prepaid Expenses

Payments made in advance for goods or services to be received in a future period, recorded as current assets on the balance sheet.

Accounting

Prepaid Insurance

An asset representing insurance premiums paid in advance, recognized as expense ratably over the coverage period.

Accounting

Prime Cost

The sum of direct materials and direct labor costs — the two cost components that can be directly traced to a specific unit of production.

Accounting

Prior Period Adjustment

A correction to a previously issued financial statement for a material accounting error.

Accounting

Pro Forma

Financial statements or projections that exclude certain items or incorporate hypothetical assumptions to present a different view of performance.

Accounting

Process Costing

A cost accounting method that averages total production costs over equivalent units produced in continuous, high-volume manufacturing of identical products.

Accounting

Product Cost

The total manufacturing costs assigned to a unit of output, including direct materials, direct labor, and manufacturing overhead.

Accounting

Profit Center

A business unit or department responsible for both generating revenue and controlling its own costs.

Accounting

Promissory Note

A signed written promise by one party to pay a specified sum to another party on a designated date, usually with interest.

Accounting

PP&E

Long-term tangible assets used in business operations, recorded on the balance sheet at cost less accumulated depreciation.

Accounting

Purchase Accounting

Acquisition accounting that records acquired assets and liabilities at fair value, recognizing goodwill for any excess price.

Accounting

Purchase Price Allocation

The process of assigning an acquisition price to the identifiable assets and liabilities of an acquired company at fair value, with any excess recorded as goodwill.

Accounting

Qualified Opinion

An audit opinion indicating that financial statements are fairly presented except for a specific, limited exception noted by the auditor.

Accounting

Quick Assets

The most liquid current assets—cash, marketable securities, and net receivables—used to measure a company's ability to meet short-term obligations.

Accounting

Raw Materials

Unprocessed inputs purchased by manufacturers that will be converted into finished products through the production process.

Accounting

R&D Expense

The costs a company incurs to develop new products, technologies, or services, expensed as incurred under GAAP.

Accounting

Realization Principle

The accounting rule that revenue should be recognized only when earned and collection is reasonably assured.

Accounting

Realized vs. Unrealized Gains

The distinction between gains from assets already sold (realized, taxable) and gains on assets still held (unrealized, not yet taxable).

Accounting

Reconciliation

The process of comparing two sets of records or figures to ensure they are consistent and identify any discrepancies.

Accounting

Related-Party Transactions

Business dealings between entities with a pre-existing relationship, requiring disclosure due to potential conflicts of interest.

Accounting

Responsibility Center

An organizational unit — such as a department or division — whose manager is held accountable for specific financial outcomes like costs, revenues, or profits.

Accounting

Restatement

The revision of previously published financial statements to correct errors, fraud, or misapplication of accounting standards.

Accounting

Restricted Cash

Cash and cash equivalents that are not freely available for general use because they are reserved for a specific purpose.

Accounting

Retained Earnings

The cumulative net income a company has kept rather than distributed to shareholders as dividends.

Accounting

Revenue Recognition

The accounting principle that determines when and how revenue is recorded, governed by the five-step model under ASC 606.

Accounting

Run Rate

An extrapolation of recent revenue data to estimate a company's full-year revenue as if current trends continued.

Accounting

Revenue

The total income a company generates from its business activities before deducting any expenses.

Accounting

Reversing Entries

Optional journal entries at the start of a new period that reverse prior-period accruals to simplify bookkeeping.

Accounting

ROU Asset

An asset representing a lessee's right to use leased property over the lease term, recognized on the balance sheet under ASC 842 and IFRS 16.

Accounting

Runway

The amount of time a company can continue operating before exhausting its cash reserves, given its current burn rate.

Accounting

Salvage Value

The estimated residual value of an asset at the end of its useful life, used as the basis for depreciation calculations.

Accounting

Segment Reporting

Disclosure of a company's financial performance broken down by distinct business units or geographic regions.

Accounting

Semi-Variable Cost

A cost that has both a fixed base component and a variable component that increases with production or activity levels.

Accounting

SG&A

The combined costs of selling products and running the back-office, including salaries, marketing, rent, and executive compensation.

Accounting

Short-Term Debt

Borrowings due within one year, classified as current liabilities and used to fund short-term working capital needs.

Accounting

Sole Proprietorship

A business owned and operated by a single individual with no legal distinction between the owner and the business.

Accounting

Source Document

The original paper or electronic record that serves as evidence that a financial transaction occurred.

Accounting

SOX Compliance

Adherence to the Sarbanes-Oxley Act of 2002, which mandates strict financial reporting standards for US public companies.

Accounting

Standard Costing

A cost accounting method that sets predetermined 'standard' costs for materials and labor, then measures variance against actual costs incurred.

Accounting

Retained Earnings Statement

A financial statement that reconciles the opening and closing retained earnings balance by showing net income earned and dividends declared.

Accounting

Step Cost

A cost that remains constant within a range of activity but rises abruptly when output exceeds a defined threshold.

Accounting

Stock-Based Compensation

Employee compensation paid in the form of equity awards such as stock options and restricted stock units, recorded as an expense under GAAP.

Accounting

Stockholders' Equity

The residual interest in a company's assets after deducting all liabilities; what shareholders theoretically own.

Accounting

Straight-Line Depreciation

A depreciation method that allocates the cost of an asset evenly over its useful life in equal annual amounts.

Accounting

Subsequent Events

Significant events occurring after the balance sheet date but before financial statements are issued.

Accounting

Subsidiary Ledger

A detailed set of accounts supporting a single control account in the general ledger.

Accounting

Substance Over Form

The accounting principle requiring transactions to be recorded based on their economic reality rather than legal structure.

Accounting

T-Account

A visual bookkeeping tool shaped like the letter T that displays debit entries on the left and credit entries on the right.

Accounting

Tangible Assets

Physical, touchable assets with a definite monetary value, such as property, equipment, inventory, and cash.

Accounting

Target Costing

A pricing-driven cost management approach where the acceptable cost of a product is determined by subtracting the desired profit margin from the market price.

Accounting

Tax Basis

The cost of an asset for tax purposes, used to calculate the taxable gain or loss upon sale or other disposition.

Accounting

Tax Provision

The estimated income tax expense recorded on a company's income statement for the reporting period.

Accounting

Tax Shield

The reduction in taxable income — and therefore taxes paid — resulting from allowable deductions such as interest expense or depreciation.

Accounting

Temporary Difference

A difference between an asset or liability's book value for financial reporting and its tax basis that will reverse over time.

Accounting

TIE Ratio

A solvency ratio measuring how many times a company can cover its interest expense with operating earnings.

Accounting

Treasury Stock

Shares a company has repurchased from the open market and holds rather than retiring or reissuing.

Accounting

Trial Balance

A list of all general ledger account balances at a point in time, used to verify that total debits equal total credits before preparing financial statements.

Accounting

Unearned Revenue

Cash received from customers before the related goods or services have been delivered.

Accounting

Unit-of-Production Depreciation

A depreciation method that allocates an asset's cost based on its actual output or usage rather than elapsed time.

Accounting

Unqualified Opinion

An auditor's clean opinion that financial statements present fairly in conformity with GAAP.

Accounting

Unrealized Gain/Loss

The paper profit or loss on an investment that has not yet been sold, reflecting the difference between current market value and original cost.

Accounting

Useful Life

The estimated period over which a depreciable asset is expected to provide economic benefits, used to calculate periodic depreciation expense.

Accounting

Variable Cost

A cost that changes in direct proportion to production volume or sales activity, such as raw materials and direct labor.

Accounting

Variable Costing

A cost accounting method that treats only variable manufacturing costs as product costs.

Accounting

Variance Analysis

The process of comparing actual financial results to budgeted or standard amounts to identify the size, cause, and responsibility for deviations.

Accounting

Vertical Analysis

A financial statement analysis technique that expresses each line item as a percentage of a base figure within the same period.

Accounting

AVCO / WAC

An inventory valuation method that assigns the same average cost per unit to all goods available for sale, smoothing out price fluctuations.

Accounting

Work in Progress

Partially completed goods still moving through the manufacturing process, representing inventory between raw materials and finished goods.

Accounting

Working Capital

Current assets minus current liabilities, measuring a company's ability to meet short-term obligations.

Accounting

Write-Down

A partial reduction in the carrying value of an asset to reflect impairment or decline in fair value below book value.

Accounting

Write-Off

The complete removal of an asset from the balance sheet when it is determined to have no remaining recoverable value.