Accounting & Finance

Accounting and finance fundamentals every professional should know — accruals, prepaids, the general ledger, debits and credits, revenue and margins. These are the building blocks of how a business keeps score.

Key terms & definitions

34 terms in this pack

ACCRUAL

Expense booked before cash leaves, to match cost to the period the work happened

ACCRUED

___ liabilities: costs incurred but not yet invoiced

AMORTIZE

To expense an intangible asset over its useful life

ASSET

A resource the company controls with future economic value

BALANCE

Trial ___: a list proving debits equal credits

CASH

Most liquid asset; king of the balance sheet

CASHFLOW

Statement showing operating, investing and financing movements

CONTRA

A(n) ___ account, like accumulated depreciation, offsets a related account

CREDIT

Right side of an entry; increases a liability

DEBIT

Left side of an entry; increases an asset

DEFERRED

___ revenue: cash received before it is earned

EBITDA

Earnings before interest, taxes, depreciation and amortization (acronym)

ENTRY

A journal ___, the basic unit of bookkeeping

EQUITY

Owners' residual claim after liabilities

ESTIMATE

Your accrual is one; a judgment of a not-yet-final amount

EXPENSE

A cost recognized on the income statement

GAAP

The U.S. accounting rulebook your entries must follow (acronym)

JOURNAL

An entry posted to record a transaction in the books

LEDGER

The general ___, system of record for every account

LIABILITY

An obligation owed to another party

LIQUIDITY

Ability to cover short-term obligations with cash

MARGIN

Profit expressed as a percent of sales

MATCHING

___ principle: pair expenses with the revenue they generate

MATERIALITY

Threshold above which a misstatement could sway a reader's decision

NETINCOME

The bottom line after every expense (two words)

OVERHEAD

Indirect cost not traceable to a single product

PAYABLE

Accounts ___: what the company owes its suppliers

PREPAID

Asset created when you pay a vendor ahead of the service being delivered

RATIO

Current ___: current assets divided by current liabilities

RECEIVABLE

Accounts ___: what customers owe you once revenue starts

RECONCILE

To tie the sub-ledger to the GL and resolve differences

REVENUE

Top line you can't book until products are sold

TAX

Levy on income or transactions the company must remit

TRUEUP

Adjustment that corrects a prior estimate to actual