Accounts Payable (AP)

Money a business owes to suppliers or vendors for goods and services received but not yet paid for. Recorded as a current liability on the balance sheet.

Accounts Receivable (AR)

Money owed to a business by its customers for goods or services already delivered. Recorded as a current asset on the balance sheet.

Accrual Accounting

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

Amortization

The gradual write-off of an intangible asset (like a patent or loan cost) over its useful life. Similar to depreciation but applied to non-physical assets.

Assets

Resources owned or controlled by a business that are expected to generate future economic benefits. Classified as current (short-term) or non-current (long-term).

Audit

An independent examination of an organization's financial records to verify accuracy and compliance with applicable accounting standards and regulations.

Audit Opinion

The auditor's formal conclusion on whether financial statements are presented fairly. Types include: Unqualified, Qualified, Adverse, and Disclaimer of Opinion.

Balance Sheet

A financial statement showing a company's assets, liabilities, and equity at a specific point in time. It must always balance: Assets = Liabilities + Equity.

Bookkeeping

The systematic recording of all financial transactions in a business. The foundation of accounting — every purchase, sale, and expense is recorded.

Budget

A financial plan that estimates revenues and expenditures for a specific period. Used to guide spending decisions and measure actual performance against goals.

Bank Reconciliation

The process of matching the balances in a company's accounting records to the corresponding information on its bank statement to identify discrepancies.

Capital

Financial assets or resources available for use in producing wealth. In business, it refers to funds invested in the company by its owners or obtained through debt.

Cash Flow

The net amount of cash and cash equivalents moving in and out of a business over a period. Positive cash flow means more is coming in than going out.

Chart of Accounts

An organized index of all financial accounts in a business's general ledger. It categorizes every transaction into assets, liabilities, equity, revenue, and expenses.

Compliance

Adherence to laws, regulations, standards, and internal policies governing financial reporting and business operations.

Cost of Goods Sold (COGS)

The direct costs of producing goods or services sold by a company. Includes materials and direct labor, but not indirect expenses like overhead.

Depreciation

The systematic allocation of a tangible asset's cost over its useful life. Reflects the wear and tear of physical assets like equipment, vehicles, and buildings.

Double-Entry Accounting

An accounting system where every transaction affects at least two accounts — a debit in one and a credit in another — keeping the books in balance.

Deferred Revenue

Payment received from a customer for goods or services not yet delivered. Recorded as a liability until the obligation is fulfilled.

Equity

The residual interest in the assets of an entity after deducting all liabilities. For a business, it represents the owners' stake. Also called net assets or shareholders' equity.

Expenditure

Money spent or costs incurred in the course of operating a business. Can be capital expenditures (long-term) or operating expenditures (short-term).

External Audit

An independent examination of financial statements performed by a certified public accountant (CPA) from outside the organization to verify accuracy and fairness.

Financial Statements

Formal records of an entity's financial activities. The core set includes: Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Equity.

Fiscal Year

A 12-month accounting period used for financial reporting. It may or may not correspond to the calendar year (Jan 1 – Dec 31).

Fixed Assets

Long-term tangible assets used in business operations that are not expected to be converted to cash within a year. Examples: land, buildings, equipment.

Federal Single Audit

An audit required under 2 CFR Part 200 (Uniform Guidance) for non-federal entities that expend $750,000 or more in federal awards in a fiscal year.

GAAP

Generally Accepted Accounting Principles — the standard framework of guidelines for financial accounting used in the United States, issued by FASB.

General Ledger

The master record of all financial transactions for an organization, organized by account. It is the foundation of double-entry bookkeeping.

Gross Profit

Revenue minus the cost of goods sold. It measures how efficiently a company produces its goods before accounting for overhead, taxes, and other expenses.

Income Statement

A financial statement showing revenues, expenses, and net income (or loss) over a specific period. Also called the Profit & Loss Statement (P&L).

Internal Audit

An independent, objective assurance and consulting activity within an organization designed to add value and improve operations and risk management.

Internal Controls

Policies and procedures implemented by management to safeguard assets, ensure financial reporting accuracy, and promote operational efficiency.

Inventory

Goods held by a company for production or sale. Classified as a current asset and valued using methods such as FIFO, LIFO, or weighted average cost.

Journal Entry

A record of a financial transaction in the accounting system. Each entry includes a date, accounts affected, amounts debited and credited, and a brief description.

Liabilities

Obligations a company owes to external parties. Classified as current (due within a year) or long-term (due after a year). Examples: loans, accounts payable.

Liquidity

The ease with which assets can be converted to cash. A business with high liquidity can readily pay its short-term obligations.

Material Misstatement

An error or omission in financial statements significant enough to influence the economic decisions of users relying on those statements.

Management Letter

A letter from an auditor to management identifying weaknesses in internal controls and recommending improvements, issued separately from the audit report.

Net Income

Total revenue minus total expenses. The "bottom line" of the income statement — what remains after all costs, taxes, and interest have been deducted.

Nonprofit Organization

An entity organized for a purpose other than generating profit, such as charitable, educational, or religious missions. Eligible for tax exemption under IRS rules.

Operating Expenses

The ongoing costs of running a business excluding cost of goods sold. Includes rent, utilities, salaries, and marketing expenses.

Overhead

Indirect costs of business operations not directly tied to producing a product or service. Examples: rent, administrative salaries, insurance, and utilities.

Payroll

The total compensation a business pays to its employees, including wages, salaries, bonuses, and deductions for taxes and benefits.

Profit & Loss Statement (P&L)

See Income Statement. A financial report summarizing revenues, costs, and expenses during a fiscal period, showing whether a profit or loss was generated.

Purchase Order (PO)

A commercial document issued by a buyer to a seller, indicating the products or services to be purchased, quantities, and agreed-upon prices.

Qualified Opinion

An audit opinion indicating that financial statements are fairly presented, except for a specific issue that the auditor identified but that is not pervasive.

Quarterly Financial Report

A financial report issued every three months summarizing a company's performance. Required for publicly traded companies, recommended for all businesses.

Reconciliation

The process of comparing two sets of records to ensure they agree. Most common is bank reconciliation — matching bank statements to internal accounting records.

Return on Investment (ROI)

A performance measure evaluating the efficiency of an investment. Calculated as (Net Profit / Cost of Investment) × 100.

Revenue

The total income generated by a business from its core operations — the "top line" of the income statement before any expenses are deducted.

Risk Assessment

The process of identifying and analyzing potential risks to an organization's financial reporting, operations, or compliance with regulations.

Single Audit

An audit of federal grant recipients spending $750,000+ in federal awards annually. Required under the Uniform Guidance (2 CFR Part 200) to ensure proper use of funds.

Statement of Cash Flows

A financial statement showing how cash enters and leaves a business through operating, investing, and financing activities over a specific period.

Segregation of Duties

An internal control that divides tasks and related privileges among multiple employees to reduce the risk of error or fraud.

Tax Liability

The total amount of taxes an individual or organization owes to the government. Calculated based on applicable tax rates applied to taxable income.

Trial Balance

A bookkeeping worksheet listing all debit and credit balances in an organization's ledger accounts to verify that total debits equal total credits.

Unqualified Opinion

The best audit outcome — a "clean" opinion stating that financial statements present a true and fair view in accordance with applicable accounting standards.

Uniform Guidance

2 CFR Part 200 — federal regulations governing the use of federal grant funds, establishing cost principles, administrative requirements, and audit standards.

Variance Analysis

Comparing budgeted vs. actual financial results to identify differences (variances) and understand the causes — favorable or unfavorable — to inform future decisions.

Working Capital

Current assets minus current liabilities. Measures an organization's short-term financial health and ability to cover its immediate obligations.

Write-off

The removal of an uncollectible asset (such as a bad debt) from the accounting records, recognizing it as a loss. Reduces both assets and net income.