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Questions and Answers
What does Accounts Payable (AP) refer to?
What does Accounts Receivable (AR) include?
What is an Accrued Expense?
An expense that has been incurred but hasn't been paid.
What does Asset (A) refer to?
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What is a Balance Sheet (BS)?
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What is Book Value (BV)?
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What does Equity (E) denote?
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What is Inventory?
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What does Liability (L) refer to?
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What are Cost of Goods Sold (COGS)?
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What is Depreciation?
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What is an Expense?
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What is Gross Margin (GM)?
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What is Gross Profit (GP)?
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What does the Income Statement (IS or P&L) show?
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What is Net Income (NI)?
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What is Net Margin?
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What does Revenue (Sales) (Rev) mean?
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What is an Accounting Period?
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What does Allocation mean?
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What is a Business (or Legal) Entity?
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What is Cash Flow (CF)?
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What does Certified Public Accountant (CPA) signify?
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What is Credit?
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What is Debit?
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What does Diversification mean?
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What is an Enrolled Agent (EA)?
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What is a Fixed Cost (FC)?
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What does General Ledger (GL) represent?
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What are Generally Accepted Accounting Principles (GAAP)?
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What is Interest?
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What is a Journal Entry (JE)?
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What does Liquidity refer to?
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Study Notes
Basic Accounting Terms
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Accounts Payable (AP): Represents expenses incurred by a business that are not yet paid, indicating short-term liabilities.
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Accounts Receivable (AR): Includes revenue generated from sales that has not yet been collected, showcasing potential incoming cash flow.
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Accrued Expense: Refers to expenses recognized in the accounting period that are unpaid, emphasizing the need for accurate financial reporting.
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Asset (A): Anything of monetary value owned by a business, including physical and intangible items.
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Balance Sheet (BS): A financial statement presenting a company's assets, liabilities, and equity at a specific point in time, used for assessing financial health.
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Book Value (BV): The value of an asset after depreciation, essential for understanding valuation over time.
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Equity (E): Represents the residual value of assets after liabilities are deducted, critical for shareholders and owners.
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Inventory: Classifies assets purchased for resale that remain unsold, important for assessing stock and cash flow management.
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Liability (L): All obligations a company owes, emphasizing the need to manage debts effectively.
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Cost of Goods Sold (COGS): Direct expenses related to the production of goods and services, vital for profitability analysis.
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Depreciation (Dep): Non-cash expense appearing on the Income Statement, representing the reduction in asset value over time.
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Expense (Cost): Any cost incurred by a business, vital for calculating net income and monitoring financial performance.
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Gross Margin (GM): Percentage derived from Gross Profit divided by Revenue, useful for assessing product profitability.
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Gross Profit (GP): Calculated by subtracting COGS from Revenue, a critical metric for gauging operational efficiency.
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Income Statement (Profit and Loss) (IS or P&L): Financial document detailing revenues, expenses, and profitability over a designated period.
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Net Income (NI): The profit earned after all expenses are deducted, an essential measure of a company's financial success.
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Net Margin: Percentage reflecting profit as a portion of revenue, key for comparing profitability across companies.
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Revenue (Sales) (Rev): All income earned through business operations, foundational for assessing business performance.
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Accounting Period: A specified timeframe identified in financial statements for reporting purposes.
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Allocation: The process of distributing funds across various accounts or periods, important for budget management.
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Business (or Legal) Entity: The formal structure of a business, impacting taxes, liability, and reporting requirements.
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Cash Flow (CF): Involves tracking the inflow and outflow of cash, crucial for maintaining liquidity.
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Certified Public Accountant (CPA): A professional accountant designation achieved through exam and experience requirements, indicating expertise in accounting.
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Credit: Represents an increase in liabilities/equity or a decrease in assets/expenses, fundamental in double-entry accounting.
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Debit: The opposite of credit; it indicates an increase in assets/expenses or a decrease in liabilities/equity.
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Diversification: A strategy used to reduce financial risk through varied investments, promoting stability in revenues.
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Enrolled Agent (EA): A tax professional certified to represent taxpayers before the IRS, emphasizing tax compliance expertise.
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Fixed Cost (FC): Costs that remain constant regardless of sales volume, important for budgeting and pricing strategies.
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General Ledger (GL): A comprehensive record of all financial transactions within a business, essential for maintaining accounting accuracy.
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Generally Accepted Accounting Principles (GAAP): The standardized guidelines accountants must follow for consistency and transparency in financial reporting.
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Interest: The cost associated with borrowing, significantly impacting overall loan expenses and profitability.
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Journal Entry (JE): The method of recording changes in financial accounts, critical for maintaining accurate financial records.
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Liquidity: The ease with which an asset can be converted into cash, vital for assessing financial solvency.
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Material: A term referring to items or information that could influence financial decisions, important for transparency and risk assessment.
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Description
Test your knowledge of fundamental accounting terms and concepts. This quiz covers important definitions like accounts payable, accounts receivable, and balance sheets. Perfect for students and professionals looking to refresh their accounting vocabulary.