Common Accounting Acronyms & What They Mean

If accounting were easy, everyone would want to do it, right? The profession certainly has challenges, but it can also be rewarding for the right personalities and skillsets. As an accountant, you’re helping clients make sense of their funds and maybe even saving them money. You also ensure they comply with always-changing local, state, and national financial regulations. Combining the pieces to create a quality financial statement can be fun with the proper mindset and training. If you’re interested in an accounting career, you’ll need to learn various accounting acronyms and abbreviations to be set up for success.

Getting Started: What’s the Purpose of Accounting?

For as long as humans have bought, traded, or sold goods and services, they’ve needed a system to keep track of their transactions. There’s even evidence of basic bookkeeping going back more than 7,000 years ago to Mesopotamia. Though the tools for reconciling revenue and expenses have evolved, the global principles haven’t changed much: a designated bookkeeper uses a general ledger to keep track of accounts receivable and accounts payable. 

• Accounts receivable is the balance of funds a customer owes, represented as assets. 
• Accounts payable is money owed to suppliers or creditors, designated as liabilities.

 Actual “accounting” occurs when transactions are recorded in the ledger. Consistent, accurate accounting lets business owners know what funds are coming in and what costs are going out.

Enhancing Financial Analysis

 Accountants are considered valuable members of any organization since they can provide helpful insight into the current status of a business and offer recommendations for future fiscal improvements.

Besides providing a valuable snapshot of day-to-day activities, an accountant can provide a deeper look at the workings of the business, including its overall stability. Investopedia calls accountants experts at understanding the language of finance since they can break down complex principles into terms the public can understand. Because of their training and abilities, accountants are considered valuable members of any organization since they can provide helpful insight into the current status of a business and offer recommendations for future fiscal improvements. Plus, they can explain all the abbreviations, terminology, and other essential vocabulary that might be confusing or unfamiliar to others in the company.

Why Accounting Acronyms Matter for Finance Professionals

Accounting is all about making financial information transparent. A business owner might hope they had a profitable month but need help proving it. An accountant can break down all expenses, revenue, cash flow, costs of goods, and net income. They can deliver a robust report clearly showing the company's profits or losses. Accountants can provide current and past balance sheets, which may include a variety of acronyms. These documents can guide future budgeting, including the amount spent in certain areas and highlighting saving opportunities. It can also indicate who owes payments, debt levels, and expected income. 

What Are Financial Statements?

Financial statements can play a dual role in business. They are documents that offer a look at the financial activity of a company, individual, or limited liability corporation over a certain period. Financial statements can include income and expenses, plus other metrics like cash reserves, return on investments/ROI, and more. Investors, regulators, media, or shareholders can also use these documents to gauge the business’s health and stability. Though the format may vary, Generally Accepted Accounting Principles (GAAP) for financial statements include overall balance, cash flow, income, and ownership or shareholder equity.

Accounting Acronyms for Finance Beginners

Accountants will want to know several acronyms applicable to their financial careers. Business owners, investors, and others may also benefit from learning these standard terms:

• GAAP (Generally Accepted Accounting Principles)
• CPA (Certified Public Accountant)
• AP (Accounts Payable)
• AR (Accounts Receivable)
• ROI (Return on Investment)
• GL (General Ledger)
• COGS (Cost of Goods Sold)
• NI (Net Income)
• CF (Cash Flow)
• BS (Balance Sheets)

GAAP: Ensuring Standardized Financial Reporting

The Generally Accepted Accounting Principles (GAAP) refers to a uniform set of standards for modern accounting practices. These standards are created by the Financial Accounting Standards Board, a governing body for the industry, and relay current best practices for financial reporting.
By requiring specific metrics for every accountant at every business to follow, the GAAP makes it easier to look closely at particular areas and summarize the info in financial reports. Adhering to the GAAP also ensures all businesses provide accurate data in the same areas. Otherwise, it would be difficult to directly compare one business or industry to another, especially for investment purposes. A uniform standard is especially vital for public companies since shareholders generally want to see those key points, like cash flow when evaluating solvency. 

CPA: Professional Title

A Certified Public Accountant, or CPA, is a professional title given to an accountant in the U.S. who has passed the official CPA exam and spent the required amount of time learning the required material and applying the concepts in a professional position. In addition to accounting procedures, the training also covers taxation, bookkeeping, and auditing. Requirements may differ slightly in each state. CPAs can conduct audits and legally sign regulatory filings.
While there are other accounting titles, the CPA is the current standard for versatility. The exam, provided by the American Institute of Certified Public Accountants, looks at subjects such as auditing and attestation, business environment and concepts, regulation, and financial accounting and reporting. A CPA designation is considered a requirement for many career options, including most leadership positions in the financial sector.

AP and AR: Managing Payables and Receivables 

Accounts Payable (AP) is money a company owes to others, such as suppliers, vendors, and contractors. Instead of owed funds, Accounts Receivable (AR) refers to money others owe to the company. Ideally, a company will have people who specialize in one area. Still, one person may be given both roles at startups or smaller organizations. 
Both positions require extensive knowledge of what funds are coming in and going out, including various vendors and suppliers. They also must focus on reconciling data regularly. High levels of organization are required to coordinate invoicing along with any payment plans or financing arrangements in place or to offer new ones. 

ROI: Evaluating Profitability and Investment Returns

ROI is short for Return on Investment. It is the ratio of what has been spent on a project vs. its estimated value. To reach this figure, divide the benefit of an investment by its cost. While ROI isn’t a required metric, many company officials are interested in it to show if their efforts lead to satisfactory and profitable results or if they’re spending a lot of money with little to offer. Projected ROI can also justify a more significant purchase. For example, a company may use projected ROI for a new piece of equipment if it will improve efficiency and save money in the long run.

GL: The Backbone of Financial Reporting

A General Ledger (GL) will show transactions over a specific time of a company’s performance. The General Ledger shows the company’s entire financial history. While a ledger helps look at a company’s ups and downs over a specific period, the General Ledger shares details of all economic activity starting from the company’s first days. Looking at its comprehensive history is a more honest approach and an easier way to spot trends. 

COGS: Calculating Direct Production Costs

COGS is an abbreviation for Cost of Goods Sold, referring to the direct costs of producing the items a business sells. COGS can include raw materials and labor to produce or deliver items. 
Figuring out COGS can be done in a couple of ways. One approach multiplies the gross profit percentage based on sales. Then subtract the costs of goods available or goods that have been sold. Another way starts by looking at the inventory value when the period started, adding to the cost of new inventory, and subtracting the inventory cost at the end of the specified time area. 

NI: Assessing Business Profitability

Net Income (NI) is a company’s total profit over a specific period, calculated by subtracting total costs/expenses from total income. Net Income is a more definitive way to monitor how a company performs. An accountant might use the gross income to calculate the Net Income since it is usually a more significant number. However, gross income doesn’t include expenses, which can reduce that number. The Net Income can be used to reasonably assess overall profits and produce a number that’s easy to identify. 

CF: Monitoring Cash Movement within a Business

Cash Flow (CF) is the total amount of money a company receives and spends over time. Income can come from various sources, such as customers, contracts, interest, or financing. Cash flow on balance sheets can also include predicted income or expenses. Paying attention to cash flow can illustrate your internal procedure and show where breakdowns might occur. It can also provide a solid answer to what funds exist vs. those tied up in other areas. 

BS: Providing a Snapshot of a Company's Financial Position

Balance Sheets (BS) are documents summarizing a company’s current financial situation, including profit/loss, what it owes, and the equity of shareholders, owners, or other investors. The balance sheet is helpful for those who just want the quick facts rather than looking at page after page of more raw data. One could undoubtedly dive deeper into the data if they’d like. Still, balance sheets are great for the bigger picture.

How to Boost Your Finance Career Goals

There are many offerings for accounting degree programs, from associate-level to graduate studies and certificates.

If you’re considering becoming an accountant, you may want to consider gaining foundational knowledge in business and finance. Today, there are many offerings for accounting degree programs, from associate-level to graduate studies and certificates. Before starting a program, you may want to consider class format (online or in-person), curriculum, time commitment, and cost. 

Versatility of Accounting Skills Across Industries

An accounting course of study can share how different industries deal with their financial data. The principles and techniques are similar, but other requirements or situations may exist. Learning how different companies function can be helpful when seeking employment. 

Career Prospects With an Associate’s Degree in Accounting

Some students who have earned their associate’s degree might consider continuing their education and receiving a more advanced degree. Or they can look for a job immediately and begin their experience, which can be part of CPA standards. Companies may need people with basic bookkeeping experience as well. 

Benefits of Enrolling in an Accredited Accounting Program

To receive and retain accreditation, a school must demonstrate quality instructors, an up-to-date curriculum, proper courses, and interactions with alums regarding career and internship options. An accounting program would be considered a helpful path forward. 

Preparing for Success: Tips for Accounting Studies

Students in accounting programs have some advantages over those trying solely on the job or by themselves.

• Numerical solid and analytic skills.
• Internship opportunities with practical experience
• Access to various accounting associations or networks 

Take the First Step Today

Following an academic path in accounting could be the first step in a career in accounting. A degree program, including an associate’s, can provide a valuable overview of modern and traditional accounting principles and techniques, exposing students to a wide range of insight and the required background to take the CPA or other exams. Taking the first step is as easy as inquiring about classes or reading about an institution online.
Champlain College Online is an excellent starting place. Our program offers a variety of degrees and certificates, including an online Associate's Degree in Accounting. Getting started is as easy as requesting information for you or others. Learn more today!