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Common Terms Glossary

Accounting Terms
Inventory Terms
Payroll Terms
Invoicing (AR) Terms

Accounts Payable

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

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Accounts Receivable

The money owed to a company by its customers for goods or services delivered but not yet paid for.

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Accrual Accounting

Accrual Accounting: An accounting method in which revenue and expenses are recognized when earned or incurred, regardless of when cash is received or paid.

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Amortization

Amortization: The process of spreading out the cost of an intangible asset, such as a patent or trademark, over its useful life.

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Assets

Assets: Anything that a company owns and has value, such as cash, property, inventory, or equipment.

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Balance Sheet

Balance Sheet: A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.

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Book Value

Book Value: The value of an asset as recorded in a company's books.

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Bookkeeping

Bookkeeping: The process of recording financial transactions, including sales, purchases, receipts, and payments.

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Capital

Capital: The funds invested in a business by its owners or shareholders.

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Capital Expenditure

Capital Expenditure: The purchase of a long-term asset, such as a building or equipment, that is expected to generate revenue for the company over several years.

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Cash Accounting

Cash Accounting: An accounting method in which revenue and expenses are recognized when cash is received or paid, regardless of when they are earned or incurred.

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Cash Flow

Cash Flow: The movement of cash into and out of a company over a specific period of time.

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Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS): The direct costs associated with producing or delivering a product or service.

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Credit

Credit: A record of money owed to a company, or the act of recording such a debt.

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Debit

Debit: A record of money owed by a company, or the act of recording such a debt.

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Depreciation

Depreciation: The gradual decrease in value of an asset over time, reflecting its wear and tear or obsolescence.

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Equity

Equity: The value of a company's assets minus its liabilities; also called owner's equity or shareholder's equity.

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Expenses

Expenses: The costs associated with running a business, including wages, rent, supplies, and utilities.

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Financial Statements

Financial Statements: Reports that summarize a company's financial activity, including the income statement, balance sheet, and statement of cash flows.

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Fixed Asset

Fixed Asset: A long-term asset that a company uses in its operations, such as land, buildings, or machinery.

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Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP): The set of rules and standards that govern how financial statements are prepared and presented in the United States.

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Income Statement

Income Statement: A financial statement that shows a company's revenues, expenses, and profits (or losses) over a specific period of time.

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Intangible Asset

Intangible Asset: An asset that does not have a physical presence but has value, such as a patent, trademark, or goodwill.

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Journal Entry

Journal Entry: The process of recording a financial transaction in a company's books, including the accounts involved and the amount of the transaction.

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Liabilities

Liabilities: Debts or obligations that a company owes to others, such as loans, accounts payable, or taxes.

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Liquidity

Liquidity: The ability of a company to meet its short-term financial obligations.

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Net Income

Net Income: The amount of profit a company earns after subtracting all expenses from its revenues.

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Operating Expenses

Operating Expenses: The costs associated with running a business, including wages, rent, supplies, and utilities.

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Profit and Loss Statement

Profit and Loss Statement: Another term for the income statement, which shows a company's revenue, expenses, and profits (or losses) over a specific period of time.

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Reconcilliation

Reconciliation: The process of ensuring that two sets of financial records are in agreement.

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Revenue

Revenue: The money a company earns from the sale of its products or services.

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Trial Balance

Trial Balance: A report that lists all of a company's accounts and their balances, used to ensure that the company's books are in balance.

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Working Capital

Working Capital: The amount of money a company has available for day-to-day operations, calculated as current assets minus current liabilities.

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Write-Off

Write-Off: The process of removing an asset or liability from a company's books, typically because it is no longer useful or collectible.

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Year-End Close

Year-End Close: The process of finalizing a company's books at the end of the fiscal year.

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Zero-Based Budgeting

Zero-Based Budgeting: A budgeting method that requires every expense to be justified each year, rather than simply rolling over the previous year's budget.

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Backorder

Backorder: An order that cannot be fulfilled immediately because the product is out of stock, but will be fulfilled when the product is available.

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Carrying Cost

Carrying Cost: The cost of holding inventory, including storage, insurance, and interest on capital invested in inventory.

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Cycle Counting

Cycle Counting: A process of regularly counting a portion of inventory to ensure accuracy and detect discrepancies.

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Deadstock

Deadstock: Inventory that is no longer in demand or usable and must be disposed of.

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Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ): The optimal order quantity that minimizes inventory holding costs and ordering costs.

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FIFO (First-In-First-Out)

FIFO (First-In-First-Out): An inventory management method that assumes the first items received are the first items sold.

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Gross Margin Return on Investment (GMROI)

Gross Margin Return on Investment (GMROI): A measure of the profitability of inventory investment, calculated by dividing gross profit by average inventory investment.

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Inventory

Inventory: The stock of goods or materials that a business holds for sale or use in production.

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Just-In-Time (JIT)

Just-In-Time (JIT): An inventory management approach that seeks to minimize inventory levels by receiving goods only when needed for production or sale.

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LIFO (Last-In-First-Out)

LIFO (Last-In-First-Out): An inventory management method that assumes the last items received are the first items sold.

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Lead Time

Lead Time: The time it takes for a supplier to deliver goods after an order is placed.

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Obsolete Inventory

Obsolete Inventory: Inventory that is no longer in demand or usable but still has value and may be sold at a discount.

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Perpetual Inventory System

Perpetual Inventory System: An inventory management method that maintains a continuous record of inventory levels and transactions.

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Reorder Point

Reorder Point: The minimum level of inventory at which a company must reorder a product to avoid stockouts.

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SKU Rationalization

SKU Rationalization: The process of evaluating and reducing the number of SKUs a business carries to optimize inventory management.

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SKU Velocity

SKU Velocity: The rate at which a particular SKU is sold over a given period of time.

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Safety Stock

Safety Stock: The additional inventory held to mitigate the risk of stockouts due to unexpected demand or delays in replenishment.

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Stock Keeping Unit (SKU)

Stock Keeping Unit (SKU): A unique identifier assigned to a product to track its inventory.

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Stock Turnover Ratio

Stock Turnover Ratio: A measure of how many times a company's inventory is sold and replaced over a given period of time.

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Stockout

Stockout: A situation where a company runs out of a product and is unable to fulfill customer orders.

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Deductions

Deductions: Any amount of money that an employer takes out of an employee’s paycheck, such as for health insurance, retirement savings, or other benefits.
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Direct Deposit

Direct Deposit: A method of paying employees electronically by depositing their pay directly into their bank account.
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Employee Benefits

Employee Benefits: Additional benefits provided by employers, such as health insurance, retirement savings plans, paid time off, and other perks.
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FICA Tax

FICA Tax: The Federal Insurance Contributions Act tax, which includes both Social Security and Medicare taxes.
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Form 941

Form 941: A quarterly tax form that employers must file with the IRS to report their payroll taxes.
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Form W-2

Form W-2: A tax form that employers are required to send to employees by January 31 of each year, showing the total amount of wages earned and taxes withheld during the previous year.
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Garnishment

Garnishment: A court order requiring an employer to withhold a portion of an employee’s wages to pay off a debt, such as unpaid taxes or child support.
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Gross Pay

Gross Pay: The total amount of wages an employee has earned before any deductions or taxes are withheld.
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Medicare Tax

Medicare Tax: A tax that funds the Medicare program, which provides health insurance to eligible workers.
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Minimum Wage

Minimum Wage: The lowest hourly wage that an employer is legally required to pay employees, as set by federal or state law.
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Net Pay

Net Pay: The amount of pay an employee receives after all taxes and other deductions have been taken out.
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Overtime Pay

Overtime Pay: Additional pay given to employees who work more than a certain number of hours in a workweek, typically 40 hours.
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Paid Time Off (PTO)

Paid Time Off (PTO): A benefit that provides employees with a certain number of paid days off each year for vacation, sick leave, or other personal reasons.
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Pay Period

Pay Period: The time period for which an employee’s wages are calculated and paid, such as weekly, bi-weekly, or monthly.
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Payroll System

Payroll System: A software program or service used by employers to manage their payroll processes, including calculating wages, taxes, and deductions, and generating paychecks or electronic payments.
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Payroll Tax

Payroll Tax: Taxes that employers are required to withhold from employees’ paychecks, including income taxes, Social Security, and Medicare taxes.
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Sick Leave

Sick Leave: Paid time off that employees can use when they are sick or injured and unable to work.
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Social Security Tax

Social Security Tax: A tax that funds the Social Security program, which provides retirement and disability benefits to eligible workers.
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Vacation Time

Vacation Time: Paid time off that employees can use for leisure, travel, or other personal reasons.
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W-4 Form

W-4 Form: A form that an employee fills out to indicate their tax withholding status and exemptions.
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Withholding

Withholding: The amount of money an employer is required to deduct from an employee’s paycheck to cover income taxes, Social Security, and Medicare taxes.
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Accounts Receivable

The money owed to a company by its customers for goods or services delivered but not yet paid for.

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Accounts Receivable Aging Report

A report that shows the outstanding accounts receivable balances, sorted by age.

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Aging Schedule

A report that shows the age of each account receivable, usually broken down into categories such as 30 days, 60 days, and 90 days past due.

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Bad Debt

An amount owed by a customer that is unlikely to be paid, resulting in a loss for the seller.

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Cash Receipts Journal

A record of all cash receipts received by a company, including payments on accounts receivable.

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Collection Agency

A third-party company that specializes in collecting overdue accounts receivable on behalf of a seller.

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Collection Policy

A set of procedures and guidelines for collecting overdue accounts receivable.

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Credit Memo

A document issued by a seller that reduces the amount owed by a buyer, usually due to a return or refund.

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Credit Policy

A set of guidelines and procedures for extending credit to customers.

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Customer

A person or entity that purchases goods or services from a seller.

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Customer Statement

A document that summarizes a customer's account activity, including invoices, payments, and outstanding balances.

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Days Sales Outstanding (DSO)

A measure of the average number of days it takes a company to collect its accounts receivable.

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Discount

A reduction in the amount owed by a buyer, usually offered by a seller for early payment.

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Due Date

The date on which payment is due for an invoice or account receivable.

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Factoring

The process of selling accounts receivable to a third party, usually a financial institution, in exchange for immediate cash.

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Factoring Fee

The fee charged by a factoring company for purchasing accounts receivable.

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Invoice

A document that details the goods or services provided by a seller to a buyer, including the cost and terms of payment.

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Invoice Date

The date on which an invoice is issued by a seller.

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Invoice Number

A unique identifier assigned to an invoice for tracking and record-keeping purposes.

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Late Payment Fee

A fee charged by a seller for payment received after the due date.

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Open Invoice

An invoice that has been issued but not yet paid.

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Payment Date

The date on which payment is made for an invoice or account receivable.

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Payment Plan

An agreement between a seller and a customer to make payments on an account receivable over time.

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Payment Terms

The agreed-upon terms of payment between a buyer and seller, including the due date, discount, and penalty for late payment.

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Payment Terms Discount

A discount offered by a seller to a buyer for paying an account receivable within a specified period, such as 10 days.

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Payment Voucher

A document that accompanies a payment and provides information about the invoice or account receivable being paid.

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Pro Forma Invoice

An estimate of the cost of goods or services that a seller provides to a buyer, often used for international transactions.

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Purchase Order

A document that specifies the goods or services that a buyer wants to purchase from a seller, including the quantity, price, and delivery date.

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Purchase Requisition

A document that initiates the purchase of goods or services, usually submitted by a department or employee within a company.

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Receiving Report

A document that confirms the receipt of goods by a buyer, typically used to match against invoices.

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Remittance Advice

A document that accompanies a payment and provides information about the invoice or account receivable being paid.

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Reserve for Bad Debts

An allowance set aside by a company to cover potential losses from bad debts.

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Sales Order

A document that confirms a customer's request to purchase goods or services from a seller, including the quantity, price, and delivery date.

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Three-way Matching

The process of comparing a purchase order, receiving report, and invoice to ensure that the goods or services were received and the invoice is accurate.

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Vendor

A company or individual that supplies goods or services to a buyer.

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Write-Off

Write-Off: The process of removing a bad debt from a company's accounts receivable balance.

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