Category: Financial Terms

Accumulated Depreciation: Everything You Need to Know What is accumulated depreciation? Accumulated depreciation is the total amount of depreciation recognized on a long-lived asset from its acquisition to a given date. It reflects the portion of an asset’s cost that has been expensed and is reported on the balance sheet as a contra asset, reducing…

Accrued Revenue Accrued revenue is revenue a business has earned by providing goods or services but has not yet received payment for. Under accrual accounting, these amounts are recorded as receivables on the balance sheet to reflect what customers owe. Key takeaways Accrued revenue follows the revenue recognition principle: record revenue when earned, not when…

Accrued Liability: Overview, Types, and Examples Key takeaways An accrued liability (or accrued expense) is an expense a business has incurred but not yet paid or billed. Accrued liabilities exist only under the accrual method of accounting and are recorded to match expenses to the period in which they are incurred. Typical examples include wages,…

Accrued Interest Definition Accrued interest is interest that has been earned or incurred but not yet paid. Under accrual accounting, it must be recorded in the period in which it is earned or incurred—even if cash changes hands later. For lenders this appears as accrued interest revenue (an asset); for borrowers it appears as accrued…

Accrued Income: Money Earned But Not Yet Received Key takeaways * Accrued income (accrued revenue) is revenue that has been earned but not yet received in cash. * It is recorded when earned under accrual accounting, not when cash is collected. * Accrued income is reported as an asset on the balance sheet and reversed…

Accrued Expenses Accrued expenses (accrued liabilities) are obligations a company records when expenses are incurred but before cash is paid. Under accrual accounting, expenses are matched to the period in which the related goods or services were received, providing a more accurate picture of financial performance than cash-basis accounting. Key takeaways Accrued expenses are recorded…

Accrue: Definition, How It Works, and the 2 Main Types of Accruals Key takeaways To accrue means to accumulate interest, income, or expenses over time and recognize them in accounting records before cash changes hands. The two main accrual types are accrued revenues (income earned but not yet received) and accrued expenses (costs incurred but…

Accruals: Definition and Overview Accruals are revenues earned or expenses incurred for which cash has not yet been received or paid. Under accrual accounting—required by GAAP and IFRS for most larger businesses—these transactions are recorded when they occur, not when cash changes hands. This approach ensures financial statements reflect the economic activity of a reporting…

Accrual Accounting What it is Accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged. It matches revenues and related expenses to the same reporting period to present a more accurate picture of financial performance. Key principles: * Matching principle — recognize revenues and expenses…

What Is Accretive? “Accretive” describes gradual or incremental growth. In finance, the term most often refers to transactions or investments that increase a company’s value—commonly measured by earnings per share (EPS)—or securities bought at a discount that gain value over time. Key Takeaways Accretive deals lead to an increase in value (often EPS) for the…

Accretion of Discount Accretion of discount is the process by which the carrying value of a debt instrument purchased below its face (par) value increases over time, reaching par at maturity. It is an accounting and tax concept used to allocate the capital gain embedded in a discounted bond across its remaining life. Key points…

Accretion What is accretion? Accretion is the gradual increase in the value of an asset, a security, or a company’s earnings. In finance it commonly describes: The accumulation of income when a bond is bought at a discount and held to maturity. The growth in a company’s assets or earnings resulting from organic growth, a…

Accredited Investor An accredited investor is an individual or entity that meets regulatory criteria allowing participation in private, unregistered securities offerings (for example, private placements, venture capital, hedge funds, and pre‑IPO shares). The designation signals sufficient financial sophistication or resources to assume the higher risks and reduced disclosure that accompany these investments. Key takeaways Accredited…

Accredited in Business Valuation (ABV): Overview and Requirements Accredited in Business Valuation (ABV) is a professional designation granted by the American Institute of Certified Public Accountants (AICPA) to CPAs who specialize in valuing businesses. The credential signals expertise in valuation theory and practice and is commonly used by professionals working in valuation firms, consulting, litigation…

Accredited Asset Management Specialist (AAMS) Key takeaways The AAMS is a professional designation for advisors who work with personal assets and investments. It’s awarded by the College for Financial Planning (Kaplan) after completing an online self-study program and passing a final exam. Maintenance typically requires continuing education—16 hours every two years—and a renewal fee (about…

Accounts Receivable Financing Definition Accounts receivable (AR) financing is a way for a company to access cash by using outstanding customer invoices as the basis for financing. The arrangement can be structured either as an asset sale (factoring) or as a loan secured by receivables. AR are current assets on the balance sheet and are…

Accounts Receivable Aging Accounts receivable aging is a periodic report that categorizes a company’s outstanding invoices by how long they’ve been unpaid. It helps businesses assess customer credit risk, prioritize collections, estimate bad‑debt expense, and manage cash flow. How it works Receivables are grouped into time buckets (commonly: Current, 1–30 days, 31–60 days, 61–90 days,…

Accounts Receivable (AR): Definition, Uses, and Examples What is accounts receivable? Accounts receivable (AR) are amounts owed to a business for goods or services that have been delivered but not yet paid for. AR is recorded on the balance sheet as a current asset because payment is generally expected within one year. How AR works…

Accounts Payable Turnover Ratio What it is The accounts payable (AP) turnover ratio measures how quickly a company pays its suppliers. It indicates how many times during a period a company pays off its accounts payable and is a short-term liquidity and efficiency metric. Accounts payable appears on the balance sheet under current liabilities. Explore…

Accounts Payable (AP) Key takeaways Accounts payable (AP) is a short-term liability representing amounts a company owes suppliers for goods and services purchased on credit. AP appears on the balance sheet as a current liability, not on the income statement as an expense. Effective AP management improves cash flow, vendor relationships, and working capital. Useful…

Accounting Theory Accounting theory is the set of assumptions, frameworks, and methods that guide the preparation and interpretation of financial reports. It explains why accounting practices exist, shapes how standards are developed, and helps ensure financial information is useful for decision-making. Key takeaways Accounting theory provides the conceptual basis for consistent, comparable financial reporting. It…

Accounting standards are the rules and frameworks that govern how businesses record, measure, present, and disclose financial information. They ensure financial statements are consistent, comparable, and useful for decision‑making by investors, lenders, regulators, and other stakeholders. Key points Apply to all elements of financial reporting: assets, liabilities, equity, revenue, and expenses. Promote consistency and comparability…

Accounting Ratio: Definition and Overview An accounting ratio is a metric that expresses the relationship between two figures taken from a company’s financial statements (income statement, balance sheet, and cash flow statement). These ratios help evaluate management effectiveness, operational efficiency, profitability, liquidity, and capital structure. They are widely used by companies, analysts, and investors to…

Accounting Rate of Return (ARR) What is ARR? The Accounting Rate of Return (ARR) is a capital budgeting metric that measures an investment’s profitability as an annual percentage of the initial investment. It uses accounting profit (after expenses and depreciation) rather than cash flows to evaluate projects and compare potential investments. How to calculate ARR…

Accounting Profit: Definition, Calculation, and Examples What is accounting profit? Accounting profit (also called bookkeeping profit or net income) is a company’s total earnings calculated under generally accepted accounting principles (GAAP). It equals total revenue minus all explicit, monetary costs of doing business—such as wages, inventory and raw materials, transportation, production overhead, interest, depreciation, and…

Accounting Principles Accounting principles are the rules and guidelines that govern how companies record, report, and disclose financial information. They create consistency, comparability, and transparency across financial statements, making it harder for firms to obscure results and easier for investors, creditors, and regulators to assess a company’s financial health. Two widely used frameworks are Generally…

Accounting Policies: Definition, Use, and Examples Key takeaways Accounting policies are the procedures and methods management uses to prepare financial statements. Policies implement accounting principles (GAAP or IFRS) but allow management discretion where rules are flexible. Choices in accounting policies can legitimately affect reported earnings and indicate whether management is conservative or aggressive. Investors and…

Key Takeaways * An accounting method determines when a business records revenues and expenses. The two primary methods are cash and accrual accounting. * Cash accounting records transactions when cash is received or paid; accrual accounting records them when they are earned or incurred. * GAAP and many large businesses require accrual accounting because it…

Accounting Information System (AIS) What is an AIS? An Accounting Information System (AIS) is a computer-based system that collects, stores, and processes financial and accounting data. It integrates traditional accounting practices (for example, generally accepted accounting principles, GAAP) with information technology to track transactions, produce financial reports, and support decision-making by internal users and external…

Accounting Equation The accounting equation expresses the fundamental relationship on a company’s balance sheet: Assets = Liabilities + Shareholders’ Equity Explore More Resources › Read more Government Exam Guru › Free Thousands of Mock Test for Any Exam › Live News Updates › Read Books For Free It underpins double-entry bookkeeping and ensures that every…

Accounting Cycle — Complete Guide The accounting cycle is a systematic process for recording and reporting an entity’s financial transactions over an accounting period. It ensures accuracy, consistency, and that financial statements fairly present a business’s financial position. Modern accounting software automates many steps, reducing manual errors. Key takeaways The accounting cycle typically comprises eight…

Accounting Conservatism Accounting conservatism (also called prudence) is an accounting principle that directs companies to be cautious when reporting uncertain outcomes: recognize probable losses promptly, but recognize gains only when they are virtually certain. Its purpose is to reduce the risk of overstating financial health and to provide a conservative, verifiable view of a company’s…

Accounting Accounting is the systematic process of recording, classifying, summarizing, and reporting a business’s financial transactions. It produces the financial statements and records that managers, investors, lenders, regulators, and other stakeholders use to evaluate performance, make decisions, and meet legal obligations. Key takeaways Accounting tracks a company’s income, expenses, assets, and liabilities to measure economic…

Accountant Responsibility Key takeaways Accountant responsibility refers to the ethical and professional duties accountants owe to those who rely on their work, including clients, employers, investors, creditors, and the public. Duties include maintaining confidentiality, preparing accurate financial information, following applicable standards and laws, and acting with due care and integrity. Specific responsibilities vary by role…

Key Takeaways * Accountants record, review, and analyze financial transactions for individuals, businesses, governments, and non-profits. * They support decision-making through reporting, forecasting, tax planning, audits, and cost analysis. * Common certifications include CPA, CMA, and CIA; the CPA is the most widely recognized professional credential. * Ethical standards and accounting frameworks (GAAP, IFRS) govern…