5 Common Accounting Terms Everyone Needs to Know

Does the thought of accounting make your head spin?

Does the technical jargon make you want to hide from filing your taxes this year?

As it turns out, accounting doesn’t have to be this complicated mystery. Let’s get into the most common accounting terms everyone should know.

Dividends

If you’ve dabbled in any investing, then you’ve probably heard the term, dividends. To break it down simply, dividends refer to the company earnings distributed to company shareholders.

If you own any stock, you are considered a company shareholder (congrats!). The specific dividend amount varies. It depends on each corporation’s board of directors.

Typically, dividends are distributed as cash, other property, or other shared of stock.

Fiscal Year

You know what an annual year is, but do you really understand the premise of one of the most common accounting terms?

A fiscal year refers to the designated period of time that companies devote for accounting purposes and preparing financial statements.

Yes, the fiscal year can match up with the annual, calendar year, but it doesn’t have to. Some companies start at different intervals (such as August or September).

With that said, each company determines its fiscal year start and end date. These dates can impact federal and state taxes.

Asset

This one is relatively simple, but it’s also extremely important to understand. In general, an asset refers to the physical items that you own that have value.

Think about it this way: what could you sell that will earn you money? Do you own a house? A car? A special heirloom necklace?

These are typically considered assets, and they can help determine your overall net worth.

Your equity is the difference between your assets (what you own) versus your liabilities (what you owe).

Because determining assets can be tricky (especially if you own a business), it may be worthwhile to consult with a CPA.

Gross Margin

Do you own one of the 28 million small businesses in America? If so, it’s essential that you understand the premise of your gross margin.

In general, it refers to your sum of sales and profit after deducting the associated costs.

Think of it this way: if you’ve made $100 in a single transaction, but the cost of labor and materials cost you $60, your current gross margin is $40.

General Ledger

The general ledger acts as a “master bookkeeper” of all financial transactions that have ever been recorded and conducted in the company’s history.

The general ledger will contain everything from sales, income losses, credit purchases, and production expenses.

Final Thoughts on Understanding Basic Accounting Terms

Even if you have exactly zero desire to become a Certified Public Accountant, learning the basic terms is essential in you being proactive over your financial well-being.

Are you looking for some extra help with your personal or business taxes? Duncan and Company have you covered! Check out our extensive services today.

 

 

About the Author:

Chris Duncan, CPA

As a South Carolina native, Chris has spent the better part of his life in the Charleston area. Chris graduated from The Citadel with a degree in Business Administration (Accounting Concentration) in 1999.  In 2006, Chris launched his own CPA firm. For the past twelve years, Chris has worked as a local CPA and provided services to both individuals and commercial clients in a variety of industries to include accounting, bookkeeping, tax, and payroll service

 

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