With tax season upon us and let’s face it, life in general, the need for a rudimentary understanding of basic accounting terms is important for everyone. The hard thing is, when someone even mentions the word “budget,” most people tune out.

Fortunately, you can up your financial game by reviewing this list of the 9 most basic accounting terms made easy.

1. Certified Public Accountant

Abbreviated as CPA, they are basically any accountant who passed the CPA exam. This exam is standardized and to become a CPA, accountants must also meet certain work experience requirements set by the government.

CPAs must also meet government-mandated educational requirements. If you’re working with a Certified Public Accountant, they should know their stuff.

2. Accounts Receivable

This is how much money someone owes to a specific business after goods have been used or purchased. Often abbreviated, AR.

3. Assets

Assets may be fixed or current. Fixed means long-term items that bring benefits to a business. They can include anything from property, land, major machines, or other large items that won’t be converted into cash immediately but do carry value.

Current assets are things that can be turned into cash within a year. They can be used to calculate your wealth rank.

4. Accounts Payable

AP, or accounts payable, is the balance of money that a business owes to its creditors for services or goods delivered. These creditors may be suppliers, manufacturers, you name it.

5. Cash Flow

Cash flow is the amount of money that is expected to be generated. In other words, how much money you think your sales or business will make.

6. Capital

Capital, or CAP as your accountant will call it, is the value of a financial asset. This can be cash or other goods. Basically, you can determine your working capital by subtracting your current assets from your current liabilities. 

Capital is just the value in money or other assets that a business or person can use.

7. Roth 401K

This is a long-term saving account that you can contribute money to after paying taxes on it. This is nice because it means when the time comes to withdraw the money, (unless the government changes the tax laws drastically), you won’t owe any taxes on it. 

8. Present Value

Money in the present can be invested at a higher rate of return than money a year from now. Present value explains the current value of a future amount of money based on a specific rate of return.

In other words, it’s better to have a sum of money in the present that can be invested than to have that same amount in the future.

9. Balance Sheet

A balance sheet, or BS, is a financial report. It usually contains a list of what a person or business owns, (their assets), and what it’s debts or liabilities are (what money is owed).

Balance sheets also show owner and shareholder equity, aka, how much investors have at any certain time.

More Basic Accounting Help

Now that you possess a basic accounting vocabulary, you’re ready to make 2020 the most informed financial year yet.

Read our post on small business bookkeeping to help you manage your 2020 finances perfectly.