James D. Oates, CPA
The Accounting Department for YOUR Business
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ACCOUNTING TERMS EXPLAINED
Like any profession, the accounting profession uses a set of terms that may not always be understood by non-accountants.  The following is a short list with explanations of each term in layperson's language. 
   
Term Description
Accounts Payable This represents amounts owed to suppliers.
Accounts Payable Aging This is a list of amounts owed to suppliers. The invoices are categorized by how many days they are past the due date.
Accounts Receivable This is money owed to the business from their customers.
Accounts Receivable Aging This is a list of money owed to the business from their customers. The invoices are categorized by how many days they are past the due date.
Accumulated Amortization The amount that the respective Fixed Asset has been written off to expense (Depreciation) since that fixed asset was purchased.
Assets Assets are those things owned by or owed to the business. It is listed in descending order by how quickly the item can be converted to cash.
Balance Sheet The Balance Sheet is a snapshot at a point in time of the Assets, Liabilities and Retained Earnings of the business.  It shows, in accounting terms, what the net value of the business is to the owner.
Balloon Payments Some lease and loan payments have a larger payment at periodic intervals during the life of the lease or loan.  A personal example is the facility in some mortgages to make an extra payment every five years or at renewal.
Business Interruption Insurance In the event that your business is not able to operate in the space as a result of fire, flood or other calamity, this insurance will cover your lease costs and other base costs necessary to keep the business going, including whatever salaries are required.
Cash This is the amount in the bank accounts of the company and will include Petty Cash.  
 
Cash Flow Statement This represents shows the impact of both profit as well as changes in all balance sheet items on the bank balance.
Current Assets The total of monies expected to be converted to Cash within a one year period. Thus, it is useable in paying their Current Liabilities.
Current Liabilities The total of all Liabilities due to be paid within the next year. 
Current Ratio Bankers use a ratio (fancy term for fraction) of Current Assets divided by Current Liabilities.  The higher the number, the better able a company is to be to pay it's bills when they come due.  The value of the ratio should be greater than one or else a value of less than one is an indication of a future cash problem.
Days Sales Outstanding This represents the average number of days it takes for your customers to pay their bills.
Depreciation Fixed Assets have an expected physical life span of more than one year.  Depreciation is an approximation of the amount of the cost of those fixed assets that was used in that year.
Fixed Assets Those things like machinery, computers and desks that have an expected lifespan of more than one year.
Income Statements What were the financial results of your operations during the period? It is also referred to as the Profit & Loss Statement.
Inventory This is the value of parts and products held to be resold or to be included in another product or service.  A garage will likely keep a stock of spark plugs.  Manufacturing company's will have both raw materials as well as product in various stages of production and also goods completed but not sold. 
Leasehold Improvements Leasehold Improvements, which are a group of Fixed Assets represent the modifications made to a leased space.  This typically is walls, electrical, carpets or tiling.  The Leasehold Improvement belongs to the business as long as it is in that space and is typically written off over the expected term of the lease.
Liabilities Amounts owed to suppliers, governments and lenders.
Long Term Loans Payable The amount to be paid on the loan after the next twelve months.  See also Short Term Loans Payable.
Petty Cash Petty cash is the amount of actual cash in the form of bills and coin kept in the business.  Many company's keep a small amount of cash to pay for purchases that are cash only.
Profit & Loss What were the financial results of your operations during the period? It is also referred to as the Income Statement.
Retained Earnings The amount of money earned since the company began less any amounts distributed to the owners by dividend payments.
Short Term Loans Payable This represents the total amount of payments to be made in the next twelve months.
Statement of Cash Flow This represents shows the impact of both profit as well as changes in all balance sheet items on the bank balance.

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