Last Updated December 27, 2024
While necessary, business accounting is often anything but simple. Whether you’re trying to DIY your small business finances or just want to better understand what your accountant is saying, navigating the complex world of finance requires familiarizing yourself with key terms and shorthand.
It might sound like jargon at first, but understanding accounting acronyms can help you better manage your finances. This has a direct impact on your profitability and paycheck, so it’s crucial to memorize a few key accounting abbreviations.
In this guide, we’ll discuss 63 standard accounting abbreviations and acronyms. You don’t need to memorize them all, but this guide is a helpful starting point for any business owner who wants to understand the complexities of finance.
1. Accounts Payable (AP)
AP is the abbreviation for accounts payable, which focuses on paying bills to suppliers, vendors, or creditors. Managing AP effectively ensures healthy cash flow and helps you maintain good relationships with your vendors.
2. Accounts Receivable (AR)
The accounts receivable abbreviation is AR. It refers to the money customers owe you, usually as unpaid invoices. Accounts receivable is a tremendous asset to your company because it shows the cash flow you can expect to receive soon. However, you need to manage AR carefully, since late payments can hurt your profitability.
3. General Ledger (GL)
General ledger (GL) refers to all of the accounting activities recorded by your business. In the past, ledgers were large books of all business accounts and transactions. We still use the term “ledger” today, but now it refers primarily to digital records. Your GL includes summaries of accounts payable and accounts receivable in a single view. Think of it as a simple snapshot of your business’s financial status.
4. Financial Statements (FS)
A financial statement (FS) summarizes a business’s overall performance by displaying all financial activities in a single view. The three essential financial statements include your income statement, cash flow reports, and balance sheet. Since it’s so comprehensive, a financial statement is a good litmus test for your business’s financial health.
5. Cash Flow (CF)
CF is accounting shorthand for cash flow. Cash flow is the money moving in and out of a business during a certain period of time. The better you manage the flow of money, the greater your company’s financial health will be.
6. Free Cash Flow (FCF)
The accounting acronym FCF refers to free cash flow. Unlike regular cash flow, which doesn’t account for expenses, free cash flow subtracts capital expenditures first. This metric tells you how much money you have on hand to mobilize in the business.
7. Operating Cash Flow (OCF)
Operating cash flow (OCF) measures the money a business generates from products or services, not from activities like investing. The goal of OCF is to help you understand the value your company generates.
8. Net Cash Flow (NCF)
NCF is an accounting term abbreviation for net cash flow. This term refers to how much cash comes in and out of a business over a period of time, which reflects your company’s liquidity.
9. Cash Flow From Assets (CFFA)
Every organization has assets, such as vehicles, computers, or machinery. Cash flow from assets (CFFA) measures how much cash these assets generate during a given period, which tells you how efficiently your business uses these assets.
10. Discounted Cash Flow (DCF)
The accounting acronym DCF stands for discounted cash flow. DCF calculates the value of an investment based on how much you expect it to generate in future cash flow. It’s usually used to determine the potential of an investment.
11. Working Capital (WC)
Working capital (WC) measures your business’s total liquid assets, like cash or stocks. This metric tells you how much money you have to meet short-term obligations while paying for day-to-day operations.
12. Net Working Capital (NWC)
Although it’s similar to working capital (WC), net working capital (NWC) has a key difference. This metric looks at net liquid assets after subtracting short-term debts like credit card payments. For example, NWC subtracts money in your checking account (an asset) from payments for employee wages (a liability).
13. Working Capital Cycle (WCC)
WCC is an accounting abbreviation for working capital cycle. This term refers to how long it takes for a business to convert all current assets and liabilities (net working capital) into cash on hand.
14. Cash Flow Statement (CFS)
CFS is one of three main statements accountants use to understand your business’s financial health. The cash flow statement monitors the flow of cash in and out of the business over a period of time, usually a quarter or a year. This report tells you how efficiently your company manages its money.
15. Income Statement (IS)
IS is an accounting acronym for income statement. It’s the same thing as a profit & loss statement (P&L). The income statement reports profits and losses over a certain period. It’s a helpful summary of the company’s earnings and expenses, which helps business owners better understand financial performance.
16. Balance Sheet (BS)
BS stands for balance sheet, a report that shows your company’s financial position at a given point. It includes your assets, liabilities, and any equity you have. BS is different from an income statement or P&L because it shows the company’s total value without looking at whether the company is actually profitable.
17. Profit & Loss Statement (P&L)
P&L is a common accounting term for profit & loss statement, which is also referred to as an income statement (IS). The P&L reports profits and losses over a certain period. It’s a helpful summary of the business’s earnings and expenses, helping business owners better understand financial performance.
18. Net Income (NI)
NI is an accounting abbreviation for net income. Net income measures how much a company makes after subtracting expenses and taxes. If you’ve ever heard someone refer to the company’s “bottom line,” they’re referring to net income.
19. Current Liabilities (CL)
Current liabilities (CL) totals short-term debts that need to be paid within the year. It usually includes AP and any other unpaid expenses due soon.
20. Long-Term Liabilities (LTL)
Long-term liabilities (LTL) are long-term debts due over a period longer than a year. This accounting term monitors liabilities like long-term loans, which can help with understanding the company’s debt structure.
21. Current Assets (CA)
Current assets (CA) totals the value of any assets you expect to convert into cash within the next year. It includes data on sellable inventory and accounts receivable.
22. Fixed Assets (FA)
Fixed assets (FA) are the opposite of current assets (CA). With fixed assets, you look at long-term, tangible assets that help your business stay profitable. It includes the cost of a building, equipment, vehicles, and more. If you can physically touch an asset and have no plans of selling it, it likely qualifies as FA.
23. Capital Expenditure (CAPEX)
CAPEX is an accounting acronym that stands for capital expenditure. With capital expenditure, a business buys or upgrades physical assets to boost performance. This metric can include the costs of buying new property or investing in new technology. CAPEX might cost a lot upfront, but the goal is to make strategic investments in the business that will help it become more efficient and profitable in the future.
24. Operating Expenses (OPEX)
Your business’s operating expenses (OPEX) are all of the costs associated with normal operations. Every business’s operating expenses differ but often include rent, employee salaries, and utilities. It doesn’t account for improvements, which usually qualify as a capital expenditure (CAPEX).
25. Accrued Expenses (AE)
If you need to know how much the business owes, you can measure it with accrued expenses (AE). AE measures all expenses, including employee wages or loan interest, that you haven’t paid yet.
26. Fixed Expenses (FE)
FE is an accounting acronym that stands for fixed expenses. It’s a simple metric that looks at all unchanging costs in your business. It includes fees for insurance premiums or rent, which tend to stay the same every month.
27. Variable Expenses (VE)
Variable expenses (VE) are the opposite of fixed expenses. They fluctuate depending on business activity. This accounting principle often considers expenses like sales commissions, purchasing raw materials, or paying for use-based utilities.
28. Weighted Average Cost of Capital (WACC)
Weighted average cost of capital (WACC) is the average rate of return a company expects to pay shareholders and debt holders to finance its assets. It’s not something small businesses have to worry about, but public companies must carefully calculate WACC. Ideally, you want WACC to be as low as possible because it shows your company has less risk.
29. Opportunity Cost (OC)
Opportunity cost (OC) refers to the potential benefits you miss out on by making one choice over another. It’s helpful to calculate opportunity cost before making a decision so you can pick the option that most benefits your company.
30. Quick Ratio (QR)
QR is an accounting abbreviation for quick ratio. It measures how well a company can pay its debts without selling any inventory or obtaining financing. A normal ratio is 1:1.
31. Current Ratio (CR)
Current ratio (CR) compares the assets you have today against your liabilities. CR is different because it expresses the difference between assets and liabilities as a ratio, not a dollar amount.
32. Accounts Receivable Turnover (ART)
ART is an accounting acronym that stands for accounts receivable turnover. It’s an essential part of AR that measures how well you collect customer invoices. A high ART shows your AR team is effective at getting customers to pay.
33. Average Collection Period (ACP)
Average collection period (ACP) measures how many days it takes to collect payment from a customer. ACPs vary a lot depending on business size and your industry. Understand market benchmarks to determine whether your ACP is normal or if customers take too long to pay.
34. Times Interest Earned (TIE) Ratio
The times interest earned (TIE) ratio measures how well your company can pay interest. You can calculate TIE by dividing EBIT by the cost of interest. A good TIE ratio is 2.5 or higher.
35. Days Sales Outstanding (DSO)
DSO is an accounting acronym that stands for days sales outstanding. It calculates the average number of days it takes to collect payment from a customer. DSO sounds very similar to ACP, but there is a crucial difference: DSO looks at total AR, while ACP only looks at average AR.
36. Collections Effectiveness Index (CEI)
Collections effectiveness index (CEI) is a helpful tool for understanding how effective your AR processes are at collecting customer payments. A high CEI indicates you have strong, effective collection practices. You want CEI to be as high as possible, but most experts say 80% and above is effective.
37. Average Days Delinquent (ADD)
In accounting, ADD stands for average days delinquent. This accounting metric is the average number of days that invoices are overdue. The higher your ADD, the more delinquent payments you have. Tracking this metric will help you identify any delays in the collections process and refine your credit policies.
38. Retained Earnings (RE)
Retained earnings (RE) are calculated by public companies with investors. RE is a portion of the company’s net income that, instead of being sent to investors, is retained to grow the business.
39. Days Working Capital (DWC)
DWC is an accounting acronym that stands for days working capital. It measures how many days it takes for your company to convert working capital into revenue.
40. Earnings Per Share (EPS)
Investors calculate earnings per share (EPS) to see if a publicly traded company would be a good investment. This finance metric tells investors how profitable the company is by dividing its net income by the total number of outstanding shares.
41. Compound Annual Growth Rate (CAGR)
Compound annual growth rate (CAGR) is a common accounting term. It measures a business’s or industry’s growth rate over a specific period of time. Many investors rely on CAGR to quickly understand an industry’s potential for growth.
42. Cost of Goods Sold (COGS)
COGS is an accounting abbreviation for cost of goods sold. This metric tells you how much your business spent to produce products. It tallies the costs of labor and materials to help you calculate gross profit and better understand overall productivity.
43. Cash on Delivery (COD)
Cash on delivery happens when, instead of collecting payment from a customer in advance, you accept payment when you deliver the goods or service. This approach is popular in retail and ecommerce.
44. Cash Against Documents (CAD)
CAD is an accounting term that stands for cash against documents. It refers to a customer paying for a product after receiving shipping and title documents. CAD is popular in international trade and financial transactions.
45. Payment in Advance (PIA)
Payment in advance happens when a customer pays in full for something before receiving it. PIA is the opposite of cash on delivery (COD), where customers pay when they receive the good or service.
46. Earnings Before Interest, Depreciation, Taxes, and Amortization (EBITDA)
EBITDA assesses a company’s revenue without looking at its operating expenses. It’s a popular metric business leaders use to compare profitability across companies since operating expenses are so variable.
47. Owner’s Equity (OE)
Owner’s equity (OE) is the percentage of a company that you own. If you have a business partner or investors, they have a separate equity stake in the business that affects how much you take home. OE tells you how much equity you have in the company and how much money you’ll take home after paying for the business’s liabilities.
48. Return on Assets (ROA)
ROA is an accounting acronym that stands for return on assets. It measures the percentage of return your assets generate by dividing net profits by the asset’s purchase price. Track ROA to see which assets contribute to the company’s bottom line and which may need to be replaced.
49. Return on Equity (ROE)
Return on equity (ROE) is an accounting term that indicates how effectively your company generates profit for shareholders. You can calculate ROE by dividing after-tax earnings by shareholder equity. Ideally, you want as high of a ROE as possible, but anything over 20% is considered good.
50. Return on Investment (ROI)
Return on investment (ROI) is a popular metric that measures how much your company earns from investing in something. The higher the ROI, the more profitable the investment. You can track the ROI of just about anything, from employee training to marketing to building improvements.
51. Price-to-Earnings (P/E) Ratio
If you need to value a company, use its price-to-earnings (P/E) ratio. P/E ratio compares your company’s share price to your earnings per share (EPS). This metric tells you whether the stock is over- or undervalued and how it compares to other companies in the market.
52. Debt-to-Equity (D/E) Ratio
Debt-to-equity (D/E) ratio is an accounting term that tells you where a company’s funding comes from. It measures how much funding comes from debt sources versus from investor equity. A good ratio is 1 to 1.5.
53. Internal Rate of Return (IRR)
IRR stands for internal rate of return. This financial metric represents the discount rate at which the net present value (NPV) of cash flows equals zero. It doesn’t consider any external factors and only focuses on the level of return—and risk—for the business.
54. Net Present Value (NPV)
You can evaluate the viability of a project by assessing its net present value (NPV). NPV measures the difference between the current cash value coming in and out of the business. This metric helps estimate a project’s potential performance and the impact (good or bad) it will have on your business.
55. Interest Coverage Ratio (ICR)
ICR is an accounting term abbreviation for interest coverage ratio. It measures how well your company can pay interest on its outstanding debt. You can calculate ICR by dividing EBIT by interest costs.
56. Last-In, First-Out (LIFO)
In accounting, LIFO expenses the costs of the most recent products you’ve purchased. Some businesses prefer last-in, first-out because it helps manage inventory costs and reduces taxable income during inflation.
57. First-In, First-Out (FIFO)
FIFO is the opposite of LIFO. With this inventory valuation method, you sell the oldest goods first, keeping inventory fresh.
58. Internal Revenue Service (IRS)
The IRS is the federal tax agency for the United States. This agency is in charge of enforcing all U.S. tax laws. As a business owner, you’ll make at least one annual payment to the IRS, although some businesses are required to pay quarterly or monthly taxes.
59. International Retirement Account (IRA)
An IRA is a type of retirement plan that you fund independently without an employer. The upside is that you can contribute to an IRA even if you have an employer-sponsored 401(k), making it possible to save more for retirement under different taxation structures. Self-employed workers qualify for a special type of IRA called a SEP IRA, which has higher contribution limits than a regular IRA.
60. Generally Accepted Accounting Principles (GAAP)
GAAP is a set of accounting standards issued by the Financial Accounting Standards Board (FASB). All publicly traded companies in the United States must include GAAP in their financial disclosures.
61. International Accounting Standards Board (IASB)
The IASB is a private organization overseeing international financial reporting standards (IFRS). Check out the board’s resources to stay up to date on any changes to these standards, especially if you lead a global business.
62. International Financial Reporting Standards (IFRS)
The IASB manages international financial reporting standards (IFRS). These global accounting standards provide guidelines on financial reporting, which helps international companies stay compliant.
63. Certified Public Accountant (CPA)
A CPA is a credentialed accountant with expertise in accounting, auditing, and more. Unlike regular accountants, CPAs are licensed to represent clients in IRS proceedings, participate in external audits, and file reports with the Securities and Exchange Commission (SEC).
In-Summary: Accounting Acronyms
Business accounting can feel like a jumble of unfamiliar words, but a basic understanding of finance is crucial for managing a business successfully. Not all terms will apply to your business, but understanding even a handful of the phrases here will make you a better-informed and well-rounded business owner.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
