By Daniel Shinstrom, Director
Have you ever found yourself overwhelmed by the number of acronyms and jargon in a finance document?
Do you find yourself looking up various articles to understand the difference between WACC, CAC, and QUACK? (One of these is fake, by the way.)
Well, you’re not alone. Apparently, we accountants believe our time is too important for full words, so we shorten just about everything.
Even our names are just a bunch of acronyms: KBC, PwC, KPMG… you get the point.
Luckily, you’ve come to the right place. We’ve listed some of the most common accounting acronyms (plus other jargon) and their meanings, so you can sound as nerdy as any CPA (that’s Certified Public Accountant, by the way).
This is by no means an exhaustive list. Keep in mind, the FASB codification (i.e., the authoritative literature for Generally Accepted Accounting Principles – GAAP) is apparently 7,692 pages, and the current IRS tax code is about 6,871 pages. So, maybe we really do need acronyms, or those documents would be over 10,000 pages each.
Anyway, onto the list:
The Basics (i.e. the Financial Statement Stuff)
P&L, PNL, PL, or I/S: Profit and Loss or Income Statement…yes we have a lot of different acronyms to mean the same thing.
BS: Balance Sheet (when talking to accountants, BS means balance sheet…no BS’ing).
SCF or CF: Statement of Cash Flows (or just Cash Flow)
AR: Accounts Receivable
AP: Accounts Payable
COGS or COS: Cost of Goods Sold or Cost of Sales
GM: Gross Margin – Revenue less COGS
NI: Net Income
Nerdier Accountant Stuff
Dr. and Cr: This is “Debit” and “Credit” respectively. Every entry in accounting MUST have debits and credits. This is also sometimes called “double-entry bookkeeping.”
TB: Trial Balance – this is the summary of all your accounts (and is what is used to make your financial statements).
COA: Chart of Accounts – this is basically the master list of every account in your books.
GL: General Ledger – this is a detailed log of all transactions that make up the Trial Balance.
Inventory
FIFO: First-In, First-Out inventory valuation method. The idea is basically, “The first thing you buy is the first thing that gets recorded as an expense.” So, if I bought 1 widget for $3 and then another for $4, when I go to sell my FIRST widget, I will recognize $3 in costs for that widget. Then, I would recognize $4 for the second widget I sell.
LIFO: Last-In, First-Out inventory valuation method. This is the inverse of FIFO. So, in my above example, I recognize $4 in costs for the first widget I sell and $3 for the second widget I sell.
The Rule-Makers and the Rules
GAAP: Generally Accepted Accounting Principles, used primarily in the United States.
FASB: Financial Accounting Standards Board – these folks set the GAAP rules.
IFRS: International Financial Reporting Standards – this is basically GAAP for most of the rest of the world.
IASB: International Accounting Standards Board – these folks set the IFRS rules.
IRS: Internal Revenue Service (I’ll assume most of you already know this one…)
SEC: Securities and Exchange Commission – these folks operate exclusively in the United States and set ALL the rules for public companies.
SOX: Sarbanes-Oxley Act – this requires auditors to audit not only your numbers but also your internal controls. This requirement applies specifically to public companies, ensuring they maintain accurate and reliable financial reporting.
Nerdy Finance Stuff
EBIT & EBITDA: Earnings Before Interest and Taxes (+ Depreciation and Amortization for EBITDA). This excludes all the non-cash expenses and is generally always higher than Net Income.
KPI: Key Performance Indicator(s) – these are metrics unique to a company.
CAC: Customer Acquisition Cost — the average cost a company pays to acquire a customer (e.g., advertising spend ÷ new customers).
Equity Value: This is the fair value of the company’s equity (for a public company, this would also be considered their “market cap”).
EV: Enterprise Value – this is an estimation of the entire company’s value (equity AND any debt, less cash).
Current Ratio: Current Assets ÷ Current Liabilities – this shows how immediately solvent a company is. So, ignore long-term assets or liabilities.
Quick Ratio (“Acid Test”): This is like the “Current Ratio” except it’s only liquid assets (so inventory and prepaid expenses would be ignored).
Debt-to-Equity: This is Liabilities ÷ Equity on the Balance Sheet. This is used to understand how much debt the company has compared to the amount of equity contributed.
EPS: Earnings Per Share – this is essentially how much profit (or loss) each share of stock earned in a given period.
WACC: Weighted Average Cost of Capital – this is essentially the rate a company must pay to finance its operations. For example, if the company has no equity and only a loan with 5% interest, then its WACC would be 5%.
QUACK: Just kidding…this was the fake one from above, but congrats on making it to the end of the list!
Conclusion
We hope you found this list of common jargon useful. If, however, it caused your eyes to glaze over, we won’t blame you.
In either case, our team at KBC would love to help you make sense of all your finance and accounting challenges and let you get back to focusing on growing your business. Feel free to contact us at operations@kongbasile.com or visit us at kongbasile.com.
We’d be happy to chat with you about more important matters than confusing acronyms!