Accounting for Entrepreneurs
Accounting Terminology for Entrepreneurs: A
Written by Bobby Jan for Gaebler Ventures
This article, as part of the Accounting Terminology for Entrepreneurs series, introduces some key accounting terminologies that begin with A.
Accounting is the language of business.
Here, we cover accounting terms that start with the letter A.
Account payable is often simply referred to as "payables" or "A/P". It is a short term debt and could be found in the balance sheet the under "current liabilities". Account payable entries represent the amounts owed by the business to its creditor.
Account Receivable (A/R)
Account receivable is often simply referred to as "receivables" or "A/R". It is a current asset and could be found in the balance sheet. Account receivable entries represent the amounts the business claims against debtors. The due date of these relatively short term debt ranges from a few days to a year.
Accrued Expenses is labiality (usually current) that could be found in the balance sheet. Entry represents various business related expenses that has not been paid for. Accrued expenses generally do not include the cost of goods and services received from another business entity. Examples include the cost of labor within payroll periods, taxes, interests, etc.
Amortization is often wrongly confused with depreciation. Amortization entries represent the value consumption of intangible assets over the useful economic life of the asset. (Depreciation, on the other hand, deals with tangible assets.) Assets that could be amortized include copyrights, patents, trademarks, etc. Some intangible assets, such as brand name and goodwill, may not be amortized if it is deemed to have an indefinite useful economic life.
Example: if a company purchased a patent for $4 million dollars that will expire in 10 years, the asset could be reduced by $400 thousand a year for 10 years.
A major category of the balance sheet: Assets = Liability + Owners' Equity. There are many four types of assets: current assets, long-term investments, fixed asset, and intangible assets.
Major items in each type of asset:
Current assets: cash and cash equivalents, short term investments, prepaid expenses, inventory, receivables, etc.
Long-term investments: investments in subsidiaries and affiliated companies, investments in securities, investments in fixed assets, investments in funds, etc.
Fixed assets: land, machinery, buildings, tools, etc.
Intangible assets: patents, copyright, brand names, goodwill, trademarks, etc.
Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.
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