Essential Accounting and Auditing Jargons Every Accounting Student Must Know
Accounting and auditing come with a wealth of technical terms and phrases that are crucial for understanding the principles, practices, and processes in the field. Below is a comprehensive list of accounting and auditing jargon that every accounting student should familiarize themselves with.
Accounting Jargon
1. Accounts Receivable (AR)
Money owed to a company by its customers for goods or services delivered but not yet paid for.
2. Accounts Payable (AP)
Obligations or debts a company owes to suppliers for goods or services received.
3. Accruals
Expenses and revenues recognized when they are incurred or earned, not when cash is exchanged.
4. Amortization
The process of spreading the cost of an intangible asset over its useful life.
5. Assets
Resources owned by a company, such as cash, inventory, and equipment, that provide future economic benefits.
6. Balance Sheet
A financial statement that shows a company’s financial position at a specific point in time, listing assets, liabilities, and equity.
7. Bookkeeping
The process of recording financial transactions systematically.
8. Capital Expenditure (CapEx)
Funds used by a company to acquire or upgrade physical assets like buildings or machinery.
9. Cash Flow
The movement of cash into and out of a business, categorized as operating, investing, or financing activities.
10. Chart of Accounts (COA)
A listing of all accounts in a company’s general ledger used to organize financial transactions.
11. Cost of Goods Sold (COGS)
The direct costs of producing goods sold by a company.
12. Depreciation
The allocation of the cost of a tangible asset over its useful life.
13. Double-Entry Accounting
An accounting system where every transaction affects at least two accounts, maintaining the balance of the accounting equation.
14. Equity
The residual interest in the assets of a company after deducting liabilities.
15. Fixed Assets
Long-term assets such as property, plant, and equipment (PP&E) used in operations.
16. General Ledger (GL)
A record of all financial transactions in a company, categorized into accounts.
17. Gross Profit
Revenue minus the cost of goods sold (COGS).
18. Income Statement
A financial statement that shows a company’s profitability over a specific period by detailing revenues, expenses, and net income.
19. Journal Entry
A record of a financial transaction in the accounting system.
20. Liabilities
Obligations or debts that a company owes to external parties.
21. Profit and Loss Statement (P&L)
Another term for an income statement.
22. Retained Earnings
The portion of net income retained by a company instead of distributing it as dividends.
23. Trial Balance
A report that lists the balances of all general ledger accounts to ensure debits equal credits.
Auditing Jargon
1. Audit Trail
The documented flow of financial transactions from their source to their final recording in financial statements.
2. Audit Opinion
A formal statement by an auditor on the accuracy of a company’s financial statements.
3. Compliance Audit
An assessment of whether an organization adheres to external regulations and internal policies.
4. Control Risk
The risk that a company’s internal controls fail to prevent or detect material misstatements.
5. Detection Risk
The risk that auditors fail to identify material misstatements in financial statements.
6. External Audit
An independent review of a company’s financial statements performed by external auditors.
7. Forensic Audit
An investigation of financial statements to detect fraud or financial misconduct.
8. Going Concern
An assumption that a company will continue its operations for the foreseeable future.
9. Internal Audit
An independent evaluation conducted by a company’s internal audit team to improve operations and risk management.
10. Materiality
The threshold above which misstatements or omissions could influence the economic decisions of users of financial statements.
11. Risk-Based Audit
An audit approach that focuses on the areas of highest risk in financial reporting.
12. Sampling
The process of selecting a subset of transactions for testing in an audit to draw conclusions about the entire population.
13. Sarbanes-Oxley Act (SOX)
A U.S. law enacted to improve the accuracy and reliability of corporate financial reporting.
14. Substantive Testing
Audit procedures performed to detect material misstatements in financial statements.
15. Test of Controls
Procedures performed to evaluate the effectiveness of a company’s internal controls.
16. Unqualified Opinion
An audit opinion indicating that financial statements are presented fairly and in accordance with accounting standards.
17. Qualified Opinion
An audit opinion stating that financial statements are generally accurate, but there are exceptions or limitations.
18. Disclaimer of Opinion
An audit opinion issued when the auditor is unable to provide an opinion on the financial statements due to insufficient evidence.
19. Fraud Triangle
A framework used in auditing to understand the three factors that contribute to fraud: opportunity, pressure, and rationalization.
20. Engagement Letter
A formal agreement between the auditor and the client outlining the scope and terms of the audit.
Key Terms in Both Fields
1. GAAP (Generally Accepted Accounting Principles)
A set of accounting standards used in the United States.
2. IFRS (International Financial Reporting Standards)
Global accounting standards used by many countries.
3. Internal Controls
Processes and procedures implemented by a company to safeguard assets and ensure accurate financial reporting.
4. Reconciliation
The process of ensuring two sets of records (e.g., bank statement and accounting records) are in agreement.
5. Stakeholders
Individuals or groups with an interest in a company’s financial performance, such as shareholders, creditors, and regulators.
Foundation for a Successful Career
Understanding these accounting and auditing jargons is essential for excelling in your studies and developing a solid foundation for a successful career. Mastery of these terms not only helps in academic performance but also equips you to navigate real-world financial situations with confidence.