Whether you’re a business owner or looking to get into finance, it’s important that you know a few basic accounting terms. This includes a few common acronyms that are used to describe different metrics, processes and roles within accounting. Below are 7 examples of accounting acronyms you may stumble across and a brief explanation as to what they mean.

AP

(Accounts Payable)

AP is a shorthand term referring to all the expenses that you owe in a certain period. This includes all money owed to suppliers, lenders and partners. Wages – although a company expense – are typically not included within AP. Calculating your AP each month can be key to maintaining a budget. 

AR

(Accounts Receivable)

This is the opposite of AP, and refers to all the money you are owed by third parties within a certain period. This includes money owed by clients, sponsors and tenants. Keeping track of your AR each month is important for chasing up late payments and maintaining a healthy cash flow. 

ATO

(Australian Taxation Office)

In Australia, the ATO is the branch of the government responsible for collecting taxes. Each year you must submit a tax return form to the ATO and pay any tax you are due. Other countries around the world have separate tax offices – most notably IRS (USA), HMRC (UK), STA (China) and BZSt (Germany). 

COGS

(Cost Of Goods Sold)

COGS is the cost that goes into producing each product. It’s essential for working out exactly how much profit you’re actually making per product. Manufacturing companies and restaurants are two key businesses that can benefit from tracking their COGS. This can be done by adding up the cost of the materials/ingredients used. 

CPA

(Certified Public Accountant)

A CPA is an accountant who has passed certain tests set by the Board of Accountancy in order to perform accounting tasks to certain requirements. It is an extra level or certification that an accountant can earn in order to prove that they are skilled and qualified. A CPA firm is a firm in which all staff members are CPAs. While CPAs do charge more than regular accountants, many businesses prefer to hire a CPA, because they are generally more skilled and more credible.

P&L

(Profit and Loss)

When measuring a company’s financial performance, a P&L statement is sometimes created to give an accurate idea of how much profit or loss has been made each month. P&L statements can be used to help financially forecast ahead and budget. They are important for making sure that a company’s cash flow is heading in the right direction.

ROI

(Return On Investment)

The ROI is a useful metric used to determine whether an investment is worth making or not. It determines how long an investment will take to pay for itself and how much money you will continue to earn/save from it. Calculating the ROI could be important when buying new equipment, taking on new employees, expanding your business or even making sustainability investments like installing solar panels.