Every industry has its language and terms. These words and phrases can be confusing to anyone who is not part of the daily operations of a specific sector, and the accounting and tax planning industry is no exception.
To help you understand the terms, acronyms, and phrases regularly used, Peal Accounting & Taxation Services Inc. has created this handy reference guide. Here you’ll find valuable information allowing you to comprehend and communicate in the accounting world.
1. Activity-based costing (ABC)
ABC attempts to better allocate costs to the desired cost objects by focusing on the activities consumed by the cost objects. An activity is a set of tasks that consume resources, thereby incurring overhead costs.
2. Break-even point
The break-even point (BEP) is the sales level at which the organization neither earns a profit nor incurs a loss; this is the minimum sales level required to cover all costs.
3. Budget
A budget is a formal statement of an organization’s plans expressed in monetary terms.
4. Cost variance
Cost variance is the difference between actual and standardized costs. It is simply called a variance.
5. Discounting
Discounting is the process of restating future cash flows in terms of their present value is called discounting.
6. Direct expenses
These are expenses traced to a specific department or activity incurred for the sole benefit of that department or activity.
7. Margin of safety
The excess of expected sales over break-even sales.
8. Slack
The deliberate overstatement of estimated expenses or understatement of estimated revenue to make budget targets easier to reach.
9. Management by exception
An analytical technique used by management to focus on the most significant variances and give less attention to areas where performance is close enough to the standard to be satisfactory.
10. Accrual basis of accounting
The approach to preparing financial statements that use the adjusting process to recognize revenues when earned and expenses when incurred, not when cash is paid or received. It is the basis for generally accepted accounting principles.
11. Amortization
The expense created by allocating the cost of assets to the periods in which they are used; represents the expense of using the assets.
12. Owner’s equity
The owner’s claim on the assets of a company.
13. Working papers
These are internal documents used to assist the preparers in doing the analyses and organizing the information for reports to be presented to internal and external decision-makers.
14. Tax accounting
The field of accounting, which includes preparing tax returns and planning future transactions to minimize the amount of tax paid, involves private, public, and government accountants.
If you are looking for accounting and financial consultancy experts in Mississauga, Ontario, reach out to us at Peal Accounting & Taxation Services Inc. We are an accounting, bookkeeping, payroll, and tax service provider in Mississauga, specializing in comprehensive solutions for small and medium-sized businesses across Ontario.
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