--- title: "Finance and accounting glossary: 721 terms by area — Empty Spaces" description: "An accounting glossary of 721 finance terms in 20 areas, from AP, AR, and month-end close to reconciliation, FP&A, and AI, each with a plain definition." url: https://emptyspaces.ai/glossary language: en --- [Home](https://emptyspaces.ai/) Glossary # Finance and accounting glossary. 721 terms across accounts payable, accounts receivable, the month-end close, reconciliation, FP&A and AI in finance. Every term is defined in one sentence here, and each one is getting its own dated page with a worked example and, where one applies, the journal entry behind it. 721 terms defined 20 areas of finance 44 full guides linked A term card: GRNI (goods received not invoiced), an accrued liability, with its one-line definition and its October 31 reconciliation, the open receipts report and the general ledger GRNI account both at $18,400 and a difference of $0, and the way to its full definition. An accounting glossary defines the words a finance team uses to record, reconcile, report, and plan. This one defines 721 finance and accounting terms in 20 areas, from accounts payable and receivable to the month-end close, reconciliation, FP&A, controls, and AI in finance. Most finance glossaries cover one function, so you end up checking four or five sites to cover AP, AR, the close, and planning. This glossary puts them in one place. Each term’s definition sits on this page. The 44 terms with a full guide of ours link to it. The rest are getting their own dated pages with a worked example, the journal entry where one applies, and the terms they get confused with. To use it, search any term or abbreviation, such as GRNI, DSO, DPO, or ASC 842, jump A to Z, or filter by one of the 20 areas. If you’re new to a role, start with the role paths for a new controller, staff accountant, or AP and AR clerk. Every area and role list prints on its own, with no sign-up. A glossary isn’t the same as a chart of accounts. Your chart of accounts is the numbered list of ledger accounts you post to, such as 1000 for cash, 2000 for accounts payable, and 4000 for revenue. A glossary defines the words your team uses about those accounts and the work around them, so everyone, including your auditors, reads a term like cutoff or accrual the same way. ## Start with these 10 terms. Nearly every other term on this page builds on them. 1. Debits and credits 2. Journal entry 3. General ledger 4. Trial balance 5. Accrual accounting 6. Accounts payable (AP) 7. Accounts receivable (AR) 8. [Account reconciliation](https://emptyspaces.ai/resources/blog/account-reconciliation) 9. [Month-end close](https://emptyspaces.ai/resources/blog/month-end-close) 10. Financial statements ### New controller 26 terms The language of the close and of control first, then the standards and the numbers leadership asks for. - [Accounting cutoff](https://emptyspaces.ai/glossary/accounting-cutoff) - [Flux analysis](https://emptyspaces.ai/resources/blog/flux-analysis) - Materiality - Segregation of duties (SoD) - ASC 606 - Key controls ### Staff accountant 30 terms The terms you use on day one: entries, ledgers, reconciliations and the review that follows. - Journal entry - Subledger (subsidiary ledger) - [Reversing entries](https://emptyspaces.ai/resources/blog/reversing-entries) - Reconciling items - Suspense account - Workpaper (close workpaper) ### AP and AR clerk 25 terms each Invoices, matching, payments and cash application, from purchase order to aging report. - [Three-way match](https://emptyspaces.ai/glossary/three-way-match) - [GRNI (goods received not invoiced)](https://emptyspaces.ai/glossary/grni) - Payment run - Cash application - Dunning - Unapplied cash AP clerk AR clerk ## Browse all terms. 721 terms in 20 areas Search the glossary ### Foundations 51 terms The building blocks every other area uses: assets, liabilities, debits and credits, and the ledgers behind them. - General ledger - Cash flow - Chart of accounts - Accrual accounting ### Accounts payable 83 terms From the purchase order and goods receipt through matching, approval and payment to the AP accrual at month end. - Accounts payable (AP) - AP automation - Invoice processing - [Three-way match](https://emptyspaces.ai/glossary/three-way-match) ### Accounts receivable 76 terms How you bill customers, extend credit, collect, apply cash and reserve for what won't be paid. - Accounts receivable (AR) - Accounts receivable turnover ratio - Days sales outstanding (DSO) - Accounts receivable aging report ### Month-end close 30 terms How a period gets recorded, reviewed and locked, from the close calendar to the period lock. - [Month-end close](https://emptyspaces.ai/resources/blog/month-end-close) - [Flux analysis](https://emptyspaces.ai/resources/blog/flux-analysis) - [Closing the books](https://emptyspaces.ai/resources/blog/closing-the-books) - Record-to-report (R2R) ### Journal entries 39 terms The entries the close posts: accruals, deferrals, prepaids, reclasses and reversing entries. - Journal entry - [Deferred revenue](https://emptyspaces.ai/resources/blog/deferred-revenue) - [Closing entries](https://emptyspaces.ai/resources/blog/closing-entries) - [Prepaid expenses](https://emptyspaces.ai/resources/blog/prepaid-expenses) ### Reconciliation 25 terms Proving each balance against an outside record and explaining every difference. - [Account reconciliation](https://emptyspaces.ai/resources/blog/account-reconciliation) - [Bank reconciliation](https://emptyspaces.ai/resources/blog/bank-reconciliation) - [Balance sheet reconciliation](https://emptyspaces.ai/resources/blog/balance-sheet-reconciliation) - [Credit card reconciliation](https://emptyspaces.ai/resources/blog/credit-card-reconciliation) ### Financial statements 28 terms The balance sheet, income statement and cash flow statement, and the reports built from them. - Cash flow statement - Trial balance - Operating cash flow - Financial reporting ### Consolidation 28 terms Combining entities, eliminating intercompany balances and translating foreign currencies. - [Financial consolidation](https://emptyspaces.ai/resources/blog/month-end-consolidation) - [Intercompany accounting](https://emptyspaces.ai/resources/blog/intercompany-accounting) - Intercompany transactions - [Intercompany eliminations](https://emptyspaces.ai/resources/blog/month-end-consolidation) ### FP&A 87 terms Budgets, forecasts, variance analysis and the models finance uses to plan. - Variance analysis - [FP&A (financial planning and analysis)](https://emptyspaces.ai/resources/blog/fpa) - Forecasting - Financial statement analysis ### Ratios 26 terms The ratios that measure profitability, liquidity, leverage and efficiency. - EBITDA - Adjusted EBITDA - Gross margin - Return on equity (ROE) ### Revenue and SaaS metrics 29 terms ASC 606 and the subscription metrics leadership reads: ARR, NRR, churn and CAC payback. - Revenue recognition - ASC 606 - Deferred revenue waterfall - Annual recurring revenue (ARR) ### Treasury and payments 38 terms Cash, liquidity, payment rails and the forecasts treasury runs on. - Working capital - Cash flow forecast - Cash management - Cash conversion cycle ### Fixed assets and leases 22 terms Capitalizing, depreciating and disposing of assets, lease accounting and inventory valuation. - Lease accounting (ASC 842 / IFRS 16) - Fixed assets - Cost of goods sold (COGS) - Capital expenditure (CapEx) ### Controls and audit 29 terms The controls, audits and compliance frameworks that make the numbers trustworthy. - Internal controls - Audit adjustments - SOX compliance - Internal vs external audit ### Standards 15 terms US GAAP, IFRS and the codification topics finance teams cite most. - ASC 842 (leases) - GAAP (US) - IFRS - FASB ASC codification ### Tax and payroll 17 terms Sales tax, VAT, income tax provisions and the payroll entries behind them. - Value-added tax (VAT) - Payroll accounting - Goods and services tax (GST) - VAT reconciliation ### Systems and data 23 terms ERPs, subledgers, automation and the data finance depends on. - [Accounting automation](https://emptyspaces.ai/resources/blog/month-end-close-automation) - ERP (enterprise resource planning) - Robotic process automation (RPA) - Optical character recognition (OCR) ### AI in finance 30 terms What AI can do in finance work, and the controls that keep a person accountable. - Agentic AI - Autonomous accounting - Large language model (LLM) - Generative AI ### Finance roles 12 terms Who does what in a finance team, from staff accountant to CFO. - Shared services center - Finance transformation - CFO (chief financial officer) - Controller ### Terms people confuse 33 terms Pairs that sound alike but differ in timing, ledger or what they count. - Accrual vs cash accounting - Trial balance vs balance sheet - Accrued expenses vs accounts payable - [General ledger vs subledger](https://emptyspaces.ai/resources/blog/ap-ar-reconciliation) ### Accounting foundations 51 terms Accounting foundations are the terms every other area builds on, from assets and liabilities to double-entry accounting, the general ledger, and materiality. - **General ledger** The master record of all a company's accounts and transactions, from which the trial balance and financial statements are produced. - **Cash flow** The movement of cash into and out of a business over a period, from operating, investing and financing activities. - **Chart of accounts** The organized list of all accounts a company uses to record transactions, usually numbered by type: assets, liabilities, equity, revenue and expenses. - **Accrual accounting** Recording revenue when earned and expenses when incurred, regardless of when cash changes hands, as US GAAP requires. - **Revenue recognition principle** The principle that revenue is recorded when control of goods or services passes to the customer, in an amount the company expects to receive. - **Revenue** Income from a company's ordinary activities, such as selling goods or services. Revenue from customer contracts follows ASC 606, while leases and financial instruments follow other standards. - **Gross profit** Revenue minus cost of goods sold, showing what is left to cover operating expenses before interest and taxes. - **Debits and credits** The recording method where each debit has an offsetting credit: debits go on the left and credits on the right of an account. - **Equity** The owners' residual interest in a company's assets after subtracting liabilities, including paid-in capital and retained earnings. - **Net income** Revenue minus all expenses, including taxes and interest, for a period, the bottom line on the income statement. - **Assets** Resources a company owns or controls that are expected to bring future economic benefit, such as cash, receivables, inventory and equipment. - **Expenses** Costs a company incurs to earn revenue during a period, such as salaries, rent and cost of goods sold, which reduce net income. - **Current assets** Cash and assets expected to be converted to cash, sold or used within one year or the operating cycle, such as receivables and inventory. - **Liabilities** Amounts a company owes to others, such as payables, loans and accrued expenses, that will be settled with cash or other assets. - **Permanent vs temporary accounts** Permanent accounts, such as assets and liabilities, carry balances forward; temporary accounts, such as revenue and expenses, reset to zero at year end. - **Audit trail** A chronological record that lets someone follow a transaction from source document to ledger and financial statements, supporting review and audit. - **Current liabilities** Obligations due within one year or the operating cycle, such as accounts payable, accrued expenses, short-term debt and the current part of long-term debt. - **Long-term liabilities** Obligations due beyond one year, such as long-term loans, bonds payable and lease liabilities, excluding the portion due in the next 12 months. - **Materiality** The size of an error or omission that would influence a reasonable user's decisions, judged on size and nature rather than a fixed percentage. - **Cost center** A department or unit that incurs costs but does not directly generate revenue, such as HR or IT, tracked for budgeting. - **Profit center** A unit of a business responsible for both revenues and costs, so its profit or loss can be measured and managed. - **Noncurrent (long-term) assets** Assets expected to be held or used for more than one year, such as property, equipment, intangible assets and long-term investments. - **Accounting policy and treatment** The specific rules a company has chosen under GAAP for recognizing, measuring and presenting items, and how it applies them to particular transactions. - **Accounting equation** The foundation of double-entry accounting, stating that assets always equal liabilities plus equity, so every transaction keeps the books in balance. - **Double-entry accounting** A system where every transaction is recorded in at least two accounts, with total debits equal to total credits, so the books stay in balance. - **T-account** A visual layout of a ledger account shaped like the letter T, with debits on the left and credits on the right. - **Subledger (subsidiary ledger)** A detailed record supporting a general ledger control account, such as accounts receivable by customer or accounts payable by vendor. - **Cash basis accounting** Recording revenue when cash is received and expenses when cash is paid, which is simpler than accrual accounting and not permitted under US GAAP. - **Modified cash basis** A mix of cash and accrual methods, often cash basis with selected accruals or deferrals, used by some small private companies. - **Matching principle** The principle that expenses should be recorded in the same period as the revenues they helped produce. - **Going concern** The assumption that a company will keep operating for at least a year after the financial statements are issued, unless management has substantial doubt. - **Historical cost** The accounting principle of recording assets at their original purchase price instead of current market value. - **Fair value** The price to sell an asset or transfer a liability in an orderly transaction between market participants, as ASC 820 defines it. - **Book value and net book value** Book value is the amount an asset is carried at on the balance sheet; for fixed assets, net book value is cost minus accumulated depreciation or amortization. - **Capitalization vs expensing** Deciding whether to record a cost as an asset and spread it over future periods, or as an expense in the current period. - **Contingent liabilities** Possible obligations that depend on a future event, such as a lawsuit, accrued if probable and estimable, disclosed if at least reasonably possible, and generally not disclosed if remote. - **Notes payable and bonds payable** Debt instruments a company issues to borrow: notes payable are written promises to pay, and bonds payable are longer-term debt sold to investors. - **Cost basis** The original cost of an asset, including purchase price and costs to acquire it, used to calculate gains, losses and depreciation. - **Certified public accountant (CPA)** A licensed US accounting professional who has passed the Uniform CPA Exam, and may give audit opinions and prepare tax returns. - **Management accounting** Preparing financial information for internal decision-making, such as budgets, cost analysis and performance measures, not for outside reporting. - **Cost accounting** Tracking, assigning and analyzing the costs of producing goods or services, to support pricing, budgeting and control. - **Direct vs indirect costs** Direct costs trace to a specific product or project, such as materials; indirect costs support many, such as rent or utilities, and are allocated. - **Period costs vs product costs** Product costs, such as materials and labor, go into inventory; period costs, such as selling and admin, are expensed as incurred. - **Preferred shares** An equity class that ranks ahead of common stock for dividends and liquidation, often with a fixed dividend and limited voting rights. - **General journal** The book where transactions are first recorded in date order as journal entries before being posted to the general ledger. - **Account numbering (GL codes)** The numbering system that identifies each account in the chart of accounts, usually grouping assets, liabilities, equity, revenue and expenses by ranges. - **Contra account** An account that offsets a related account's balance, such as accumulated depreciation against equipment or allowance for doubtful accounts against receivables. - **Normal balance** The side, debit or credit, on which an account normally increases and carries its balance, such as debit for assets and credit for liabilities. - **Accounting cycle** The sequence of steps from recording transactions through adjusting entries, financial statements and closing the books, repeated each period. - **Bookkeeping** Recording and organizing a company's daily financial transactions, including sales, purchases, receipts and payments, in the books. - **Source documents** Documents that prove a transaction took place, such as invoices, receipts, bank statements and purchase orders, and support journal entries. ### Accounts payable and procure-to-pay 83 terms These terms cover procure-to-pay, from the purchase requisition to the payment run, the AP accrual, and the controls that stop duplicate or fraudulent payments. - **Accounts payable (AP)** Money a company owes suppliers for goods or services received on credit, recorded as a current liability until paid. - **AP automation** Software that captures, codes, routes, matches, and pays supplier invoices with minimal manual keying, replacing paper and email-based processing. - **Invoice processing** The steps of receiving a supplier invoice, validating and coding it, getting approval, and recording it for payment in the ledger. - [**Three-way match** — Control that compares the purchase order, goods receipt, and supplier invoice before payment, confirming what was ordered, received, and billed all agree.](https://emptyspaces.ai/glossary/three-way-match) - **Accounts payable turnover ratio** How many times a year a company pays its suppliers: purchases (or COGS as a proxy) divided by average accounts payable. - **Payment terms** The agreed conditions for paying an invoice, including the due date and any early-payment discount or late charge. - **Accounts payable process** The end-to-end workflow from receiving a supplier invoice through approval, recording, payment, and reconciliation of the payable. - [**Days payable outstanding (DPO)** — Average days a company takes to pay suppliers: average accounts payable divided by cost of goods sold, times days in the period. Ending AP is a simpler proxy.](https://emptyspaces.ai/glossary/days-payable-outstanding) - **Invoice** Document a seller issues to a buyer itemizing goods or services delivered, the amount owed, and the payment terms. - **Invoice matching** Comparing an invoice against supporting documents such as the purchase order and receipt to confirm quantities, prices, and terms before approving payment. - **Purchase order (PO)** Document a buyer sends a supplier authorizing a purchase of specified goods or services at agreed quantities, prices, and terms. - **Duplicate invoice and duplicate payment** Duplicate invoice is the same bill entered or received twice; duplicate payment is when it is actually paid more than once. - **Invoice capture and data extraction** Reading invoices from email, paper, or files and pulling out fields such as vendor, date, amounts, and line items into structured data. - **Invoice exception** Invoice that fails a validation or matching check, such as a price, quantity, or missing PO mismatch, and needs manual review. - **E-invoicing** Issuing and exchanging invoices as structured electronic data between buyer and seller systems rather than as paper or PDF images. - **Procure-to-pay (P2P)** Process covering everything from requisitioning and ordering goods or services through receiving, invoice approval, and paying the supplier. - **Invoice approval workflow** Routing of a supplier invoice to the right approvers, based on amount, department, or cost center, before it is released for payment. - **Straight-through processing (STP) rate** Share of invoices processed from receipt to payment with no human touch, calculated as touchless invoices divided by total invoices. - **Vendor master data** Central record of each supplier's legal name, tax ID, address, bank details, and payment terms used to process invoices and payments. - **Credit memo (credit note)** Document a seller issues to reduce the amount a buyer owes, for returns, pricing errors, or allowances, also called a credit note. - **Payment run** Scheduled batch in which a company selects approved, due supplier invoices and pays them together by ACH, wire, check, or card. - **Spend management** Practice of controlling and tracking how a company buys and spends, covering purchasing, invoices, payments, and employee expenses to reduce cost and risk. - **Spend analysis** Collecting and categorizing purchasing and payment data to see what a company spends, with whom, and where savings or risks exist. - **Autonomous accounts payable** AP process in which software handles invoice capture, coding, matching, and payment largely on its own, leaving people to review only exceptions. - **Purchase requisition** Internal request, usually from a department, asking purchasing to buy goods or services, which is approved before a purchase order is issued. - **Goods receipt** Record confirming that ordered goods have arrived and were checked, used to update inventory and support matching against the invoice. - [**GRNI (goods received not invoiced)** — Accrued liability for goods or services received but not yet invoiced by the supplier, recorded so expenses and inventory land in the right period.](https://emptyspaces.ai/glossary/grni) - **Invoice ingestion** Bringing supplier invoices into the AP system from channels such as email, supplier portals, EDI, and scans, ready for data extraction. - **Invoice coding (GL coding)** Assigning each invoice line to the correct general ledger account, cost center, and other dimensions so the expense is recorded properly. - **Invoice fraud** Scheme in which a fake, altered, or inflated invoice, or a spoofed supplier request, is used to trick a company into paying money. - **Business email compromise (BEC)** Fraud in which an attacker impersonates an executive or supplier by email to trick staff into sending payments or changing bank details. - **Vendor bank account validation** Verifying that a supplier's bank account details are genuine and belong to that vendor before payments are sent, to prevent misdirected funds. - **Vendor onboarding** Process of collecting and verifying a new supplier's tax form, banking, compliance, and contact details before setting them up to be paid. - **Vendor management** Ongoing oversight of supplier relationships, including performance, contracts, risk, compliance, and payment terms, to get reliable service at fair cost. - **Vendor statement reconciliation** Comparing a supplier's statement of account to your AP ledger to find missing invoices, unapplied credits, payments in transit, and balance differences. - **Debit memo (debit note)** Document a buyer sends a supplier to reduce what it owes, for returns or overcharges, or a seller issues to a customer to increase what the customer owes. - **Net 30 (net terms)** Payment term requiring the buyer to pay the full invoice amount within 30 days of the invoice date. - **Early payment discount (2/10 net 30)** Discount for paying early; 2/10 net 30 means a 2% reduction if paid within 10 days, otherwise the full amount is due in 30. - **Dynamic discounting** Arrangement where the buyer pays suppliers early in exchange for a discount that grows the earlier the invoice is paid, usually on a sliding scale. - **AP KPIs** Metrics used to measure accounts payable performance, such as cost per invoice, cycle time, DPO, touchless rate, and the share of invoices paid on time. - **Tail spend** Many small, infrequent purchases from numerous suppliers that together add up to a modest share of spend but take disproportionate effort to manage. - **Expense management** Process of capturing, approving, reimbursing, and recording employee out-of-pocket and card spending in line with company policy. - **E-invoicing mandates** Government rules requiring businesses to issue or report invoices electronically in a prescribed format, often through a national platform or tax authority. - **Prepayment to suppliers** Payment made to a supplier before goods or services are delivered, recorded as a prepaid asset or vendor advance until the supply arrives. - **Check payments** Paper instruments a company issues to pay suppliers, which the bank clears from the payer's account when the payee deposits them. - **Contract management** Managing agreements with suppliers or customers from creation through renewal, tracking terms, obligations, pricing, and key dates. - **Source-to-pay (S2P)** End-to-end process spanning sourcing and contracting suppliers, purchasing, receiving, invoice processing, and payment. - **Blanket purchase order** Purchase order covering repeated purchases from a supplier over a set period at agreed terms, with individual releases drawn against it. - **PO-backed vs non-PO invoice** A PO-backed invoice matches an approved purchase order and can be auto-matched, while a non-PO invoice has no order and needs manual approval. - **Two-way match** Control comparing the supplier invoice to the purchase order only, confirming quantities and prices agree without checking a goods receipt. - **Match tolerance** Allowed variance, as a percentage or dollar amount, between invoice and PO or receipt that still passes matching without being flagged as an exception. - **Touchless (no-touch) invoice processing** Handling an invoice from capture through approval and posting with no human intervention, because it passes all validation and matching rules. - **Vendor risk assessment** Evaluating a supplier's financial, operational, compliance, and cybersecurity risk to decide whether to engage them and how closely to monitor. - **Supplier portal** Web site where suppliers submit invoices, check payment status, and update their own details, reducing emails and manual data entry for the buyer. - **Batch payments** Grouping many supplier payments into one file or transaction sent to the bank for processing together, rather than paying invoices one at a time. - **Payment approval** Authorization step, often by amount threshold, in which a designated person approves a payment before funds are released to a supplier. - **Payment hold (payment block)** Block placed on an invoice or vendor that prevents payment until a dispute, mismatch, or compliance question is resolved. - **Positive pay** Bank fraud control in which the company sends its issued-check list so the bank pays only matching checks and flags mismatches. - **Virtual card payments** Single-use or supplier-specific card numbers generated to pay an invoice, giving the payer controls and the supplier card-network settlement. - **AP aging report** Report listing unpaid supplier invoices grouped by age past the invoice or due date, such as current, 30, 60, and 90 days. - **Cost per invoice** Total cost of running the AP function divided by the number of invoices processed in a period, used to gauge processing efficiency. - **Maverick spend** Purchases made outside approved suppliers, contracts, or procurement processes, which weakens price leverage and policy compliance. - **Expense report** Employee document itemizing business expenses, with receipts, submitted for approval and reimbursement or for reconciling company card spending. - **Peppol** International network and set of standards for exchanging electronic invoices and other business documents securely between trading partners' systems. - **Form W-9** IRS form a US payee completes to give its taxpayer identification number and tax classification, so the payer can report payments on Form 1099. - **Self-billing** Arrangement in which the buyer prepares invoices on the supplier's behalf from agreed prices and received goods, then pays against them. - **Supplier overbilling** Supplier charging more than agreed, through inflated prices, extra quantities, or duplicate or unauthorized charges, whether by error or intent. - **Recovery audit** Review of past payments to find and reclaim overpayments, duplicate payments, and unclaimed credits from suppliers, often paid on a contingency fee. - **Accounts payable subledger** Detailed record of each supplier invoice, payment, and credit that supports the accounts payable balance in the general ledger. - **NSF (returned) check** Check the bank returns unpaid because the payer's account lacks sufficient funds, reversing the deposit and leaving the receivable open. - **eProcurement** Using software to handle purchasing online, including requisitions, approvals, purchase orders, catalogs, and supplier interactions. - **Strategic sourcing** Structured approach to selecting suppliers and negotiating contracts by analyzing spend and market options to lower total cost and risk. - **Encumbrance accounting** Recording funds committed by purchase orders and contracts before payment, so budget availability reflects obligations, common in government and nonprofit accounting. - **Supply chain finance (reverse factoring)** Buyer-led program in which a funder pays approved supplier invoices early at a discount, and the buyer pays the funder at maturity. - **Invoice accruals (invoices to receive)** Estimated liabilities recorded at period end for goods or services received for which no supplier invoice has yet arrived. - **Purchase price variance (PPV)** Difference between the standard price of an item and the actual price paid, multiplied by quantity purchased. - **Line-item detail** Itemized data on an invoice for each product or service, including description, quantity, unit price, and amount, used for matching and coding. - **Vendor invoice (supplier invoice)** Bill a supplier sends to a customer requesting payment for goods or services provided, which the customer records as accounts payable. - **Four-way match** Matching control that adds a quality inspection result to the purchase order, goods receipt, and invoice before the invoice is approved. - **Invoice cycle time** Elapsed time from receiving a supplier invoice to approving it or paying it, used to measure AP speed and bottlenecks. - **Form 1099** IRS information return that payers file to report non-employee compensation and certain other payments, such as 1099-NEC for contractors. - **Unrecorded liabilities (search for)** Obligations that exist at period end but were never booked; auditors search for them by testing later payments and unpaid invoices. - **Segregation of duties in AP** Internal control that splits tasks such as vendor setup, invoice entry, approval, and payment among different people to prevent fraud and errors. ### Accounts receivable, billing and collections 76 terms These terms cover order-to-cash, from billing and credit decisions to collections, cash application, and the month-end AR reserve. - **Accounts receivable (AR)** Money customers owe a company for goods or services delivered on credit, recorded as a current asset until collected. - **Accounts receivable turnover ratio** How many times a year a company collects its receivables: net credit sales divided by average accounts receivable. - **Days sales outstanding (DSO)** Average days to collect receivables: average gross accounts receivable divided by credit sales, times days in the period. Ending AR is a simpler proxy. - **Accounts receivable aging report** Report listing unpaid customer invoices by how long they have been outstanding, such as current, 1 to 30, 31 to 60 days past due. - **Factoring** Selling receivables to a third party at a discount in return for immediate cash, with the buyer then collecting from customers. - **Collections** Process of pursuing payment on overdue customer invoices through reminders, calls, payment plans, and, when needed, escalation or outside agencies. - **Order-to-cash (O2C)** Process spanning customer order entry, fulfillment, invoicing, collection, and cash application through to recording the payment. - **Credit insurance** Policy that reimburses a seller for a portion of unpaid receivables when customers become insolvent or fail to pay. - **AR automation** Software that automates invoicing, payment reminders, cash application, and collections work to shorten the time to get paid. - **Dispute management** Process of logging, investigating, and resolving customer disagreements over invoices, such as pricing, quantity, or damage, so payment can proceed. - **Credit management** Setting and enforcing the terms on which customers may buy on credit, including approval, limits, monitoring, and collection of balances. - **Remittance advice** Notice from a customer that tells the seller which invoices a payment covers, including amounts and any deductions taken. - **Cash application** Matching incoming customer payments to the correct open invoices in the receivables ledger so balances are cleared accurately. - **Credit limit** Maximum amount of unpaid credit a company allows a customer to carry at one time. - **Credit risk** Possibility that a customer or borrower fails to pay what it owes on time, or at all, causing a loss. - **Credit scoring** Assigning a number or grade to a customer's likelihood of paying on time, based on financial and payment history data. - **Collections strategy** Plan for how and when to contact customers about unpaid invoices, tailoring tone, channel, and escalation to balance, risk, and past behavior. - **Bad debt** Receivables a company concludes it will not be able to collect, usually because a customer cannot or will not pay. - **Write-off** Removing an uncollectible receivable from the books by reducing the receivable and charging the allowance or bad debt expense. - **Past due (overdue) invoice** Invoice whose payment due date has passed without full payment by the customer. - **Collection letter** Written notice sent to a customer about an overdue balance, requesting payment and often stating consequences if it remains unpaid. - **Credit utilization ratio** Share of available credit in use: outstanding balance divided by credit limit. - **Credit policy** Company's written rules on whom it extends credit to, on what terms, with what limits, and how overdue accounts are handled. - **Pro forma invoice** Preliminary document showing expected goods and prices before shipment, used for customs, prepayment, or approval, not a formal bill recorded as a receivable. - **Collection effectiveness index (CEI)** Percentage measuring how much collectible receivables were actually collected in a period, with 100 percent meaning everything collectible was collected. - **Unapplied cash** Customer payments received but not yet matched to specific invoices, held as a credit until the payer and invoice are identified. - **Dunning** Series of escalating reminders sent to customers with overdue invoices, usually by email, letter, or call, to prompt payment. - **Customer payment portal** Online site where customers view invoices, dispute items, and pay by card, ACH, or other methods without contacting the seller. - **Bad debt expense** Expense recognized for receivables expected not to be collected, recorded with an increase in the allowance for doubtful accounts or on direct write-off. - **Bad debt ratio** Bad debt expense or write-offs divided by credit sales over a period, showing what share of sales proves uncollectible. - **Notes receivable** Written promises from a customer or borrower to pay a set amount, usually with interest, on a stated date, recorded as an asset. - **Collection agency** Third-party firm hired to pursue overdue accounts, usually paid a commission or percentage of what it recovers. - **Chargeback** Reversal of a card payment forced by the customer's bank after a dispute, pulling the money back from the merchant. - **AR KPIs** Metrics tracking receivables performance, such as DSO, collection effectiveness index, average days delinquent, past due percentage, and bad debt ratio. - **Business credit report** Report from a credit bureau showing a company's payment history, liens, public records, and risk score, used to decide whether to extend credit. - **Customer insolvency** Condition in which a customer cannot pay its debts as they come due, often leading to bankruptcy and uncertain recovery of receivables. - **Trade credit** Credit a supplier extends to a customer by allowing it to pay for goods or services after delivery, rather than upfront. - **Advance billing** Invoicing a customer before goods are delivered or services performed, which creates deferred revenue (a contract liability) until the work is done. - **Average days delinquent (ADD)** Average days late customers pay: days sales outstanding minus best possible DSO, showing how overdue the typical payment is. - **Lockbox** Bank service in which customer payments are mailed to a bank-controlled address, deposited, and reported to the company so cash posts faster. - **Short payment** Customer payment that is less than the invoiced amount, often because of a deduction, dispute, or billing disagreement. - **Deductions** Amounts a customer subtracts from a payment, such as for damage, shortages, promotions, or pricing disputes, which must be researched and resolved. - **Collections KPIs** Metrics measuring collections performance, such as DSO, collection effectiveness index, past due percentage, promise-to-pay kept rate, and average days delinquent. - **PAYDEX score** Business credit score from 1 to 100 reflecting how promptly a company pays its suppliers, where higher means on time or early. - **Refund** Return of money to a customer for a returned item, cancelled service, or overpayment, reducing cash and either revenue or the customer's credit balance. - **Cash in advance (CIA)** Payment term requiring the buyer to pay in full before goods ship or services begin, removing the seller's credit risk. - **Cash on delivery (COD)** Payment term in which the buyer pays the carrier or seller when goods are delivered, rather than before or on credit. - **Late payment fees** Charges a seller adds to invoices that are not paid by the due date, as set out in the contract or terms. - **Customer statement of account** Summary sent to a customer listing invoices, payments, credits, and the balance owed over a period, used to prompt payment and reconcile. - **AR outsourcing** Hiring an outside firm to handle part or all of receivables work, such as invoicing, cash application, or collections. - **Promissory note** Written, signed promise to pay a stated sum, with or without interest, on demand or at a set date. - **Retainage (holdback)** Portion of a contract payment, often 5 to 10 percent, withheld by the customer until the project is satisfactorily completed. - **Credit application** Form a prospective customer completes giving business, financial, and trade reference details so the seller can decide whether to extend credit. - **Credit hold** Block on a customer's account that stops new orders or shipments until overdue balances are paid or the credit issue is resolved. - **Billing** Process of preparing and sending requests for payment to customers based on products delivered or services rendered, including pricing and terms. - **Invoicing** Creating and sending invoices that document what a customer bought and owes. Revenue is recognized when goods or services are delivered, not when the invoice is sent. - **Recurring billing** Charging customers automatically at regular intervals, such as monthly or annually, for ongoing subscriptions or service contracts. - **Usage-based billing** Billing model that charges customers according to how much of a product or service they consume in a period, rather than a flat fee. - **Proration** Adjusting a charge or credit to cover only part of a billing period, for example when a customer upgrades or cancels mid-month. - **Credit memo vs debit memo** A credit memo reduces the amount a customer owes, while a debit memo increases it, each correcting the original invoice. - **Aging buckets** Time ranges, such as current, 1 to 30, 31 to 60, and over 90 days, used to group open invoices by how overdue they are. - **Average collection period** Average days it takes to collect receivables, calculated as 365 divided by receivables turnover or average accounts receivable divided by credit sales times days. - **BAI2 file** Standard bank reporting file format from the Bank Administration Institute that delivers balances and transaction details for reconciliation and cash application. - **Overpayment** Payment from a customer exceeding the amount owed, which creates a credit balance to be applied to future invoices or refunded. - **Promise to pay** Customer's commitment, usually noted by a collector, to pay a stated amount by a specific date. - **Allowance for doubtful accounts** Contra-asset account that reduces receivables to the amount expected to be collected, built from estimated credit losses (CECL under US GAAP). - **Direct write-off method** Method that expenses a receivable only when it is deemed uncollectible, not allowed under GAAP when losses are material because it ignores matching. - **Invoice financing** Borrowing against unpaid customer invoices, where a lender advances a percentage of their value and the company repays when customers pay. - **Net credit sales** Sales made on credit during a period, minus returns, allowances, and discounts, excluding cash sales. - **Accounts receivable to sales ratio** Accounts receivable divided by sales over the same period, showing how much of revenue is still uncollected. - **Days deduction outstanding (DDO)** Average days customer deductions stay unresolved: open deductions divided by total sales, times days in the period. - **Electronic invoice presentment and payment (EIPP)** System that delivers invoices to customers electronically and lets them view, dispute, and pay online in one place. - **Open item management** Accounting method that tracks each invoice, credit, and payment individually until fully matched, rather than carrying only a running balance. - **Collector productivity** Measures of how much a collector accomplishes, such as dollars collected, accounts worked, or promises obtained, per day or period. - **Best possible DSO** DSO calculated using only current, not past due, receivables, showing the lowest DSO achievable if every customer paid on time. - **Accounts receivable subledger** Detailed record of each customer invoice, payment, and credit that supports the accounts receivable balance in the general ledger. ### Month-end close and record-to-report 30 terms These terms describe how the close is planned, run, measured, and locked. - [**Month-end close** Full guide — Process of finishing a month's accounting: recording remaining entries, reconciling accounts, reviewing results, and locking the period so reports are final.](https://emptyspaces.ai/resources/blog/month-end-close) - [**Flux analysis** Full guide — Comparing account balances between periods and explaining the significant changes, used during close to catch errors and unusual activity.](https://emptyspaces.ai/resources/blog/flux-analysis) - [**Closing the books** Full guide — Completing the accounting steps at period end so that all transactions are recorded, accounts reconciled, and financial statements can be prepared.](https://emptyspaces.ai/resources/blog/closing-the-books) - **Record-to-report (R2R)** End-to-end finance process from recording transactions through closing the books and producing financial statements and reports. - [**Year-end close** Full guide — Annual closing process that finalizes the fiscal year's books, closes income statement accounts to retained earnings, and prepares for audit and tax.](https://emptyspaces.ai/resources/blog/year-end-close-checklist) - [**Continuous close** Full guide — Approach that spreads close tasks, such as reconciliations and accruals, throughout the period so month-end needs less last-minute work.](https://emptyspaces.ai/resources/blog/continuous-close) - [**Zero-day close** Full guide — Goal of having financial results ready essentially at period end, relying on continuous reconciliation and automation rather than a lengthy close.](https://emptyspaces.ai/resources/blog/faster-month-end-close) - **Continuous accounting** Approach that moves routine accounting tasks, such as reconciliations and reviews, out of the month-end crunch into daily or weekly work. - **Virtual close** Closing the books with real-time data and system-based processes, so period-end reporting needs little manual compilation of information. - **Fiscal year** The 12-month period, or 52 to 53 weeks, a company uses for annual accounting and reporting, which may or may not end on December 31. - [**Close calendar** Full guide — Schedule listing close tasks, owners, and deadlines for each business day of the period-end process.](https://emptyspaces.ai/resources/blog/month-end-close-calendar) - **Soft close vs hard close** A soft close is preliminary with the period still open, while a hard close locks the period, though it can be reopened with approval. - [**Fast close** Full guide — Closing the books in fewer days than is typical, achieved by streamlining tasks, automating reconciliations, and starting work before period end.](https://emptyspaces.ai/resources/blog/speed-up-month-end-close) - **Pre-close validation** Checks run before the close begins, such as confirming subledgers are posted and bank feeds are complete, to catch issues early. - [**Close package** — Set of financial statements, reconciliations, schedules, and commentary assembled at the end of the close for review and approval.](https://emptyspaces.ai/glossary/close-package) - [**Multi-entity close** Full guide — Closing the books for several legal entities, including intercompany matching, currency translation, and consolidation into one set of group financials.](https://emptyspaces.ai/resources/blog/multi-entity-month-end-close) - **Closing data reliability** Degree to which the data used in the close is complete, accurate, and timely enough to produce statements that can be trusted. - **Supporting schedule** Detailed worksheet that backs a general ledger balance, such as a fixed asset or prepaid rollforward, showing how the amount was calculated. - **Financial close process** Series of steps accounting teams perform at period end to record entries, reconcile accounts, review results, and produce financial statements. - [**Close checklist** Full guide — List of tasks, owners, and due dates to finish at period end, used to make sure every close step is completed and reviewed.](https://emptyspaces.ai/resources/blog/month-end-close-checklist) - **Quarter-end close** Closing process at the end of each fiscal quarter, usually adding review and disclosure steps needed for public company reporting beyond a normal month-end. - [**Days to close** Full guide — Number of business days from period end until the books are finalized, a common measure of close speed.](https://emptyspaces.ai/resources/blog/month-end-close-time) - [**Close KPIs** Full guide — Metrics tracking close performance, such as days to close, number of adjusting entries, reconciliations completed on time, and post-close adjustments.](https://emptyspaces.ai/resources/blog/month-end-close-kpis) - [**Period lock (closing an accounting period)** Full guide — Control that prevents posting entries to a closed accounting period, though an authorized user can reopen it with approval if a correction is needed.](https://emptyspaces.ai/resources/blog/lock-accounting-period) - **Accounting period** Defined span of time, such as a month, quarter, or year, for which a company records transactions and reports financial results. - **Close task management** Assigning, tracking, and reviewing individual close tasks and their owners, so progress and bottlenecks are visible throughout the period-end process. - [**Accounting cutoff** — Process of making sure transactions are recorded in the period in which they occurred, not earlier or later.](https://emptyspaces.ai/glossary/accounting-cutoff) - **Workpaper (close workpaper)** Document supporting a number in the close or audit, showing the source, calculation, and review evidence behind an account balance. - **Preparer and reviewer** Preparer completes an entry or reconciliation, and an independent reviewer checks and approves it, which is a basic control for catching errors. - **Close variance threshold** Dollar or percentage limit above which a balance change or reconciling difference must be investigated and explained before the close is signed off. ### Journal entries, accruals and adjustments 39 terms These terms cover the entries the close posts, from accruals and deferrals to reversing, reclassification, and top-side entries. - **Journal entry** A record of a transaction in the general ledger that lists the accounts affected, with debits equal to credits, a date and a description. - [**Deferred revenue** Full guide — Amounts a customer has paid or been billed before you deliver the goods or services, recorded as a liability until the revenue is earned.](https://emptyspaces.ai/resources/blog/deferred-revenue) - [**Closing entries** Full guide — Year-end entries that zero out revenue, expense and dividend accounts and move the net result into retained earnings, starting the next year at zero.](https://emptyspaces.ai/resources/blog/closing-entries) - [**Prepaid expenses** Full guide — Costs paid in advance for benefits received later, such as insurance or software, held as an asset and expensed over the period used.](https://emptyspaces.ai/resources/blog/prepaid-expenses) - [**Accrued expenses** Full guide — Expenses incurred in a period but not yet paid or invoiced, recorded as a liability so costs land in the period they belong.](https://emptyspaces.ai/resources/blog/accrued-expenses) - [**Adjusting entries** Full guide — Entries made at period end to record revenue and expenses in the right period, such as accruals, deferrals, depreciation and estimates.](https://emptyspaces.ai/resources/blog/adjusting-entries) - **AR journal entry** The entries that record customer invoices, cash receipts, credit memos and write-offs, debiting or crediting accounts receivable against revenue, cash or allowance accounts. - [**Accrued revenue** Full guide — Revenue you have earned by delivering goods or services but have not yet billed or collected, recorded as a receivable or contract asset.](https://emptyspaces.ai/resources/blog/accrued-revenue) - [**Accrued liabilities** Full guide — Obligations for goods, services or costs received but not yet paid or invoiced, recorded at period end and typically settled in the near term.](https://emptyspaces.ai/resources/blog/accrued-expenses) - [**Unbilled revenue** Full guide — Revenue earned for work already performed that has not yet been invoiced, shown as a contract asset or accrued receivable on the balance sheet.](https://emptyspaces.ai/resources/blog/accrued-revenue) - [**Reversing entries** Full guide — Optional entries dated the first day of a new period that undo prior-period accruals, so the later invoice or payment can be recorded normally.](https://emptyspaces.ai/resources/blog/reversing-entries) - [**Prepaid amortization schedule** Full guide — A table that spreads a prepaid cost across the periods it benefits, showing the monthly expense and the remaining balance on the balance sheet.](https://emptyspaces.ai/resources/blog/prepaid-expenses) - **Amortization** Spreading the cost of an intangible asset, or the discount or premium on debt, across its useful life or term as an expense. - **Depreciation** Allocating the cost of a tangible asset, less any salvage value, across its useful life as an expense in each period. - **Accruals** Adjustments that record revenue earned or expenses incurred before cash moves, so financial statements reflect the period's activity under accrual accounting. - **Prepaid insurance** A prepaid expense for coverage paid in advance, recorded as an asset and moved to insurance expense each month as coverage is used. - **Depreciation journal entry** The entry that records periodic depreciation, debiting depreciation expense and crediting accumulated depreciation for the period's share of an asset's cost. - **Allocations** Spreading a shared cost or amount, such as rent or overhead, across departments, entities or products using a defined basis like headcount or revenue. - **Intercompany journal entry** An entry that records a transaction between related entities, posted in each entity's books with matching amounts so it eliminates on consolidation. - **Recurring journal entries** Journal entries posted on a schedule with the same accounts and often the same amounts, such as monthly rent, depreciation or prepaid amortization. - **Reclassification entry** An entry that moves an amount from one account to another, often to fix a misclassification or present items correctly on the financial statements. - **Accrued interest** Interest that has been earned or owed as of period end but not yet received or paid, recorded as a receivable or payable. - **Allowance for doubtful accounts journal entry** The entry that sets or adjusts the allowance for expected credit losses, debiting bad debt expense and crediting the allowance for doubtful accounts. - **Dividend declaration journal entry** The entry made when the board declares a dividend, debiting retained earnings (or dividends declared) and crediting dividends payable until it is paid. - **Credit card rewards accounting** How a company records points, cash back and similar rewards it earns on company cards, usually as a reduction of the related expense or as other income. - **Early-exercised stock options accounting** How a company accounts for stock options exercised before vesting, where the cash received is a liability until the shares actually vest. - **Manual journal entry** A journal entry keyed in by a person rather than generated by a system or subledger, which usually calls for extra review and support. - **Correcting entry** An entry that fixes a prior error in the books, either by reversing and re-recording the transaction or by posting the difference. - **Compound journal entry** A journal entry with more than two lines, such as several debits against one credit, used when a single transaction touches many accounts. - **Payroll accrual** The accrual for wages, taxes and benefits earned by employees through period end but not yet paid, so labor cost lands in the right period. - **Bonus accrual** An estimate of bonuses earned by employees during the period but paid later, recorded as an expense and a liability as the service is rendered. - **Commission accrual** An estimate of sales commissions earned on closed deals but not yet paid, recorded as a liability, with the cost expensed or capitalized under ASC 340-40. - **Deferrals** Postponing recognition of a cost or revenue to a later period, such as prepaid expenses and deferred revenue, to match the period it relates to. - **Unearned revenue** Another name for deferred revenue: an amount a customer has paid or been billed for goods or services you still owe, held as a liability until delivery. - **Bad debt journal entry** The entry that writes off an uncollectible receivable, debiting the allowance (or bad debt expense) and crediting accounts receivable once collection is no longer expected. - **AP journal entry** The entry that records a vendor bill, debiting an expense or asset and crediting accounts payable, then clearing payable when you pay. - **Payroll journal entry** The entry that records wages, withholdings, employer taxes and benefits, debiting expense and crediting cash and liabilities for amounts withheld or owed. - **Journal entry approval** The review and sign-off of a journal entry by someone other than its preparer before posting, a core control over the ledger. - **Top-side entry** A manual adjustment made at the consolidated or corporate level after subsidiary books close, such as a consolidation or reporting adjustment, that bypasses entity ledgers. ### Reconciliation 25 terms These terms cover how you prove each balance against an outside record, and the items that explain the differences. - [**Account reconciliation** Full guide — Comparing a general ledger account balance to independent support, such as a bank statement or subledger, and explaining any difference.](https://emptyspaces.ai/resources/blog/account-reconciliation) - [**Bank reconciliation** Full guide — Matching the cash balance in your books to the bank statement and explaining every difference, usually monthly.](https://emptyspaces.ai/resources/blog/bank-reconciliation) - [**Balance sheet reconciliation** Full guide — Verifying that each balance sheet account agrees with supporting detail, such as a subledger, statement or schedule, and resolving differences.](https://emptyspaces.ai/resources/blog/balance-sheet-reconciliation) - [**Credit card reconciliation** Full guide — Matching card statement charges to receipts and recorded expenses in the ledger, and confirming the card liability balance agrees to the statement.](https://emptyspaces.ai/resources/blog/credit-card-reconciliation) - [**Intercompany reconciliation** Full guide — Confirming that the amounts one affiliated entity records with another match on both sides, so the balances eliminate cleanly in consolidation.](https://emptyspaces.ai/resources/blog/intercompany-accounting) - [**General ledger reconciliation** Full guide — Comparing general ledger account balances to subledgers or outside records and resolving differences so reported numbers can be relied on.](https://emptyspaces.ai/resources/blog/general-ledger-reconciliation) - **Inventory reconciliation** Comparing inventory records to physical counts and to the general ledger, then investigating and adjusting differences in quantity or value. - [**Cash reconciliation** Full guide — Confirming that the cash recorded in your books agrees with bank and other cash records, and explaining any gaps.](https://emptyspaces.ai/resources/blog/cash-reconciliation) - **Fixed asset reconciliation** Comparing the fixed asset register to the general ledger and physical assets, so additions, disposals and depreciation all tie out. - **Transaction matching** Pairing transactions from two sources, such as bank lines and ledger entries, by amount, date and reference, to find what is unmatched. - [**Subledger reconciliation** Full guide — Comparing the total of a subledger, such as accounts payable or receivable, to its control account in the general ledger.](https://emptyspaces.ai/resources/blog/ap-ar-reconciliation) - **Petty cash reconciliation** Counting the cash in a petty cash fund and confirming that cash plus receipts equals the fund's set amount, then replenishing it. - **Suspense account** A temporary account that holds transactions whose proper account is not yet known, which should be cleared and investigated before period close. - **Payroll reconciliation** Comparing payroll records, such as gross pay, withholdings and taxes, with the general ledger and bank payments to catch errors. - **Roll-forward schedule** A schedule that starts with the opening balance, adds and subtracts period activity, and ends at the closing balance for an account. - **Prepaid reconciliation** Confirming that the prepaid asset balance equals the unamortized portion of each underlying payment, and that expense recognized to date is correct. - **Payment processor (PSP) reconciliation** Matching payment processor reports of sales, fees, refunds and payouts to your sales records and bank deposits, so every payout is explained. - **Clearing account** A temporary account that holds amounts in transit between systems or processes until they are matched and cleared to their final accounts. - **Reconciliation certification** A formal sign-off by the preparer and reviewer that an account was reconciled, supported and reviewed by a set date. - **Multi-currency reconciliation** Reconciling accounts held in more than one currency, comparing balances at the right exchange rates and explaining differences from timing or revaluation. - **Point-of-sale cash reconciliation** Comparing sales recorded in the register to cash, card receipts and deposits at the end of a shift or day, explaining any over or short. - **Accrual reconciliation** Comparing accrued liability balances to supporting calculations or later invoices to confirm they are complete, accurate and reversed once settled. - **Reconciling items** Differences between the book balance and the outside record, such as the bank statement, that explain why the two do not agree yet. - **Outstanding checks** Checks you have issued and recorded in your books that have not yet cleared the bank, so the bank balance is still higher. - **Deposits in transit** Cash or checks you have recorded as received and deposited that the bank has not yet credited to your account, at the statement date. ### Financial statements and reporting 28 terms Financial statement terms describe the three core reports and what sits on them: the balance sheet, the income statement, and the cash flow statement, plus notes, filings, and management reporting. - **Cash flow statement** A financial statement showing cash moving in and out of the business over a period, grouped into operating, investing and financing activities. - **Trial balance** A list of every general ledger account with its debit or credit balance at a point in time, used to confirm debits equal credits. - **Operating cash flow** Cash generated or used by a company's core day-to-day business activities, before investing and financing, shown as the first section of the cash flow statement. - **Financial reporting** Preparing and presenting a company's financial results, including the statements and disclosures, for management, lenders, investors and regulators. - [**Post-closing trial balance** Full guide — A trial balance prepared after closing entries, listing only permanent balance sheet accounts, to confirm the books are in balance before the next period.](https://emptyspaces.ai/resources/blog/post-closing-trial-balance) - **Adjusted trial balance** A trial balance prepared after adjusting entries are posted, showing final account balances that feed the financial statements. - **Unadjusted trial balance** A trial balance prepared before adjusting entries, listing raw ledger balances as they stand at period end. - **Income statement (P&L)** A statement showing revenues, expenses and net income or loss over a period, also called the profit and loss statement. - **Balance sheet** A statement of what a company owns, owes and the owners' stake at a single date, following assets equal liabilities plus equity. - **Retained earnings** The cumulative net income a company has kept since inception, after subtracting dividends, shown in the equity section of the balance sheet. - **Financial statements** The formal reports of a company's results and position: balance sheet, income statement, cash flow statement, equity statement and the related notes. - **Free cash flow** Cash left after paying for operating costs and capital expenditures, commonly calculated as operating cash flow minus capital expenditures. - **Pro forma financial statements** Financial statements that show the effect of a hypothetical event, such as an acquisition or financing, as if it had already occurred. - **Annual report and Form 10-K** The annual filing with the SEC for public companies, containing audited financial statements, management's discussion and analysis, risk factors and business description. - **Statement of shareholders' equity** A statement showing how each component of shareholders' equity, such as stock, retained earnings and other comprehensive income, changed during the period. - **Management reporting** Internal financial and operational reports prepared for management decisions, such as budgets, variances and KPIs, not bound by external reporting rules. - **Statutory vs management reporting** A comparison of reports prepared to meet legal or GAAP requirements with internal reports built for management, which often use different measures and formats. - **Segment reporting** Reporting revenue, profit and assets for each operating segment of a business, as required of public companies by ASC 280. - **Common-size financial statements** Statements where every line is shown as a percentage of a base, such as revenue or total assets, making companies of different sizes comparable. - **Disclosure management** Preparing, tracking and reviewing the narrative notes and tables that accompany financial statements, including tagging and version control for filings. - **Other comprehensive income** Gains and losses that bypass net income and go straight to equity, such as unrealized securities gains and foreign currency translation adjustments. - **Investing cash flow** Cash flows from buying and selling long-term assets and investments, such as equipment purchases, acquisitions and sales of securities. - **Financing cash flow** Cash flows from raising and repaying capital, such as issuing stock, borrowing and repaying debt, and paying dividends. - **Group reporting** Combining financial results from multiple entities or business units into one view of a corporate group, often including consolidation and currency translation. - **Partial income statement** An income statement that shows only some of the sections or periods, used for a specific purpose such as one segment or a single quarter. - **Notes to financial statements** The explanatory text and tables that accompany the financial statements, covering accounting policies, breakdowns of balances and other required disclosures. - **Management reporting pack (board pack)** The recurring set of financial and operating reports, such as results, variances and KPIs, that management presents to the board or leadership team. - **Form 10-Q** The quarterly report public companies file with the SEC, containing unaudited interim financial statements and management discussion for the first three quarters. ### Consolidation, intercompany and multi-currency 28 terms These terms cover how a group with several entities or currencies combines its books into one set of statements. - [**Financial consolidation** Full guide — Combining the financial statements of a parent and its subsidiaries into one set, after eliminating intercompany balances and transactions.](https://emptyspaces.ai/resources/blog/month-end-consolidation) - [**Intercompany accounting** Full guide — Handling transactions between entities in the same corporate group, including recording, matching, settling and eliminating them in consolidation.](https://emptyspaces.ai/resources/blog/intercompany-accounting) - **Intercompany transactions** Sales, loans, services or cost allocations between two entities that share a parent or owner, recorded in both entities' books. - [**Intercompany eliminations** Full guide — Removing balances and transactions between group entities during consolidation so the statements show only dealings with outside parties.](https://emptyspaces.ai/resources/blog/month-end-consolidation) - **Multi-entity accounting** Keeping the books of several legal entities or business units, often with intercompany activity, separate currencies and a consolidated view. - **Mergers and acquisitions accounting** Recording the purchase of a business, including recognizing acquired assets and assumed liabilities at fair value, goodwill and related costs under ASC 805. - [**Consolidated financial statements** Full guide — One set of statements that presents a parent and its controlled subsidiaries as a single economic entity, with intercompany items eliminated.](https://emptyspaces.ai/resources/blog/month-end-consolidation) - **Equity method** A method of accounting for an investment where you have significant influence, recording your share of its earnings as income and adjusting the carrying amount. - **Intercompany invoice** An invoice one entity in a group issues to another for goods, services or charges, which must match the other side's payable. - **Presentation (reporting) currency** The currency in which a company presents its financial statements, which may differ from the currency used by its subsidiaries. - **Consolidation scope** The set of subsidiaries and other entities that a parent includes in its consolidated financial statements, based on control under ASC 810. - **Full vs proportionate consolidation** Full consolidation adds 100% of a subsidiary's lines and shows outside owners' share separately; proportionate adds only the parent's share, rare under US GAAP. - **Non-controlling interest (minority interest)** The portion of a subsidiary's equity and earnings owned by outside shareholders, shown separately within equity on the consolidated statements. - **Intercompany loan** A loan between two entities in the same group, with interest and repayment terms, recorded as a receivable on one side, payable on the other. - **Intercompany netting** Offsetting amounts that group entities owe each other so only the net balance is settled, cutting the number and cost of payments. - **Intercompany markup** An amount added to cost when one group entity sells goods to another, creating unrealized profit to eliminate while the goods remain in inventory. - **Intercompany mismatch** A difference between what two group entities each record for the same transaction, caused by timing, currency, errors or disputes. - **Intercompany agreement** A written contract between related entities that sets the terms for services, loans, licenses or cost sharing, supporting pricing and tax treatment. - **Transfer pricing** The prices set for goods, services and funds exchanged between related entities, which tax authorities expect to match arm's-length prices. - **Holding company** A company that owns controlling stakes in other companies and may have little or no operations of its own. - **Functional currency** The currency of the primary economic environment in which an entity operates, used to measure its results under ASC 830, even if its books are kept in another currency. - **Foreign currency translation** Converting an entity's financial statements from its functional currency into the reporting currency, using period-end rates for assets and liabilities and average rates for income statement items. - **Realized vs unrealized FX gains and losses** Realized gains and losses arise when foreign currency transactions are settled; unrealized ones arise on open balances revalued at period end. - **Purchase price allocation** Assigning the purchase price of an acquisition to the identifiable assets acquired and liabilities assumed at fair value, with any excess recorded as goodwill. - **FX revaluation** Restating foreign-currency monetary balances, such as receivables, payables and cash, at the current exchange rate at period end, with differences recorded in earnings. - **Cumulative translation adjustment (CTA)** The equity account holding accumulated gains and losses from translating foreign subsidiaries' statements into the reporting currency, shown in accumulated other comprehensive income. - **Intercompany settlement** The payment that clears an intercompany balance between two entities, usually in cash, which removes the receivable and payable from both sets of books. - **Negative goodwill (bargain purchase)** A gain recognized when the fair value of net assets acquired exceeds the price paid, which is uncommon and is rechecked before recording. ### FP&A: planning, budgeting and forecasting 87 terms These terms cover planning, budgeting, forecasting, variance analysis, and the managerial accounting behind them. - **Variance analysis** Comparing actual results to a budget, forecast, or prior period, then investigating and explaining the differences. - [**FP&A (financial planning and analysis)** Full guide — Finance function that builds budgets and forecasts, analyzes performance, and models decisions to guide planning and strategy.](https://emptyspaces.ai/resources/blog/fpa) - **Forecasting** Estimating future financial results, such as revenue, expenses, and cash, using historical data, current trends, and assumptions. - **Financial statement analysis** Reviewing the income statement, balance sheet, and cash flow statement, often with ratios and trends, to judge performance and financial health. - **Rolling forecast** Forecast that is regularly extended by adding a new period as each one ends, so it always covers a constant forward horizon. - [**Budget vs actual (BvA)** Full guide — Comparison of budgeted amounts to actual results for a period, showing variances in dollars and percentages for review.](https://emptyspaces.ai/resources/blog/budget-vs-actual) - **Headcount planning** Forecasting how many employees, in which roles and at what cost, a company needs to meet its plan. - [**Budget variance** Full guide — Difference between a budgeted amount and the actual result, labeled favorable if it helps profit and unfavorable if it hurts.](https://emptyspaces.ai/resources/blog/budget-vs-actual) - **Driver-based planning** Planning approach that builds forecasts from operational drivers, such as headcount or customer count, so changing an input updates the financials. - **KPI** Measurable value showing how well a company or team is achieving a key objective, tracked over time against a target. - **Financial modeling** Building a spreadsheet or software representation of a company's finances to forecast results and evaluate decisions under different assumptions. - **Internal rate of return (IRR)** Discount rate at which the net present value of an investment's cash flows equals zero, used to compare projects against a hurdle rate. - **Financial planning** Process of setting financial goals and mapping the budgets, forecasts, and resources needed to achieve them. - **Budget** Quantified plan of expected revenue, expenses, and cash for a future period, used to allocate resources and measure performance. - **Activity-based budgeting** Budgeting method that estimates the activities needed to meet output goals, then budgets the resources each activity requires. - **Scenario planning** Planning technique that builds forecasts for several possible futures, such as best, base, and worst case, to prepare responses to each. - **Sensitivity analysis** Testing how changing one assumption, such as price or growth rate, affects a model's output, to see which inputs matter most. - **Corporate performance management (CPM/EPM)** Software and processes that connect planning, budgeting, forecasting, consolidation, and reporting to manage and monitor company performance. - **Overhead** Ongoing business costs not directly tied to making a product or delivering a service, such as rent, utilities, and administrative salaries. - **Activity-based costing** Costing method that assigns overhead to products or services based on the activities that drive cost, using measures such as machine hours or orders processed. - **Net present value (NPV)** Sum of an investment's future cash flows discounted to today's dollars, minus the initial outlay; a positive value suggests the project adds value. - **Discounted cash flow (DCF)** Valuation method that estimates the present value of expected future cash flows by discounting them at a rate reflecting risk and time. - **Return on investment (ROI)** Gain from an investment minus its cost, divided by its cost, expressed as a percentage. - **Financial performance** How well a company generates profit, cash flow, and returns from its operations and assets, as shown in its financial statements and metrics. - **Debt vs equity financing** Debt financing borrows money that must be repaid with interest and does not dilute ownership, while equity financing sells ownership stakes with no repayment obligation. - **Zero-based budgeting** Budgeting method requiring every expense to be justified from zero each period, rather than starting from the prior year's amounts. - **Incremental budgeting** Budgeting method that starts from the prior period's budget or actuals and adds or subtracts a percentage or fixed amount. - **Flexible budget** Budget that adjusts to the actual activity level, such as units sold, so costs are compared with what they should have been at that volume. - **Static budget** Budget fixed at one planned level of activity that does not change even if actual volume differs. - **Top-down vs bottom-up budgeting** Top-down budgeting has leadership set targets and allocate them downward, while bottom-up has departments build estimates that roll up into the company total. - **Capital budgeting** Process of evaluating and choosing long-term investments, such as equipment or projects, using methods like NPV, IRR, and payback period. - **Cash budget** Forecast of expected cash receipts and payments over a period, showing projected cash balances and any shortfall or surplus. - **What-if analysis** Changing assumptions in a model to see how results would differ, helping test the effect of decisions or events. - **Strategic planning** Process of setting a company's long-term goals and choosing priorities and resources to reach them, typically over three to five years. - **Break-even analysis** Calculating the sales volume or revenue at which total revenue equals total costs, so profit is zero: fixed costs divided by contribution margin per unit. - **Cost-volume-profit analysis** Analysis of how changes in volume, price, and costs affect operating profit, used to find break-even and target profit levels. - **Fixed vs variable costs** Fixed costs stay the same regardless of activity level, while variable costs change in proportion to production or sales volume. - **Opex vs capex** Operating expenses are day-to-day costs expensed as incurred, while capital expenditures buy long-lived assets that are capitalized and depreciated over time. - **Profitability analysis** Evaluating how much profit a company, product, customer, or segment earns relative to revenue, cost, or investment. - **Cost of capital (WACC)** Average rate a company pays to fund its assets from debt and equity, weighted by their proportions, and used as a discount rate. - **Benchmarking** Comparing a company's metrics or processes to peers or best-in-class standards to identify performance gaps and improvement areas. - **Capital structure** Mix of debt and equity a company uses to finance its operations and growth. - **Present value** Today's worth of a future amount of money, found by discounting it at a chosen rate for the time until it is received. - **Hurdle rate (required rate of return)** Minimum return an investment must earn to be accepted, often set at or above the company's cost of capital. - **Extended planning and analysis (xP&A)** Planning approach that connects finance plans with sales, supply chain, workforce, and operations plans so decisions reflect the whole business. - **Continuous planning** Planning that is updated on an ongoing basis as conditions change, rather than in a single annual cycle. - **Actuals** Real recorded financial results for a period, as opposed to budgeted, forecast, or planned figures. - **Management commentary** Narrative explanation accompanying financial results that describes what drove performance, key variances, risks, and outlook. - **KPI dashboard** Visual display of a company's key performance indicators, often updated regularly, so leaders can monitor progress against targets at a glance. - **Contribution margin** Revenue minus variable costs, showing how much each sale contributes toward covering fixed costs and profit. - **Standard costing** Costing method that assigns predetermined expected costs to products, then tracks variances between those standards and actual costs. - **SG&A** Selling, general and administrative expenses: operating costs of selling and running the business that are not directly tied to production. - **Payback period** Time an investment takes to recover its initial cost from the cash flows it generates, ignoring the time value of money. - **Leading vs lagging indicators** Leading indicators, like pipeline, predict future results, while lagging indicators, like revenue or profit, confirm results that have already happened. - **Capital allocation** Decisions on how to deploy a company's financial resources, such as investing, acquiring, paying down debt, or returning cash to owners. - **Time value of money** Principle that a dollar today is worth more than a dollar later because it can earn a return. - **Discount rate** Rate used to convert future cash flows to present value, reflecting the time value of money and the risk of those flows. - **Enterprise value** Value of a company's operations: equity market value plus debt and other claims, minus cash and cash equivalents. - **Operating income** Profit from core operations: revenue minus cost of goods sold and operating expenses, before interest and income taxes. - **Operating cycle** Average time from buying inventory to collecting cash from its sale: days inventory outstanding plus days sales outstanding. - **Debt service coverage ratio (DSCR)** Net operating income divided by total debt payments due in the period, showing ability to cover principal and interest. - **Balance sheet forecasting** Projecting future assets, liabilities, and equity based on expected operations and financing, so the balance sheet ties to the forecast income and cash flow. - **Value driver tree** Diagram breaking a financial outcome, such as profit, into the operational factors that influence it, to show what to change to improve results. - **Margin of safety** Amount by which actual or expected sales exceed the break-even point, showing how far sales can fall before a loss occurs. - **Opportunity cost** Value of the best alternative given up when a choice is made, not shown as a cost in the accounting records. - **Sunk cost** Cost already incurred that cannot be recovered, and so should not influence a decision about future actions. - **Marginal cost** Additional cost of producing one more unit of a product or service. - **Absorption costing** Costing method that assigns all manufacturing costs, fixed and variable, to products; required for US GAAP external reporting of inventory. - **Cost of goods manufactured (COGM)** Total cost of finished goods completed in a period: beginning work in process plus manufacturing costs, minus ending work in process. - **Sales and operations planning (S&OP)** Cross-functional monthly process that aligns demand forecasts with supply, production, and financial plans to produce one agreed operating plan. - **Sales forecasting** Estimating future sales for a period using historical data, pipeline, seasonality, and market conditions. - **Balanced scorecard** Management framework tracking performance across four perspectives: financial, customer, internal processes, and learning and growth. - **Total cost of ownership (TCO)** All direct and indirect costs of acquiring, running, and maintaining an asset over its life, not just the purchase price. - **Due diligence (financial)** Detailed investigation of a company's financials, contracts, and risks, typically before an acquisition or investment, to verify what the seller reports. - **Pre-tax income (EBT)** Profit after all operating and non-operating expenses including interest but before income tax expense, also called earnings before tax. - **Annual operating plan (AOP)** Detailed one-year financial and operational plan, usually approved by leadership and the board, that sets budgets and targets for the year. - **Price and volume variance** Variance analysis splitting a revenue or cost change into the effect of a price difference and the effect of a quantity difference. - **Three-statement model** Financial model that links the income statement, balance sheet, and cash flow statement so changes in one flow through the others. - **Integrated business planning (IBP)** Planning process extending S&OP to link strategy, finance, demand, supply, and product plans into a single, regularly updated business plan. - **Long-range plan** Multi-year plan, usually three to five years, setting strategic financial targets and the investments and resources needed to reach them. - **Reforecast** Updating a forecast or plan during the year with actual results and new assumptions to reflect the latest expectations. - **Board deck** Presentation prepared for a company's board of directors summarizing financial results, key metrics, risks, and decisions needed. - **Unit economics** Revenues and costs of a single unit of the business, such as one customer or product, used to judge whether growth is profitable. - **Margin analysis** Examining profit margins by product, customer, or period to understand what drives profitability and where it is changing. - **Price-volume-mix analysis** Breaks a change in revenue or profit into the effects of price changes, volume changes, and shifts in the mix of products sold. - **Forecast accuracy** How closely forecasts match actual results, commonly measured as the percentage difference between forecast and actual. - **Bridge chart (EBITDA walk)** Waterfall chart that walks from one figure, such as last year's EBITDA, to another by showing each driver's positive or negative contribution. ### Financial ratios and analysis 26 terms These terms are the ratios and margins leadership, lenders, and investors use to read the statements. - **EBITDA** Earnings before interest, taxes, depreciation, and amortization, a non-GAAP measure of operating performance before financing and noncash charges. - **Adjusted EBITDA** EBITDA modified for items management considers unusual or non-recurring, such as restructuring or stock compensation; non-GAAP and defined differently by company. - **Gross margin** Revenue minus cost of goods sold, divided by revenue, showing what share of sales remains after direct costs. - **Return on equity (ROE)** Net income divided by average shareholders' equity, showing profit earned on owners' invested capital. - **Operating margin** Operating income divided by revenue, showing what share of sales remains after operating costs but before interest and taxes. - **Quick ratio (acid-test ratio)** Liquidity measure of cash, marketable securities, and receivables divided by current liabilities, excluding inventory and prepaid items. - **Horizontal analysis** Comparing line items across periods, in dollars and percentages, to show trends and changes over time. - **Vertical analysis** Expressing each line item as a percentage of a base figure, such as revenue on the income statement or total assets on the balance sheet. - **Profitability ratios** Ratios, such as gross margin, operating margin, ROA, and ROE, that measure how well a company turns revenue and assets into profit. - **EBIT** Earnings before interest and taxes, a measure of profit from operations and other income before financing costs and income tax expense. - **Current ratio** Current assets divided by current liabilities, showing ability to pay obligations due within a year. - **Cash ratio** Cash and cash equivalents divided by current liabilities, the strictest liquidity measure of ability to pay short-term obligations. - **Debt-to-equity ratio** Total liabilities, or total debt, divided by shareholders' equity, showing how much a company relies on borrowing versus owner funding. - **Interest coverage ratio** Operating income (EBIT) divided by interest expense, showing how many times earnings cover interest payments. - **Return on assets (ROA)** Net income divided by average total assets, showing how efficiently a company uses its assets to produce profit. - **Return on capital employed (ROCE)** Operating income (EBIT) divided by capital employed, usually total assets minus current liabilities, showing returns on long-term capital. - **Leverage ratios** Ratios, such as debt-to-equity and interest coverage, that show how much a company relies on debt and its ability to service it. - **Efficiency ratios** Ratios, such as inventory turnover and receivables turnover, showing how effectively a company uses its assets and manages its liabilities. - **Financial ratios** Calculations that compare financial statement figures to assess liquidity, profitability, leverage, and efficiency, often against peers or prior periods. - **Net profit margin** Net income divided by revenue, showing what percentage of each sales dollar remains as profit after all expenses and taxes. - **Debt ratio** Total liabilities divided by total assets, showing what share of a company's assets is financed by debt. - **Asset turnover** Revenue divided by average total assets, showing how much sales a company generates for each dollar of assets. - **DuPont analysis** Breaks return on equity into net profit margin, asset turnover, and financial leverage to show what drives it. - **Liquidity ratios** Ratios, such as the current, quick, and cash ratios, that measure ability to meet short-term obligations with liquid assets. - **Earnings per share (EPS)** Net income available to common shareholders divided by weighted average common shares outstanding. - **Revenue per employee** Total revenue divided by the average number of employees, a rough measure of workforce productivity. ### Revenue recognition and subscription metrics 29 terms These terms cover revenue recognition under ASC 606 and the subscription metrics SaaS companies report alongside it. - **Revenue recognition** Accounting principle for when and how much revenue to record, based on transferring promised goods or services to customers for the expected payment. - **ASC 606** US GAAP standard for revenue from contracts with customers, built on a five-step model for recognizing revenue as obligations are satisfied. - **Deferred revenue waterfall** Schedule showing how deferred revenue from billings is released into recognized revenue across future periods, usually month by month. - **Annual recurring revenue (ARR)** Annualized value of active recurring subscription contracts, excluding one-time fees, used to measure the scale of a subscription business. - **ARR reconciliation** Comparing ARR reported in a metrics system against contracts, billings, and the general ledger to explain differences and confirm the figure is supportable. - **Monthly recurring revenue (MRR)** Predictable revenue from subscriptions normalized to a single month, excluding one-time and non-recurring charges. - **Annual contract value (ACV)** Average yearly value of a customer contract, usually total contract value divided by contract years, excluding one-time fees. - **Net revenue retention (NRR)** Percentage of recurring revenue kept from existing customers over a period after counting expansion, contraction, and churn, excluding new customers. - **Churn rate** Percentage of customers, or recurring revenue, lost over a period, calculated as those lost divided by the number at the start. - **Burn multiple** Net cash burned divided by net new ARR in the same period, showing how much cash is spent to add each recurring dollar. - **Revenue run rate** Projection of annual revenue by extending a recent period's revenue, such as a month times 12, assuming current performance continues. - **Usage-based pricing** Pricing model in which customers pay according to how much they use a product or service, rather than a fixed subscription fee. - **New, expansion and contraction ARR** Components of ARR change: new is from new customers, expansion is more from existing ones, and contraction is reductions without full cancellation. - **Five-step revenue recognition model** ASC 606 framework: identify the contract, identify performance obligations, determine the price, allocate it to obligations, and recognize revenue as each is satisfied. - **Performance obligation** Distinct promise in a customer contract to transfer a good or service, treated as a separate unit of account for revenue recognition. - **Standalone selling price** Price at which a company would sell a good or service separately to a customer, used to allocate a contract's price across obligations. - **Contract asset and contract liability** A contract asset is a right to payment that depends on something other than time (an unconditional right is a receivable), while a contract liability is payment received or due before delivery. - **Costs to obtain a contract (ASC 340-40)** Incremental costs, such as sales commissions, that would not have been incurred without winning the contract, capitalized under ASC 340-40 if expected to be recovered, or expensed when amortization would be one year or less. - **Total contract value (TCV)** Total revenue a contract is expected to produce over its full term, including recurring and one-time fees. - **Bookings vs billings vs revenue** Bookings are signed contract value, billings are amounts invoiced to customers, and revenue is what has been earned and recognized under ASC 606. - **Gross revenue retention (GRR)** Percentage of recurring revenue kept from existing customers after churn and contraction only, with expansion excluded, so it cannot exceed 100 percent. - **Customer acquisition cost (CAC)** Total sales and marketing spend in a period divided by the number of new customers acquired in that period. - **CAC payback period** Months of gross profit from a new customer needed to recover the cost of acquiring them. - **Customer lifetime value (LTV)** Estimated total gross profit a customer generates over the whole relationship, often average margin per period divided by churn rate. - **LTV to CAC ratio** Customer lifetime value divided by customer acquisition cost, showing how much value each dollar spent on acquiring customers returns. - **Burn rate** Pace at which a company spends cash, usually measured monthly, as gross burn (total spend) or net burn (cash out minus cash in). - **Runway** Number of months a company can keep operating before it runs out of cash: cash balance divided by net monthly burn. - **Rule of 40** SaaS guideline that revenue growth rate plus profit margin, often free cash flow or EBITDA margin, should total at least 40 percent. - **Remaining performance obligations (RPO)** Total contracted revenue not yet recognized, including deferred revenue and amounts not yet billed, disclosed under ASC 606. ### Payments, banking and treasury 38 terms These terms cover how money moves and how treasury tracks and forecasts it, from ACH and wires to cash pooling and the 13-week cash flow forecast. - **Working capital** Current assets minus current liabilities, showing the short-term resources a company has available to fund its day-to-day operations. - **Cash flow forecast** A projection of expected cash receipts and payments over a future period, used to spot shortfalls and plan borrowing or investment. - **Cash management** Planning and controlling how cash comes in, goes out and is held, so the company can pay its bills and earn on idle funds. - **Cash conversion cycle** The number of days it takes to turn inventory and receivables into cash, net of days payables are outstanding: DIO plus DSO minus DPO. - **ACH payment** A US electronic payment, sent through the Automated Clearing House network in batches, commonly used for payroll, vendor payments and direct debits. - **Liquidity** How easily a company can meet its short-term obligations, based on cash on hand or assets that can quickly be turned into cash. - **Cross-border payments** Payments sent between parties in different countries, which often involve currency conversion, intermediary banks, fees and longer settlement times. - **B2B payments** Payments between businesses, such as paying suppliers or collecting from customers, using methods like ACH, wire, card or check. - **Treasury management** Managing a company's cash, funding, banking relationships and financial risk, including forecasting, investments and foreign exchange exposure. - **Cash position** The total cash available at a point in time across all bank accounts, usually adjusted for expected inflows and outflows. - **Cash concentration** Moving cash from several accounts or subsidiaries into one central account, so the group can manage and invest it centrally. - **Wire transfer** A bank-to-bank electronic transfer of funds, typically same day and final, used for large or urgent payments. - **SWIFT** The messaging network that banks use to send secure payment instructions across borders, which identifies banks by a BIC code. - **IBAN** A standard account number format used for international payments, which includes country, bank and account details and a check digit. - **Virtual IBAN** A bank-issued account number that points to a main account, used to assign unique numbers to customers or payers to ease matching. - **SEPA payments** A euro payment scheme that lets businesses and consumers send credit transfers and direct debits across participating European countries on common terms. - **Electronic funds transfer (EFT)** Moving money between bank accounts electronically, rather than using cash or paper checks, including ACH, wires and card payments. - **Real-time payments** Payments that settle in seconds at any time, on any day, such as FedNow and the RTP network in the US. - **Multi-currency payments** Sending or receiving payments in more than one currency, often from a single account, with conversion handled at the bank or provider. - **Payment service provider (PSP)** A company that processes card and digital payments for merchants, handling authorization, settlement and payouts, often with fraud tools. - **Bank feed** A direct connection that sends bank transactions into accounting software automatically, replacing manual statement uploads. - **Cash pooling** An arrangement that combines balances of several accounts, notionally or physically, so surpluses offset deficits and the group needs less borrowing. - **Zero-balance account** A bank account that keeps a zero balance by automatically sweeping funds to or from a master account as payments clear. - **Liquidity forecast** A forecast of cash and other liquid resources available to meet obligations over a period, used to confirm the company can pay what it owes. - **Short-term vs long-term cash forecast** A short-term forecast looks weeks ahead to manage daily cash; a long-term forecast covers months or years to support planning and funding decisions. - **Rolling cash forecast** A cash forecast that is regularly updated by adding new periods as time passes, so it always looks the same distance ahead. - **Working capital management** Managing receivables, payables and inventory to free up cash while keeping enough on hand to meet short-term obligations. - **FX risk and hedging** Identifying how currency movements could affect cash flows or earnings, and using tools such as forward contracts to offset the exposure. - **Bank fees** Charges banks make for services such as wires, monthly account maintenance, overdrafts and returned items, usually recorded as an operating expense. - **Debt covenant** A promise in a loan agreement, such as a minimum cash level or maximum debt ratio, that the borrower must meet or risk default. - **Cash equivalents** Short-term, highly liquid investments, such as money market funds and Treasury bills, with original maturities of three months or less, reported with cash. - **Direct debit** A payment method where a payer authorizes a business to pull funds from the payer's bank account, such as ACH debits used for recurring payments. - **Letter of credit** A bank's promise to pay a seller on behalf of the buyer if the seller meets the document terms, used in trade to reduce risk. - **Remote deposit capture** Depositing checks by scanning them and sending the image to the bank electronically, instead of taking the paper checks to a branch. - **Interest rate risk** The risk that changes in interest rates will raise borrowing costs or reduce the value of assets, such as variable-rate debt or bond holdings. - **B2B buy now, pay later** Letting business customers pay for purchases in installments while the seller or provider is paid upfront, similar to consumer buy now, pay later. - **13-week cash flow forecast** A rolling forecast of weekly cash receipts and payments over the next 13 weeks, widely used for short-term liquidity planning and lender reporting. - **Revolving credit facility** A flexible credit line a company can borrow from, repay and borrow again up to a limit, with interest paid on the amount drawn. ### Fixed assets, leases and inventory 22 terms These terms cover long-lived assets, leases under ASC 842, and inventory. - **Lease accounting (ASC 842 / IFRS 16)** Rules for recording leases: under ASC 842 most leases go on the balance sheet as a right-of-use asset and lease liability, as under IFRS 16. - **Fixed assets** Long-lived tangible assets a company owns and uses in operations, such as equipment, buildings, vehicles and land, recorded at cost and generally depreciated. - **Cost of goods sold (COGS)** The direct costs of producing the goods or services a company sold in the period, such as materials, direct labor and production overhead. - **Capital expenditure (CapEx)** Money spent to buy, build or improve long-term assets, which is capitalized on the balance sheet rather than expensed immediately. - **Impairment** A write-down when an asset's carrying amount is more than it can recover, measured at fair value under US GAAP for long-lived assets and goodwill, and recorded as a loss in the period. - **Goodwill** The excess of the price paid in an acquisition over the fair value of identifiable net assets acquired, tested for impairment rather than amortized, though private companies may elect to amortize it. - **Intangible assets** Non-physical assets with lasting value, such as patents, trademarks, customer lists and licenses, recorded at cost and often amortized over their useful lives. - **Inventory** Goods held for sale, in production or as materials for production, reported as a current asset generally at the lower of cost or net realizable value (lower of cost or market for LIFO and the retail method). - **Inventory turnover** How many times a company sells and replaces its inventory in a period, commonly cost of goods sold divided by average inventory. - **Days inventory outstanding (DIO)** The average days it takes a company to sell its inventory, commonly average inventory divided by cost of goods sold, times days in the period. - **Asset capitalization threshold** The minimum dollar amount above which a purchase is recorded as a fixed asset instead of being expensed immediately, set by company policy. - **Capitalized software costs** Costs of developing software, such as coding and testing, that are recorded as an asset and amortized instead of expensed once the project meets US GAAP capitalization criteria, which differ for software sold and internal-use software. - **Inventory valuation (FIFO, LIFO, weighted average)** Methods of assigning cost to inventory and cost of goods sold: first in first out, last in first out (US only) and weighted average. - **Straight-line depreciation** Depreciation that spreads an asset's cost, less salvage value, evenly across its useful life, producing the same expense each period. - **Declining-balance depreciation** Depreciation that applies a fixed rate to the asset's remaining book value each period, so the expense is largest in the early years. - **Accumulated depreciation** The running total of depreciation recorded against an asset since it was placed in service, shown as a contra asset that reduces its cost. - **Fixed asset register** A detailed list of a company's fixed assets, including cost, purchase date, useful life, depreciation and location, supporting the general ledger balance. - **Asset disposal** Removing an asset from the books when it is sold, scrapped or retired, and recording any gain or loss against its net book value. - **Right-of-use asset** The asset a lessee records under ASC 842 for its right to use a leased item during the lease term. - **Lease liability** The lessee's obligation to make lease payments, recorded under ASC 842 at the present value of payments not yet paid. - **Landed cost** The total cost to get inventory to your door, including purchase price, freight, duties, insurance and handling, not just the supplier's invoice price. - **Inventory write-down** Reducing the recorded value of inventory when it is damaged, obsolete or worth less than cost, with the loss recorded in the period. ### Controls, audit and compliance 29 terms Controls and audit terms describe what auditors test: internal controls, segregation of duties, SOX, the PBC list, audit adjustments, and how each control is evidenced at month-end. - **Internal controls** Policies, procedures and checks that help a company protect assets, keep accurate records and comply with laws and regulations. - **Audit adjustments** Changes to a company's books proposed by auditors after testing, which management reviews and records if they correct material or other errors. - **SOX compliance** Compliance with the Sarbanes-Oxley Act, which requires public companies to maintain internal controls over financial reporting and certify results. - **Internal vs external audit** Internal auditors are company staff who assess controls and risk for management, while external auditors are independent and give an opinion on the financial statements. - **Segregation of duties (SoD)** Splitting key tasks, such as creating, approving and paying a vendor, among different people so one person cannot commit and hide an error or fraud. - **Delegation of authority** The formal assignment of who can approve what, such as spending limits and journal entries, based on role and dollar amount. - **Audit** An independent examination of financial records and controls, ending in an opinion on whether the financial statements are fairly presented. - **Integrated audit** A single audit of both a public company's financial statements and its internal control over financial reporting, as the PCAOB requires for accelerated and large accelerated filers. - **Fraud risk** The risk that someone inside or outside the company will misappropriate assets or misstate the financial statements on purpose. - **IPO readiness** The work to prepare a private company to go public, including audited financials, controls, reporting speed and governance that meet SEC requirements. - **Enterprise risk management (ERM)** A company-wide process for identifying, assessing and managing risks that could affect its goals, including financial, operational and compliance risks. - **KYC and KYB** Identity and ownership checks on customers or businesses, which companies run before onboarding or paying them to manage fraud risk and, for regulated firms, meet anti-money laundering rules. - **SOX 404** The section of the Sarbanes-Oxley Act requiring management to assess internal control over financial reporting, with auditors attesting for larger public companies. - **Preventive vs detective controls** Preventive controls stop errors before they happen, such as approval limits; detective controls find them afterward, such as reconciliations and variance reviews. - **Compensating control** A backup control that reduces risk when the primary control is missing or weak, such as extra management review in place of segregation of duties. - **Maker-checker (four-eyes principle)** A control requiring one person to prepare a transaction and a different person to approve it before it is processed. - **Risk and control matrix (RACM)** A table listing each key risk, the control that addresses it, who owns it and how often it operates, used for SOX and audits. - **Control testing** Checking whether a control is designed well and actually operating, using inquiry, observation, inspection of evidence or re-performance. - **Audit-ready close** A close process that keeps documentation, reconciliations, approvals and support organized throughout the period, so auditors can verify the numbers without scrambling. - **Reasonableness check** A check that compares a number to what you would expect, such as last month or budget, to spot errors or unusual items. - **Exception-based review** Reviewing only the items that fall outside set rules or thresholds, instead of every item, so people spend time on what looks wrong. - **ISO 27001** An international standard for managing information security, which lists the controls a company needs to protect data. - **COSO framework** The internal control framework from the Committee of Sponsoring Organizations, widely used by US companies to design and assess internal control over financial reporting. - **Key controls** The controls that matter most for preventing or detecting a material misstatement, and that management and auditors therefore focus on testing. - **IT general controls (ITGC)** Controls over the systems that support financial reporting, such as access, change management and operations, which auditors test for reliance on system data. - **PBC list (prepared by client)** The list of documents and information an auditor asks the company to provide, such as bank statements, contracts and reconciliations. - **Audit sampling** Testing less than 100% of a population, such as selected transactions, and using the results to draw conclusions about the whole. - **Material weakness** A deficiency in internal control, or a combination, that creates a reasonable possibility a material misstatement will not be prevented or detected on time. - **SOC 1 and SOC 2 reports** Independent auditor reports on a service provider's controls: SOC 1 covers controls relevant to customers' financial reporting, and SOC 2 covers security, availability, processing integrity, confidentiality or privacy. ### Accounting standards and regulation 15 terms US GAAP is set by the FASB in its Accounting Standards Codification, so the authoritative wording for topics like ASC 606, ASC 842, and ASC 810 lives there. These terms explain each in plain English. - **ASC 842 (leases)** The US standard that requires lessees to put most leases on the balance sheet as a right-of-use asset and lease liability. - **GAAP (US)** The accounting standards, rules and conventions that US companies follow when preparing financial statements, set by the FASB for public and private companies. - **IFRS** The international accounting standards issued by the IASB and used in most countries outside the US, which differ from US GAAP in several areas. - **FASB ASC codification** The single, authoritative source of US GAAP, organized by topic and maintained by the FASB, referenced with numbers such as ASC 842. - **IFRS 16 (leases)** The international lease standard that brings nearly all leases onto the lessee's balance sheet as a right-of-use asset and lease liability, with no operating-lease expense. - **IFRS 15 (revenue)** The international revenue standard, which uses a five-step model, and is closely aligned with the US standard ASC 606. - **Variable interest entity (VIE)** An entity with too little equity at risk or equity holders who lack control, consolidated under ASC 810 by its primary beneficiary, the party with power and significant economic exposure. - **IAS 21 (foreign exchange)** The international standard on accounting for foreign currency transactions and translating foreign operations, similar to ASC 830 under US GAAP. - **ASC 830 (foreign currency matters)** The US GAAP guidance on translating foreign currency statements and recording foreign currency transactions, including the functional currency concept. - **ASC 350 (goodwill and intangibles)** The US GAAP guidance on goodwill and other intangible assets, including how they are recognized, amortized and tested for impairment. - **ASC 360 (property, plant and equipment)** The US GAAP guidance on property, plant and equipment, including depreciation, impairment of long-lived assets and disposals. - **ASC 450 (contingencies)** The US GAAP guidance on loss contingencies, which are accrued when a loss is probable and can be reasonably estimated, and disclosed if reasonably possible. - **ASC 810 (consolidation)** The US GAAP guidance on consolidation, which sets out when a company must include another entity in its financial statements, including variable interest entities. - **ASC 740 (income taxes)** The US GAAP guidance on accounting for income taxes, including current and deferred taxes and uncertain tax positions. - **SEC reporting** Filing financial statements and disclosures with the Securities and Exchange Commission, such as Forms 10-K, 10-Q and 8-K, by public companies. ### Tax and payroll 17 terms Tax and payroll terms cover what runs through the ledger each pay period and each filing, from gross-to-net payroll and payroll taxes to sales tax nexus and the income tax provision. - **Value-added tax (VAT)** A consumption tax charged at each stage of production and distribution, common outside the US, with businesses claiming credit for VAT paid on purchases. - **Payroll accounting** Recording and reporting of employee pay, including gross wages, withholdings, employer taxes and benefits, and the related expense and liabilities. - **Goods and services tax (GST)** A value-added tax on goods and services used in countries such as Canada, India and Australia, collected by businesses and remitted to the government. - **VAT reconciliation** Comparing the VAT recorded in your ledger to the VAT shown on tax returns, and explaining any differences before filing. - **Tax exemption certificate** A form that a buyer gives a seller to show that a purchase is exempt from sales tax, such as a resale or nonprofit exemption. - **Income tax provision** The amount of income tax expense a company records for the period, combining current taxes payable and the change in deferred taxes under ASC 740. - **Deferred tax** Tax that arises from timing differences between book and tax accounting, recorded as deferred tax assets or liabilities under ASC 740. - **Effective tax rate** Income tax expense divided by pretax income, which shows the average tax rate a company pays and often differs from the statutory rate. - **Tax consolidation** Combining the taxable results of related companies into one tax return, such as the US consolidated return for a parent and its subsidiaries. - **Payroll variance** The difference between actual payroll costs and what was expected or budgeted, or between periods, from changes in headcount, rates, hours or taxes. - **Stock-based compensation** Compensation paid in stock or options instead of cash, recorded as an expense over the vesting period at the grant-date fair value under ASC 718. - **Sales tax** A tax that US states and localities charge on retail sales of goods and some services, collected by the seller and remitted to the state. - **Use tax** A tax a buyer owes directly to the state on taxable purchases when the seller did not charge sales tax, commonly on out-of-state purchases. - **Sales tax nexus** A connection to a state, such as physical presence or sales above a threshold, that requires a seller to collect and remit its sales tax. - **Payroll taxes** Taxes tied to employee wages, including employer Social Security and Medicare, unemployment taxes and the amounts withheld from employees. - **Gross-to-net payroll** The calculation that starts with an employee's gross pay and subtracts taxes, benefits and other deductions to arrive at net pay. - **Employee benefits accrual** The accrual of benefit costs earned by employees but not yet paid, such as vacation, health and retirement contributions, recorded as expense and liability. ### Finance systems, ERP and data 23 terms Systems terms help you read any ERP or reporting tool, because tools label the same idea differently: a NetSuite vendor bill is an AP invoice, a subsidiary is a legal entity, and a class or department is a reporting dimension. Subledger is listed once, under Accounting foundations. - [**Accounting automation** Full guide — Using software to perform routine accounting tasks such as data entry, matching, coding and reporting with less manual effort.](https://emptyspaces.ai/resources/blog/month-end-close-automation) - **ERP (enterprise resource planning)** Business software that connects core functions such as finance, procurement, inventory and HR in one system, with the general ledger at its center. - **Robotic process automation (RPA)** Software bots that mimic repetitive user actions, such as copying data between systems and clicking through screens, following fixed rules. - **Optical character recognition (OCR)** Technology that reads printed or scanned text, such as invoices and receipts, and converts it into machine-readable data. - **ERP integration** Connecting an ERP to other systems, such as banks, billing and expense tools, so data flows between them without manual re-entry. - **Financial operations (FinOps)** A cross-functional practice for managing the cost and value of cloud and technology spending, bringing engineering, finance and business teams together on spending decisions. - **Business intelligence** Tools and processes that collect, analyze and present business data in dashboards and reports to support decisions. - **Financial analytics** Using data and models to analyze financial performance, such as trends, drivers and variances, and to support planning and decisions. - **Report automation** Producing recurring financial reports automatically from source data, so that they refresh on a schedule with little manual work. - **Workflow automation** Using software to route tasks, approvals and data through defined steps automatically, such as invoice approval or close checklists. - **Digital transformation in finance** Changing how finance works by using modern systems, data and automation, to close faster, cut manual work and give better insight. - **ERP write-back** Posting approved entries or updates from another tool back into the ERP general ledger, so the system of record stays current. - **Accounting software** Software that records transactions, produces financial statements and manages tasks such as invoicing, payables and reconciliation. - **Data governance** The policies, roles and standards that keep company data accurate, consistent, secure and used appropriately. - **Source of truth** The one system or dataset that everyone agrees is the authoritative, correct version of a given piece of information. - **Data normalization** Converting data from different sources into one consistent format, such as matching vendor names, dates and account codes, so it can be compared. - **Chart of accounts mapping** Linking each account in one chart of accounts, such as a subsidiary's or acquired company's, to the matching account in another, for consolidation and reporting. - **Intelligent document processing (IDP)** Technology that reads documents such as invoices and contracts, pulls out key fields and checks them, going beyond simple text recognition. - **EDI** A standard way for companies to exchange business documents, such as purchase orders and invoices, between systems in a structured format. - **Low-code / no-code automation** Tools that let finance staff build workflows and automations with visual interfaces or little programming, without waiting on engineering. - **Legacy ERP** An older enterprise system, often on-premises and heavily customized, that is hard to update or connect to modern tools. - **Master data management** The process of keeping a single, accurate record of core business data, such as vendors, customers and accounts, across systems. - **Dimensions and segments** Attributes such as department, location, project or entity used to tag ledger entries, so results can be sliced beyond the account number. ### AI in finance 30 terms These terms cover AI in finance, from models and agents to the controls that keep a person accountable for what posts. - **Agentic AI** AI software that plans and carries out multi-step tasks on its own, such as matching bank transactions and drafting journal entries, within set limits. - **Autonomous accounting** A close and bookkeeping process where software performs most routine work, such as coding, matching and posting, and people handle only exceptions. - **Large language model (LLM)** An AI model trained on large amounts of text that can read and write language, used in finance to summarize, classify and draft. - **Generative AI** AI that creates new text, numbers or images from a prompt, used in finance to draft memos, variance commentary and journal entry descriptions. - **Machine learning** Software that learns patterns from data instead of following fixed rules, used in finance for matching transactions, coding invoices and forecasting. - **Natural language processing (NLP)** Technology that lets software read and interpret human language, used in finance to pull terms from contracts and classify invoice text or emails. - **Predictive analytics** Using historical data and statistical or machine learning models to forecast future outcomes, such as cash receipts, late payments or demand. - **AI copilot vs AI agent** A copilot suggests or drafts while a person does the work; an agent takes multi-step actions itself, such as preparing entries, within set limits. - **AI in finance** Using AI across finance work such as the close, reconciliations, AP and AR, forecasting and reporting, to cut manual effort and speed up insight. - [**AI agent** Full guide — Software that pursues a goal by using tools and taking steps itself, such as pulling bank data, matching transactions and proposing journal entries for review.](https://emptyspaces.ai/resources/blog/best-ai-agents-for-finance-teams) - **AI accounting software** Accounting software that uses AI to code transactions, match records and draft entries, leaving people to review the exceptions. - [**Autonomous close** Full guide — A month-end close where software runs most routine tasks, such as accruals, reconciliations and matching, while people review exceptions and sign off.](https://emptyspaces.ai/resources/blog/ai-month-end-close) - **Agent orchestration** Coordinating several AI agents and tools so each handles a step, such as matching, accruing or reviewing, and results flow in the right order. - **Human in the loop** A person reviews and approves what an AI system prepares, such as a journal entry, before it takes effect. - **AI guardrails** Rules and checks that limit what an AI system may do, such as spending limits, approved accounts and required approvals for journal entries. - **AI governance** The policies, roles and oversight that decide how AI is built, approved, monitored and used, so its output in finance is controlled and accountable. - **AI audit trail and explainability** A record of what an AI system did, what data it used and why, so a reviewer or auditor can trace an AI-prepared entry. - **AI confidence score** A number showing how sure an AI is about an output, such as invoice coding, often used to route low-confidence items to a person. - **LLM hallucination** When an AI language model states something that sounds right but is false, such as an invented invoice number or a wrong account. - **Retrieval-augmented generation (RAG)** A technique where an AI model first looks up relevant documents, such as policies or contracts, and uses them to ground its answer. - **Model Context Protocol (MCP)** An open standard that lets AI models connect to outside tools and data sources, such as an ERP or bank feed, in a consistent way. - **Prompt injection** An attack where hidden instructions in text an AI reads, such as an invoice or email, try to override its rules or leak data. - **AI ROI in finance** The measurable return from AI in finance, such as hours saved on the close, fewer errors or faster collections, compared with its cost. - **EU AI Act** European Union law that regulates AI systems by risk level, relevant to US finance teams selling in, or using AI vendors serving, the EU. - **Fine-tuning** Training an existing AI model further on your own examples, such as past invoice coding, so it performs better on a specific task. - **Embeddings and vector databases** Ways of storing text as numbers so AI can find similar meaning, such as matching contract clauses or past invoices, rather than exact words. - **Model drift** A decline in an AI model's accuracy over time because real-world data, such as vendors, formats or patterns, changes from what it was trained on. - **Structured vs unstructured data** Structured data fits neat rows and columns, like ledger entries; unstructured data, like PDFs, emails and contracts, has no fixed format. - **Anomaly detection** Using rules or models to flag unusual transactions, such as duplicate payments, odd amounts or unusual timing, for human review. - **Bring your own model (BYOM)** Using an AI model of your own choosing, rather than the vendor's default, inside a finance product, often for data control or cost reasons. ### Finance roles and organization 12 terms These terms name the roles in a finance team and how the work is organized. - **Shared services center** A centralized team that handles common finance tasks, such as payables, receivables and reconciliations, for multiple business units. - **Finance transformation** A broad effort to redesign finance's processes, systems and organization to improve speed, accuracy and the value it gives to the business. - **CFO (chief financial officer)** The company's top finance executive, responsible for financial strategy, reporting, planning, capital and risk, who usually reports to the CEO. - **Controller** The senior accounting leader who runs the books, close, financial reporting and internal controls, and usually reports to the CFO. - **AR specialist (collections analyst)** A finance team member who follows up on overdue customer invoices, applies cash and resolves disputes to speed collections. - **Fractional CFO** A part-time or outsourced finance leader who provides CFO-level guidance, such as cash planning and investor reporting, to a smaller company. - **Chief accounting officer (CAO)** An executive, often at larger public companies, who leads accounting policy, technical accounting and external financial reporting, usually reporting to the CFO. - **Staff accountant** An entry-level accountant who records transactions, prepares reconciliations and supports the close under a senior accountant or controller. - **Senior accountant** A mid-level accountant who prepares complex entries and reconciliations, reviews staff work and supports the close and audit. - **AP specialist** A finance team member who handles vendor invoices, matches them to purchase orders and receipts, and prepares payments. - **FP&A analyst** A finance professional who builds budgets and forecasts, analyzes variances and supports business decisions with financial analysis. - **Office of the CFO** The CFO's team and functions, such as accounting, FP&A, tax, treasury and investor relations, that run a company's finance. ### Comparisons (X vs Y) 33 terms These pairs are the terms people confuse most, each with the one-line difference. - **Accrual vs cash accounting** Accrual accounting records revenue and expenses when earned or incurred, while cash accounting records them only when cash is received or paid. - **Trial balance vs balance sheet** A trial balance lists every ledger account's debit and credit balance to test they match, while a balance sheet reports assets, liabilities, and equity. - **Accrued expenses vs accounts payable** Accrued expenses are estimated costs incurred without an invoice yet, while accounts payable are invoiced amounts owed to suppliers. - [**General ledger vs subledger** Full guide — The general ledger holds summary balances for every account, while a subledger holds the transaction detail behind accounts such as AP or AR.](https://emptyspaces.ai/resources/blog/ap-ar-reconciliation) - **Deferred revenue vs unearned revenue** The two terms mean the same thing under US GAAP: an amount received or billed for goods or services not yet delivered, recorded as a liability. - **Cash flow vs profit** Profit is revenue minus expenses on an accrual basis, while cash flow tracks the actual movement of cash in and out. - **Deferred revenue vs accrued revenue** Deferred revenue is billed or received before it is earned (a liability), while accrued revenue is earned before it is billed or collected (an asset). - **General ledger vs trial balance** The general ledger records every transaction by account, while a trial balance is a period-end list of account balances used to check debits equal credits. - **Adjusted vs unadjusted trial balance** An unadjusted trial balance lists balances before period-end adjusting entries, while an adjusted one includes them and feeds the financial statements. - **FP&A vs accounting** Accounting records and reports past financial results, while FP&A uses that data to forecast, budget, and guide future decisions. - **Prepaid expenses vs accrued expenses** A prepaid expense is cash paid for a future benefit and recorded as an asset, while an accrued expense is incurred but unpaid, a liability. - [**Flux analysis vs variance analysis** Full guide — Flux analysis explains changes in account balances between periods, while variance analysis compares actual results against a budget, forecast, or standard.](https://emptyspaces.ai/resources/blog/flux-analysis) - **DSO vs DPO** DSO measures average days to collect from customers, while DPO measures average days to pay suppliers, and both feed working capital. - **Budget vs forecast** A budget is a fixed plan of targets set in advance, while a forecast is an updated estimate of where results are expected to land. - **Forecast vs projection** A forecast is a best estimate of likely outcomes from current information, while a projection shows results under stated assumptions that may not occur. - **Controller vs CFO** The controller runs accounting, reporting, and internal controls, while the CFO owns overall financial strategy, capital, planning, and investor relations. - **Reconciliation vs review** A reconciliation compares and ties two sources of a balance, while a review is a second person's check of the work for reasonableness and accuracy. - **Two-way vs three-way match** Two-way matching compares the invoice to the purchase order, while three-way matching also checks it against the goods receipt. - **AP vs AR** Accounts payable is what a company owes suppliers (a liability), while accounts receivable is what customers owe the company (an asset). - **Invoice vs purchase order** A purchase order is the buyer's request to buy at agreed terms, while an invoice is the seller's bill for what was delivered. - **Invoice vs receipt** An invoice requests payment and is issued before it, while a receipt is proof that payment has been made. - **Credit memo vs refund** A credit memo reduces what a customer owes or leaves a credit balance on account, while a refund actually returns cash to the customer. - **EBITDA vs operating income** EBITDA adds depreciation and amortization back to earnings, while operating income is profit after those charges but before interest and taxes. - **Gross margin vs markup** Gross margin is profit as a percentage of selling price, while markup is profit as a percentage of cost, so margin is always lower. - **ARR vs MRR** ARR is annualized recurring subscription revenue, while MRR is the recurring revenue normalized to one month; ARR is usually MRR times 12, though each company defines both. - **Bookings vs revenue** Bookings are the value of signed contracts or orders, while revenue is the portion recognized as earned when obligations are fulfilled. - **Accrual vs provision** An accrual is a liability with reasonably certain amount and timing, while a provision is uncertain in timing or amount, such as a warranty. - **Reversing vs adjusting entries** Adjusting entries update accounts at period end for accruals and deferrals, while reversing entries, optionally booked next period, cancel certain adjustments to simplify later transactions. - **Month-end vs year-end close** Month-end close finalizes one month's books, while year-end close adds annual steps such as closing income statement accounts to retained earnings and audit prep. - **Close management vs ERP** An ERP records transactions and holds the ledger, while close management software organizes, assigns, and tracks the tasks needed to finish the period. - **Accrual vs deferral** An accrual records revenue or expense before cash moves, while a deferral postpones recognition of cash already received or paid until earned or used. - **Direct vs indirect cash flow method** The direct method reports cash receipts and payments by type, while the indirect method starts from net income and adjusts for noncash items. - **Revenue vs income** Revenue is total sales before expenses, while income, also called net income, is what remains after subtracting all expenses and taxes. In detail ## The terms by function and role. ## Accounts payable terms Accounts payable terms describe the invoice-to-payment cycle, from the purchase order and goods receipt through three-way match, approval, and the payment run to the AP accrual at month-end. The full list holds 83 AP and procure-to-pay terms; these are the groups to learn first. - **Documents** Purchase requisition, purchase order (PO), goods receipt, vendor invoice, credit memo, and debit memo - **Matching and exceptions** Two-way match, three-way match, four-way match, match tolerance, invoice exception, and duplicate invoice and duplicate payment - **Approvals and payments** Invoice approval workflow, payment terms, Net 30, early payment discount (2/10 net 30), payment run, payment hold, and positive pay - **Vendor controls and fraud** Vendor master data, vendor onboarding, vendor bank account validation, business email compromise (BEC), invoice fraud, and segregation of duties in AP - **Month-end and metrics** GRNI, invoice accruals, the search for unrecorded liabilities, the AP subledger, the AP aging report, DPO, and the AP turnover ratio GRNI (goods received not invoiced) trips up new AP teams: it’s a liability for goods you’ve received but haven’t been billed for yet, so it belongs with AP accruals, not with receivables. ## Accounts receivable terms Accounts receivable terms describe how you bill customers, extend credit, collect, and apply cash, from the invoice and credit limit through dunning and cash application to AR aging, the allowance for credit losses, and DSO. The full list holds 76 AR, billing, and collections terms. - **Billing** Invoicing, pro forma invoice, recurring billing, usage-based billing, proration, and advance billing - **Credit** Credit policy, credit application, credit limit, credit hold, credit scoring, and trade credit - **Collections** Dunning, collection letter, promise to pay, dispute management, collections strategy, and collection agency - **Cash application** Remittance advice, lockbox, BAI2 file, unapplied cash, short payment, overpayment, and deductions - **Month-end and metrics** AR aging report, aging buckets, allowance for doubtful accounts, bad debt expense, write-off, the AR subledger, DSO, and collection effectiveness index (CEI) Under US GAAP, ASC 326 (the current expected credit loss model, or CECL) calls the reserve the allowance for credit losses, though many teams still say allowance for doubtful accounts. Either way, the AR subledger should tie to the general ledger at month-end, and that tie-out is one of the first things an auditor asks to see. ## Month-end close and record-to-report terms Month-end close terms describe how your team records, adjusts, reconciles, reviews, and locks a period so the financial statements are complete before anyone reports them. They span three areas in the full list: the close itself (30 terms), journal entries and accruals (39), and reconciliation (25). Record-to-report (R2R) is the wider process, from posting a transaction to publishing the statements, and the month-end close is the part of it that runs on a deadline each month. Group the close terms by the stage where your team meets them: | Close stage | What happens | Terms you’ll use | | ------------------ | ------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | | Pre-close | Set dates, owners, and the cutoff | Close calendar, close checklist, accounting period, accounting cutoff, pre-close validation | | Entries | Record what the ledger is missing | Accruals, prepaid expenses, deferred revenue, reclassification entry, recurring journal entries, reversing entries, manual journal entry | | Reconciliations | Tie each balance to an outside record | Bank reconciliation, subledger reconciliation, intercompany reconciliation, reconciling items, suspense account, roll-forward schedule | | Review | Explain changes and approve the work | Flux analysis, close variance threshold, materiality, journal entry approval, preparer and reviewer, workpaper | | Reporting and lock | Produce the statements and lock the period | Adjusted trial balance, financial consolidation, intercompany eliminations, close package, period lock, post-closing trial balance | Soft close vs hard close is the pair most teams define loosely. A soft close produces internal numbers with fewer adjustments, while a hard close completes every step and locks the period to new postings. A locked period can still be reopened by an authorized user with approval and a documented reason. For the steps in order, see the [month-end close process](https://emptyspaces.ai/resources/blog/month-end-close-process) guide. ## FP&A terms FP&A terms cover how your finance team plans, forecasts, and explains results: budgets, rolling forecasts, driver-based plans, budget vs actual, variances, and the SaaS metrics leadership reads. The full list holds 87 FP&A terms, plus financial ratios (26) and subscription metrics (29). - **Budgeting** Annual operating plan (AOP), budget, zero-based budgeting, top-down vs bottom-up budgeting, flexible budget, static budget, capital budgeting, and headcount planning - **Forecasting** Forecasting, rolling forecast, driver-based planning, scenario planning, sensitivity analysis, reforecast, and long-range plan - **Variance analysis** Budget vs actual (BvA), budget variance, price and volume variance, price-volume-mix analysis, and bridge chart (EBITDA walk) - **SaaS metrics** ARR, MRR, net revenue retention (NRR), gross revenue retention (GRR), CAC payback period, LTV to CAC ratio, burn multiple, and Rule of 40 - **Managerial accounting** Cost center, profit center, fixed vs variable costs, contribution margin, break-even analysis, standard costing, and absorption costing FP&A works from actuals, and actuals come from the close. A missed accrual at month-end shows up as a false variance in the budget vs actual review. That’s why a finance manager needs the close terms as much as the planning ones. ## AI in finance terms AI in finance terms describe what software can now do in the close, AP, AR, and FP&A, and who stays accountable for the result. The full list holds 30 terms, from agentic AI and large language models to guardrails, audit trails, and model drift. The terms that matter most to a CFO are the ones that decide control: what an agent may prepare, what needs a named approver before it posts, how every action is logged, and how a wrong answer gets caught. Ask these questions before an AI tool touches your ledger: | Term | Where it shows up in finance | Control question a CFO should ask | | ------------------------------------ | ------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | | AI agent | An agent reconciles a bank account, drafts the entry for a missing fee, and routes it for review | What can it do on its own, and what needs a named approver before it posts? | | Human in the loop | A reviewer approves each proposed journal entry before it reaches the ERP | Which outputs need a person’s sign-off, and is that person separate from whoever set up the agent? | | AI guardrails | Rules stop an agent from posting above a threshold or into a locked period | What is the agent blocked from doing, and who can change those limits? | | AI audit trail and explainability | A log shows what the agent read, what it proposed, and why | Can an auditor trace every entry back to its source data and reasoning? | | LLM hallucination | A model states a balance or a policy that isn’t in your data | How is every number tied to a source record before anyone relies on it? | | Retrieval-augmented generation (RAG) | The model answers from your ledger, contracts, and policies instead of from memory | Which sources does it read, and how current are they? | | AI confidence score | A low-confidence match goes to a person instead of clearing on its own | What score sends work to review, and who set it? | | Prompt injection | Text hidden in a vendor invoice tries to tell the agent to change bank details | Can content inside a document ever change payment details or approvals? | Continuous close and zero-day close sit with the close terms, because they describe how the close runs, not the software behind it. ## Which accounting terms should a new controller know? A new controller needs the language of the close and of control first: cutoff, accruals, reconciliations, flux analysis, materiality, journal entry controls, segregation of duties, and SOX. Then come the standards and the metrics leadership asks about. - **Close and control** Accounting cutoff, accruals, balance sheet reconciliation, flux analysis, materiality, close variance threshold, manual journal entry, journal entry approval, segregation of duties (SoD), SOX compliance, key controls, close package, and days to close - **Standards** GAAP (US), ASC 606 for revenue, ASC 842 for leases, ASC 740 for income taxes, and ASC 810 for consolidation, with intercompany eliminations - **Numbers leadership asks for** DSO, DPO, working capital, budget vs actual, EBITDA, free cash flow, and cash flow forecast Auditors listen for precise control language, so these are the terms your team should use exactly: - **AP** Three-way match, GRNI, accounting cutoff for AP, debit and credit memos, and the search for unrecorded liabilities - **AR** Allowance for credit losses, cash application, and the AR subledger-to-general ledger roll-forward - **Close** Adjusted trial balance, manual journal entry controls, balance sheet reconciliation, flux analysis against a materiality threshold, audit adjustments, the PBC (prepared by client) list, and material weakness The core terms are the same in every industry, and the extras change with the business. Each industry close guide lists the extra terms and the entries behind them: | Industry | Extra terms a controller meets | Guide | | -------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | | SaaS | ARR, deferred revenue, ASC 606, costs to obtain a contract (ASC 340-40) | [SaaS month-end close](https://emptyspaces.ai/resources/blog/saas-month-end-close) | | Healthcare | Payer contractual allowances, patient AR, cost report settlements | [Healthcare month-end close](https://emptyspaces.ai/resources/blog/healthcare-month-end-close) | | Retail and ecommerce | Inventory write-downs, returns reserve, payment processor clearing | [Retail and ecommerce month-end close](https://emptyspaces.ai/resources/blog/retail-ecommerce-month-end-close) | | Logistics and distribution | Freight accruals, landed cost, inventory in transit | [Logistics and distribution month-end close](https://emptyspaces.ai/resources/blog/logistics-distribution-month-end-close) | | Energy, oil, and gas | Joint interest billing, revenue distribution, depletion | [Energy, oil, and gas month-end close](https://emptyspaces.ai/resources/blog/energy-oil-gas-month-end-close) | ## Accounting terms for new staff accountants and AP and AR clerks A new staff accountant needs about 30 terms on day one, and an AP or AR clerk needs about 25. Start with the list for your role below; each one prints on its own. - **Staff accountant (30 terms)** Journal entry, debits and credits, general ledger, subledger, chart of accounts, trial balance, adjusted trial balance, accrual accounting, accruals, prepaid expenses, deferred revenue, accrued expenses, accounting cutoff, reversing entries, reclassification entry, account reconciliation, bank reconciliation, reconciling items, suspense account, roll-forward schedule, AP aging report, accounts receivable aging report, flux analysis, materiality, supporting schedule, workpaper, preparer and reviewer, close checklist, period lock, and audit trail. - **AP clerk (25 terms)** Purchase requisition, purchase order (PO), goods receipt, vendor invoice, credit memo, debit memo, two-way match, three-way match, match tolerance, invoice exception, duplicate invoice and duplicate payment, invoice coding (GL coding), invoice approval workflow, payment terms, Net 30, early payment discount (2/10 net 30), payment run, payment hold, positive pay, vendor master data, vendor bank account validation, Form W-9, Form 1099, AP aging report, and GRNI. - **AR clerk (25 terms)** Invoice, billing, customer statement of account, credit limit, credit hold, payment terms, remittance advice, cash application, lockbox, BAI2 file, unapplied cash, short payment, overpayment, deductions, dispute management, dunning, promise to pay, past due (overdue) invoice, aging buckets, accounts receivable aging report, write-off, allowance for doubtful accounts, credit memo vs debit memo, refund, and days sales outstanding (DSO). Use the print view to turn any of these lists into a cheat sheet for a new hire, a training manual, or an audit memo. Each printed term keeps its definition and its page address, so the sheet still points to the worked examples. To see where each term shows up in the actual work, pair the staff accountant list with the [month-end close checklist template](https://emptyspaces.ai/resources/tools/month-end-close-checklist). If you keep the books for a small business, print the Accounting foundations list instead. It covers the basics, from assets and liabilities to the trial balance and bank reconciliation, and the [small business month-end close](https://emptyspaces.ai/resources/blog/month-end-close-small-business) guide maps them to the tasks you do each month. ## Terms your finance team should define the same way Your finance team should agree one written definition for the terms behind board numbers and close decisions: revenue, ARR, bookings, billings, deferred revenue, gross margin, NRR, CAC payback, days to close, and materiality. These terms break down in practice because sales, FP&A, and accounting each count a different event. Write each definition down with its owner and the system field it comes from. On NetSuite, that means naming the saved search or field behind each number. For the NetSuite close itself, see the [NetSuite month-end close](https://emptyspaces.ai/resources/blog/netsuite-month-end-close) guide. Example A customer signs a one-year, $120,000 subscription on January 1, billed upfront on Net 30 terms. The single contract creates four different events. | Event | Date | Amount | Journal entry | What it changes | | ----------------- | ---------------------------------------- | --------------- | ------------------------------------------------------ | ------------------------------------------------------- | | Booking | January 1, contract signed | $120,000 | None | Bookings and ARR rise by $120,000 | | Invoice (billing) | January 1 | $120,000 | Debit AR $120,000; credit deferred revenue $120,000 | Billings rise by $120,000; revenue is still $0 | | Cash | January 31, paid on Net 30 | $120,000 | Debit cash $120,000; credit AR $120,000 | Cash rises by $120,000; revenue is still $0 | | Revenue | Each month-end, January through December | $10,000 a month | Debit deferred revenue $10,000; credit revenue $10,000 | Revenue rises $10,000 a month as deferred revenue falls | At March 31, the company has booked, billed, and collected $120,000, but it has recognized only $30,000 of revenue, with $90,000 left in deferred revenue. If sales reports bookings, FP&A reports ARR, and accounting reports revenue without shared definitions, three people give the board three different numbers for one contract. ## Terms people confuse The terms people confuse most are pairs that sound alike but differ in timing, in which ledger or report they sit in, or in what a metric counts. The full list holds 33 of these pairs, each with a one-line difference. | Kind of confusion | Pairs in the list | Quick test | | --------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | | Timing | Accrual vs deferral, deferred revenue vs accrued revenue, prepaid expenses vs accrued expenses, reversing vs adjusting entries, accrual vs cash accounting | Has the cash moved, and has the revenue or expense been earned or incurred? | | Ledger and report | General ledger vs subledger, general ledger vs trial balance, trial balance vs balance sheet, adjusted vs unadjusted trial balance | Is it a record of transactions, a list of balances, or a statement? | | Documents and process | Invoice vs purchase order, invoice vs receipt, two-way vs three-way match, credit memo vs refund, reconciliation vs review | Which document comes first, and does money move? | | Metrics | ARR vs MRR, bookings vs revenue, EBITDA vs operating income, gross margin vs markup, DSO vs DPO, cash flow vs profit, revenue vs income | What exactly does the number count, and over what period? | | Roles and systems | Controller vs CFO, FP&A vs accounting, close management vs ERP | Who owns the work, and where does it live? | Some pairs mean the same thing. Deferred revenue and unearned revenue name one liability, so pick one term and use it everywhere in your reporting. ## How we approach it We built Empty Spaces as an AI finance platform, and our Close Agent works the close checklist this glossary describes: it reconciles accounts, investigates exceptions, and prepares entries and workpapers. Nothing posts to your ERP until a named approver signs off, and every entry keeps who prepared it, who approved it, and why. [See how our Close Agent works](https://emptyspaces.ai/product/close). ## See our agents work through a finance process that matters to your team. Tell us where the work gets stuck. We’ll walk through how the agents could help. [Book a working session](https://emptyspaces.ai/contact-us)