Evan-university
Accounting Vocabulary: Smartest in the Room
Goal: speak accounting well enough that controllers and auditors take your data questions seriously. Each term has a memory hook and a data lens (how it behaves in SQL / Power BI).
No matching terms or notes. Try another search.
01
The Core Logic
Everything else is built on this.
| Term | Memory hook | Data lens |
|---|---|---|
| Accounting Equation | Assets = Liabilities + Equity. A seesaw that must always balance: what you own equals what you owe plus what the owners left in. | Sanity check for any balance sheet model |
| Double-entry Bookkeeping | Every event is written twice, from two sides. Like a bank transfer: one account loses, another gains. | SUM(debit) = SUM(credit) per journal |
| Debit / Credit | Not good or bad. Debit = left side, Credit = right side. Assets and Expenses increase with debits; Liabilities, Equity and Revenue increase with credits. | Sign convention is the number one source of wrong totals |
| Journal Entry (JE) | One sentence in the language of accounting: date, accounts, amounts, description. | Header table plus lines table, joined by JE id |
| General Ledger (GL) | The master notebook of all journal lines. | The main fact table of finance |
| Sub-ledger | A detailed side notebook (AP, AR, fixed assets) that must add up to one GL account. | Reconcile sub-ledger total to GL control account |
| Control Account | The GL account that is the summary of a sub-ledger. If they differ, something was posted around the system. | Difference = your investigation list |
| Trial Balance (TB) | The report card of all accounts at a date. Debits must equal credits. First thing a controller opens. | SUM(amount) GROUP BY account at period end |
| Chart of Accounts (CoA) | The labelled filing cabinet. Account number ranges tell you the type (assets, liabilities, revenue, expense). | Dimension you JOIN to the GL |
| Contra Account | An account that works against another (e.g. accumulated depreciation against the asset, allowance for doubtful debts against receivables). | Often negative; do not filter it out by accident |
02
Timing, the Heart of Accrual Accounting
Most accounting arguments are really arguments about WHEN.
| Term | Memory hook | Data lens |
|---|---|---|
| Accrual Basis | Book it when it happens, not when cash moves. You ate the meal in March; it is a March cost even if you pay in April. | Use service/performance date, not payment date |
| Cash Basis | Book it when cash physically moves. | Payment date as the time axis |
| Matching Principle | Costs go in the same period as the revenue they helped create. Sell in May, so the ingredients are a May cost. | Align cost and revenue on the same period key |
| Revenue Recognition (IFRS 15 / ASC 606) | When may you call it revenue? When you have delivered what you promised, not when you invoiced or got paid. | Recognition date differs from invoice date |
| Accrued Expense | A cost incurred but not yet invoiced. A ghost cost you must still book. Work done, bill not arrived. | Delivered minus invoiced |
| Accrued Revenue | You earned but have not yet billed. Work done, you did not send the bill yet. | Delivered minus invoiced (customer side) |
| Prepaid Expense | You paid before using. A year of software paid in January is an asset that shrinks 1/12 each month. | Paid amount spread over service months |
| Deferred Revenue | The customer paid before you delivered. It is a liability: you owe them the service. Turns into revenue as you deliver. | Annual subscription: 1/12 recognized per month |
| Accrual Reversal | An accrual booked at month end is erased on day 1 of next month, so when the real invoice arrives it does not count twice. | Watch for paired +/- entries; they are not errors |
| Cut-off | The border line between periods. Cut-off errors = a cost or sale booked in the wrong month. Auditors love testing it. | Check transactions near period boundaries |
| Period Close / Month-end Close | Locking the month so past numbers stop moving. After close, corrections go into the next period. | Snapshot data after close; compare to live data to find late postings |
| Posting Date vs Document Date | Document date = date on the paper. Posting date = date it hit the books. Two different clocks. | Two date columns; choose deliberately |
03
Assets, Depreciation and Judgement Calls
| Term | Memory hook | Data lens |
|---|---|---|
| Capitalization vs Expensing | Capitalize = put on the balance sheet and spread over years. Expense = hit the P&L today. One of the most manipulated lines in accounting, so people watch it. | Flag per cost line; changes EBITDA |
| Fixed Asset | Long-life thing you use for years (equipment, buildings, vehicles). | Asset register: cost, start date, life |
| Depreciation | Eating a big cake one slice per month (physical assets). | (cost - residual) / useful_life per period |
| Amortization | Same slices, but for intangibles (software, licences, patents). | Same formula, different account |
| Accumulated Depreciation | The total slices eaten so far. A contra account to the asset. | Cumulative SUM over time |
| Net Book Value (NBV) | What the asset is still worth on the books: cost minus accumulated depreciation. | cost - accumulated_depreciation |
| Impairment | The asset is worth less than the books say, so you write it down. A sudden haircut. | One-off large loss; flag as non-recurring |
| Provision | Money set aside for a likely future cost you cannot yet measure exactly (legal case, warranty). | Estimate-based entry; track movement over time |
| Write-off vs Allowance (bad debt) | Allowance = "this might not be paid", a soft estimate. Write-off = "it will not be paid", final. | Separate flags in AR aging |
| Credit Note | A negative invoice that cancels or reduces a previous one. Not a refund by itself. | Negative amounts; link back to original invoice id |
04
Working Capital and Cash Cycle
| Term | Memory hook | Data lens |
|---|---|---|
| Accounts Receivable (AR) | They owe me. | Open customer invoices |
| Accounts Payable (AP) | I owe them. | Open supplier invoices |
| Working Capital | Short-term assets minus short-term liabilities. The oxygen of daily operations. | Current assets - current liabilities |
| DSO (Days Sales Outstanding) | How many days customers take to pay you. Lower is better. | AR / revenue * days |
| DPO (Days Payable Outstanding) | How many days you take to pay suppliers. Higher keeps cash longer, but too high hurts relationships. | AP / COGS * days |
| DIO (Days Inventory Outstanding) | How many days stock sits on the shelf. | inventory / COGS * days |
| Cash Conversion Cycle | The length of the money loop: from paying suppliers to collecting from customers. DIO + DSO - DPO. | Three measures combined |
| Current vs Non-current | Due or usable within 12 months vs later. | Classification attribute on accounts |
| Aging Report | Unpaid bills grouped by how old they are (0-30, 31-60, 61-90, 90+). | CASE WHEN DATEDIFF(...) buckets |
05
Reconciliation, Controls and Audit
Where analysts earn respect.
| Term | Memory hook | Data lens |
|---|---|---|
| Reconciliation | Two notebooks, one truth. Compare your record to someone else's and explain every difference. | FULL OUTER JOIN, then inspect NULLs on either side |
| Reconciling Item | A known, explained reason two records differ (timing, error, missing entry). | Category column for each difference |
| Suspense Account | A parking lot for money nobody could classify yet. It should be empty at close. | Any balance here is a to-do list |
| Three-way Match | Purchase order, goods/service receipt and invoice must tell the same story before paying. | Join all three and flag mismatches |
| Internal Controls | The locks and alarms of finance: approvals, checks, limits. | Approval timestamps and approver ids |
| Segregation of Duties (SoD) | No one person can create, approve and pay. One key holder is a risk; three is a control. | Check same user id across create/approve/pay |
| Audit Trail | The footprints in the snow: who changed what and when. | Created/modified by, timestamps |
| Materiality | Is it big enough to change a decision? Below it, you stop chasing cents; above it, you must explain. | Threshold to prioritise variance review |
| Manual Journal | A hand-typed entry outside the normal system flow. Higher risk, so reviewers look at them first. | Filter source = manual; review round numbers and weekend postings |
| Going Concern | The assumption the company will still exist next year. If doubtful, everything changes. | Context for all valuation judgements |
06
Entities, Currencies and Cost Allocation
| Term | Memory hook | Data lens |
|---|---|---|
| Intercompany | Two entities of the same family trading together. | Both sides must mirror each other |
| Consolidation / Elimination | Adding up the family and removing internal trades, so you do not count money passed between pockets. | Exclude intercompany before totals |
| FX Revaluation | Foreign-currency balances are re-measured at today's rate. The gain/loss is on paper until settled. | Store original currency, amount and rate, never only the converted number |
| Cost Center vs Profit Center | Cost center = spends only (HR, IT). Profit center = earns and spends. | Dimension for reporting by team |
| Allocation | Splitting shared costs (rent, IT) across teams using a driver such as headcount. | Driver table joined to cost pool |
| Direct vs Indirect Cost | Direct = traceable to one thing. Indirect = shared overhead. | Cost type attribute |
| Standards: IFRS vs GAAP | Two rulebooks. IFRS is principles-based (Europe and many others), US GAAP is rules-based. Same story, different grammar. | Know which one the numbers follow |
| VAT / BTW | Tax collected for the state. It is generally not your revenue or cost. | Keep net, VAT and gross as separate columns |
07
Ratios (turning statements into insight)
| Ratio | Memory hook | Formula |
|---|---|---|
| Gross Margin % | How many cents of each euro survive the direct costs. | Gross Profit / Revenue |
| EBITDA Margin | Operating engine efficiency. | EBITDA / Revenue |
| Current Ratio | Can I pay this year's bills with this year's assets? | Current Assets / Current Liabilities |
| Quick Ratio | Same, but without stock (it is hard to sell fast). | (Current Assets - Inventory) / Current Liabilities |
| Debt-to-Equity | How much is borrowed vs owner-funded. | Total Debt / Equity |
| ROE (Return on Equity) | What owners earn on their money inside the company. | Net Income / Equity |
08
Questions That Make You the Smartest Person in the Room
- “Is this on accrual or cash basis?” (exposes timing differences immediately)
- “What is the posting date and what is the document date?” (explains most month-end surprises)
- “Does the sub-ledger reconcile to the control account?” (shows you think in controls)
- “Is this a timing difference or a permanent one?” (separates noise from real issues)
- “Is it above materiality?” (focuses the room on what matters)
- “Was this a manual journal?” (where errors and fraud hide)
- “Were there accruals or reversals in this period?” (explains double counts and odd negatives)
- “What is the grain of this table: one row per what?” (the analyst's own superpower)
- “Which currency and which rate: transaction, month-end or average?”
- “Is this capitalized or expensed?” (changes EBITDA overnight)
09
Analyst Traps
- Summing signed amounts without knowing the sign convention. Credits can be stored as negatives or positives.
- Counting an accrual and its reversal as two costs. They are a pair that cancels.
- Comparing a P&L period to a Balance Sheet date. One is a video, the other a photo.
- Using payment date for an accrual-based report.
- Joining invoices to PO lines without checking grain, which duplicates amounts.
- Dropping contra accounts or credit notes because they are negative.
- Reporting converted FX numbers without the original currency.