In my experience as an accountant I have come to realize that most people have a decent understanding of numbers. They know that 2+2=4 and that 5-2=3. Accounting, in its most basic form, is a large quantity of basic addition and subtraction problems that everyone has mastered by the time they leave grade school. But if that is the case, why does everyone look at me like I am speaking in a foreign language when I ask them an accounting related question? The problem isn’t the numbers or math it’s the understanding of Assets, Liabilities, Owner’s Equity, Profits, Losses, and the ever important GAAP. Which is complicated even more when accountants start using acronyms. To help clear up some of the confusion here are a few commonly used accounting acronyms at Taylor Studios.

GAAP – Generally Accepted Accounting Principles (These principles guide what can be considered revenue and what can be considered an expense.)

COGS – Cost of Goods Sold (This term is commonly used when talking about the Income Statement and explains how much it costs to make a widget or provide a service)

GP – Gross Profit (Gross Profit is what you get after taking your revenues minus your COGS and shows how much money you could have made before you paid all of your overhead costs like the accountant’s salary)

OPEX- Operating Expenses (These expenses are overhead type expenses that could include utility bills, rent, insurance, telephone bills, office party costs, etc.)

WIP – Work in Process (This is the cost of goods which have yet to be completed)

EAC – Estimate at Complete (Estimated total cost to complete a job or widget)

ETC – Estimate to Complete (How much more time or money is needed to complete the job)

NI – Net Income (How much money is left after all the bills are paid)

SoX-Sarbanes-Oxley Act (A congressional act which was passed to increase independence between auditors and the companies they audit.  It also increased penalties for fraudulent financial activities.)

So next time you see your accountant tell them that you have an idea within GAAP to better estimate WIP which will decrease the COGS and OPEX while increasing GP and NI. Wait a few seconds for a smile, laugh, high five, or hug depending on how excitable your accountant is. What are some acronyms you use which garner blank stares from others?