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Financial accounting in the retail world involves a host of terms, confusing acronyms, and definitions that are similar to and different from their universal meanings.
This article breaks down some of the most common accounting terms in the retail space, including their acronyms (when relevant), the term itself, and their definitions/formulas.
This list is organized alphabetically by term. Use this list as a reference or guide for day-to-day work or as a training tool.
| Acronym | Term | Definition/Equation |
|---|
| AMT | Amortization | In accounting, amortization is a way of calculating the gradations of the cost of an intangible asset over its useful life.  <br>M = Monthly payment <br>P = Principal loan amount (initial loan balance) <br>r = Monthly interest rate (annual interest rate divided by 12 months) <br>n = Total number of payments (loan term in years multiplied by 12 months) |
| ACH | Automated Clearing House | This is a network for electronic exchange of funds used in the U.S. for direct deposits and payments and electronic fund transfers. |
| ACP | Average Collection Period | The average collection period measures the length of time it takes a company to collect payments from customers’ credit sales.  <br>Accounts Receivable: The total amount of money owed to the company by its customers for credit sales. <br>Net Credit Sales: The total value of sales made on credit, excluding any returns or allowances. <br>Number of Days: Typically 365 days in a year, but it can be adjusted for a shorter period (e.g., 30 days for a month). |
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| BS | Balance Sheet | A financial statement that reports a company's assets, liabilities, and shareholders' equity. |
| BEP | Break-Even Point | The break-even point is the point when the expenditures and revenue for any given business process balance out. 
<br>Fixed Costs: Costs that do not change with the level of output (e.g., rent, salaries). <br>Selling Price per Unit: The price at which each unit is sold. <br>Variable Cost per Unit: Costs that vary directly with the level of output (e.g., materials, labor). |
| CapEx | Capital Expenditures | Capital expenditures are investments made by a company in its own assets or structures. They are used to increase long-term profits. |
| COGS | Cost of Goods Sold | The costs attributable to the production of goods sold by a company. |
| | Current Ratio | The current ratio compares a company’s current assets and liabilities to determine its ability to meet short-term obligations. 
<br>Current Assets: Assets that are expected to be converted into cash or used up within one year (e.g., cash, accounts receivable, inventory). <br>Current Liabilities: Obligations that are due to be settled within one year (e.g., accounts payable, short-term debt). |
| | Debt Ratio | This formula calculates a business’s debt-to-asset ratio. |
| DSO | Days Sales Outstanding | Days sales outstanding measures the time it takes for a company to receive payment for something purchased on credit. 
<br>Accounts Receivable: The total amount of money owed to the company by its customers for credit sales. <br>Net Credit Sales: The total sales made on credit during the period, excluding cash sales. <br>Number of Days: The number of days in the period (typically 365 days for a year or 90 days for a quarter). |
| DTC | Debt to Capital Ratio | The debt-to-capital ratio measures debt used in a company’s capital structure. 
<br>Total Debt: Includes both short-term and long-term debt (e.g., loans, bonds). <br>Total Equity: The shareholder's equity, which includes common stock, retained earnings, and other equity items. |
| D/E | Debt to Equity Ratio | The debt-to-equity ratio measures a company’s financial leverage based on its debt relative to shareholder equity. 
<br>Total Debt: The sum of short-term and long-term debt (e.g., loans, bonds). <br>Total Equity: The shareholder's equity, which includes common stock, retained earnings, and other equity components. |
| DTI | Debt to Income Ratio | The debt-to-income ratio measures a company’s ability to pay off debt by comparing debt payments to gross income. 
<br>Total Debt Payments: The sum of all debt-related payments, including interest and principal repayments (e.g., loan payments, interest expenses). <br>Gross Income: The total income or revenue before taxes and other deductions. |
| DDO | Deferred Drawdown Option | A loan arrangement that allows the borrower of funds to delay drawing down funds within pre-arranged conditions. |
| EBITDA | Earnings Before Interest, Taxes, Depreciation, and Amortization | EBITDA represents the cash profit generated by a company's operations and indicates how well the company manages its day-to-day operations. 
<br>Net Income: The company's total profit after all expenses, including interest and taxes.<br>Interest: The total interest expense incurred by the company.<br>Taxes: The total income taxes paid by the company.<br>Depreciation: The allocation of the cost of tangible fixed assets over their useful lives.<br>Amortization: The allocation of the cost of intangible assets over their useful lives. |
| EIPP | Electronic Invoice Presentment and Payment | Refers to the processing of payments electronically, streamlining invoicing and receiving payments. |
| FICO | Fair Isaac Corporation | A group known for developing the FICO credit scoring model, widely used in finance and accounting. |
| FCF | Free Cash Flow | Measures the amount of money left over after operating expenses and capital expenditures are deducted. 
<br>Operating Cash Flow: The cash generated from a company's core business operations, also known as cash flow from operating activities. <br>Capital Expenditures (CapEx): Funds used by a company to acquire, upgrade, or maintain physical assets such as property, industrial buildings, or equipment. |
| GL | General Ledger | A complete record of all financial transactions over the lifespan of a company. |
| GAAP | Generally Accepted Accounting Principles | A set of guidelines for financial accounting that aligns with U.S. federal regulations. |
| GPM | Gross Profit Margin | Measures the overhead profit of a company after all direct business costs have been removed. 
<br>Gross Profit: The difference between net sales and the cost of goods sold. <br>Net Sales: The total revenue from sales minus any returns, allowances, and discounts. |
| ITR | Inventory Turnover | Measures the rate at which inventory is sold and replaced. 
<br>Cost of Goods Sold (COGS): The total cost of producing the goods that were sold during the period. <br>Average Inventory: The average amount of inventory held during the period |
| NCS | Net Capital Spending or Net Capital Expenditures | Refers to the amount of capital spent by a company to acquire, maintain, or upgrade fixed assets after accounting for the sale of those assets. |
| NPM | Net Profit Margin | Shows a company’s revenue after all expenses, taxes, interest, and operating costs have been removed. 
<br>Net Profit: Also known as net income, it is the total profit of the company after all expenses have been subtracted from total revenue. <br>Net Sales: The total revenue from sales minus any returns, allowances, and discounts. |
| OPEX | Operational Expenses | Measures short-term business costs associated with day-to-day operations, often contrasted with CapEx. |
| P&L | Profit and Loss Statement | A financial statement summarizing all revenues, costs, and expenses. |
| | Quick Ratio (Acid-Test Ratio) | Measures the relationship between a company’s current assets and liabilities, focusing on liquidity and immediacy. 
<br>Quick Assets: The sum of the most liquid current assets, which typically include cash, cash equivalents, marketable securities, and accounts receivable. It excludes inventory and prepaid expenses. <br>Current Liabilities: The company's obligations that are due within one year, such as accounts payable, short-term debt, and other accrued liabilities. |
| | Reconciliation Statement | A financial document comparing two separate records to identify discrepancies; regularly used in fraud prevention, compliance, and general finance. |
| ROA | Return on Assets | Measures how profitable a company is relative to its total assets. |
| ROE | Return on Equity | Measures a company’s financial performance by comparing net income with shareholder equity. |
| ROI | Return on Investment | Measures profitability by comparing costs and revenue. 
<br>Net Profit or Gain from Investment: The total earnings or profit obtained from the investment, which can be calculated as the difference between the final value of the investment and the initial cost. <br>Cost of Investment: The total amount invested initially. |
| SEC | U.S. Securities and Exchange Commission | An independent federal agency designed to prevent market manipulation. |
| | SEC Filing | A required filing for public companies, mutual funds, and other market entities to suppress market manipulation. |
| SG&A | Selling, General, and Administrative Expenses | Indirect costs tied to making a product or running a service. |
| SOX | The Sarbanes-Oxley Act (2002) | A set of U.S. federal regulations designed to regulate fraud in the private sector through more formalized corporate disclosures. |
