Accounting terms. Defined.

Accounting

Accounts Receivable (AR)

a.k.a. AR, receivables, trade receivables

Accounts receivable are amounts owed to a business by its customers for goods delivered or services rendered but not yet paid for.

Accounting

Cash Flow

a.k.a. operating cash flow, free cash flow, net cash flow

Cash flow is the net movement of cash into and out of a business over a period, positive when inflows exceed outflows, negative when the reverse.

Accounting

COGS (Cost of Goods Sold)

a.k.a. cost of sales, direct costs

COGS is the direct cost of producing the goods or services a business sells, inventory, raw materials, direct labor.

Accounting

Debt Service

Debt service is the total principal and interest payments a business owes on its existing debt over a period, usually expressed annually.

Accounting

DSCR (Debt Service Coverage Ratio)

a.k.a. debt service coverage ratio

DSCR is net operating income divided by total debt service, it tells a lender whether your business generates enough cash to cover its loan payments.

Accounting

EBITDA

EBITDA is earnings before interest, taxes, depreciation, and amortization, a proxy for operating cash flow used in underwriting and business valuation.

Accounting

Gross Margin

Gross margin is revenue minus cost of goods sold, expressed as a percentage of revenue.

Accounting

K-1 (Schedule K-1)

a.k.a. Schedule K-1, partner K-1, K1

A Schedule K-1 is an IRS tax form that reports each partner's or S-corp shareholder's share of business income, deductions, and credits.

Accounting

Net Margin

Net margin is final profit after all expenses, taxes, and interest, divided by revenue.

Accounting

Net Operating Income (NOI)

a.k.a. NOI

Net operating income is revenue minus operating expenses, before debt service, taxes, depreciation, and amortization.

Accounting

Working Capital

Working capital is current assets minus current liabilities, the short-term liquidity a business has to operate day-to-day.