What are some financial accounting terms?


Quick Answer

Adjusted gross income, current ratio and standard deduction are some financial accounting terms. These terms, along with their definitions, are on the NYS Society of CPAs' website in alphabetical order.

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Full Answer

Adjusted gross income is gross income reduced by business and other specified expenses of individual taxpayers. Accountants calculate this number because it affects how much in medical expenses, nonbusiness casualty, theft losses and charitable contributions a taxpayer deducts. This number is also important for other individual planning issues and for filling out forms such as IRS Form 1040 and required state forms.

Current ratio is an indicator of a company's liquidity — availability of money — and ability to pay short term debts. To find this ratio, accountants calculate the company's current assets, which are assets that convert into cash within a company's single operating cycle. Accountants then calculate the current liabilities, which are debts that must liquidate with the use of existing assets. Using these numbers, accountants divide the current assets by current liabilities to determine the current ratio.

Standard deductions are deductions for taxpayers that do not itemize. The standard deduction amount reduces adjusted gross income to arrive at taxable income. This amount varies by each individual taxpayer and tax year. The federal Form 1040 lists the schedule of standard deductions in the form's instructions. The computations for the state amount varies from the federal amount.

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