Accounting

Glossary

GAAP

Generally Accepted Accounting Pinciples

Revenue

The money generated from normal business operations, calculated as the average sales price times the number of units sold. (5)

Expense

The cost of operations that a company incurs to generate revenue. (6)

Income

Profit

Fixed Costs

A cost that does not change with an increase or decrease in the number of goods or services produced or sold. (3)

Relevant Costs

 A managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. (4)

Depreciation

An accounting method used to allocate the cost of a tangible or physical asset over its useful life. (7)

Amortisation

Sunk Cost

Costs that have already been incurred and cannot be recovered. (1)

Sunk Cost Fallacy/Trap

A psychological barrier that ties people to unsuccessful endeavors simply because they've committed resources to it. (1)
  • Loss Aversion
  • Commitment Bias
  • Emotional Bias

To overcome sunk cost fallacy...

  • Frame the problem
  • Remain independent
  • Trust the data
  • Change risk preference

Unrealized Loss

Holding an asset that has decreased in price, but not yet selling it and realizing the loss (2)

Unrealized Gain

Holding as asset that has increased in value, but not yet selling it an realizing the gain,

ROI

Return On Investment

Bibliography