As a finance professional, you probably use basic finance and accounting terms regularly when communicating with people outside your media company.
For the most part, there’s very little confusion. After all, the terms you’re using are basic terms that even people who aren’t in finance would know, right? Concepts like “sales” or “invoicing”, for example.
The surprising answer, though, is that sometimes the term we use for a basic finance concept isn’t the name someone else uses. This is particularly the case in a world where media companies are increasingly operating on a global scale.
Accounting standards within a global environment
The global financial community has been working toward harmonizing accounting standards around the world for many years now. But the goal of a universal set of standards is still far off.
The two main accounting standards currently in global use are:
- US GAAP
“GAAP” standards for “Generally Accepted Accounting Principles”. While most countries have their own versions of GAAP, many countries opt to use US GAAP because it’s the required standard for companies that are publicly traded in the US
- International Financial Reporting Standards (IFRS)
The International Accounting Standards Board (IASB) established the IFRS Standards in the early 2000s to promote a global set of accounting standards. To date, 144 of 166 jurisdictions around the world require the use of these standards.
The lack of a universal set of accounting standards contributes to the issue of alternative terminology for the same concepts and processes. The following are some examples:
- Contingent liability
A contingent liability is a liability that’s contingent on an event happening, where there’s no certainty that the event will happen. US GAAP uses the term “contingent liability” while IFRS Standards use the term “provision”.
- Joint arrangements
While US GAAP refers to joint arrangements between companies as “joint ventures”, under IFRS Standards it’s acceptable to use either “joint ventures” or “joint operations”.
- Financial statements
While “balance sheet” and “income statement” are commonly used under US GAAP, the IFRS Standards use different names for these financial statements: the balance sheet is known as the “statement of financial position” and income statements are “statements of comprehensive income”.
Differences in basic finance terminology
There are lots of other times when you may run into different terminology for the same finance concepts or processes – in some cases, even within your own country. The following are some examples:
- Invoice team
Companies use a variety of names for the team of people who issue invoices. And sometimes it’s this same team that’s chasing after customers for payments. Various names for this department include Accounts Receivable, Sales Ledger, Credit Control, Collections, and Dunning.
- Total sales
This is often referred to as simply “sales”, but companies might use “revenue” instead. And in the UK, “turnover” is commonly used as well.
Do you invoice your customers, or do you bill them? While some companies use these two terms interchangeably, others use the terms to describe different steps in a process. And sometimes the term that’s used is dependent on the type of customer. For example, you might use different names depending on whether the customer is expected to pay immediately or is being given credit terms.
- Credit note
This is the term commonly used in the UK to refer to the document that advises customers of credits applied to their account. In the US, “credit note” and “credit memo” are sometimes used interchangeably – but “credit note” can also refer to a written note placed on a customer’s account by the credit team (which is more commonly seen in the US).
- Account management systems
When you carry out your accounts receivable process in Lineup’s Adpoint media sales solution, you must send this data to the system your company uses to manage your company’s accounts. The various names for these systems include “finance system”, “general ledger (GL) system”, “nominal system”, and “ERP (enterprise resource planning) system”.
- Accounting codes
The accounting codes within these various systems also have different names. Some examples are “GL codes”, “nominal ledger codes”, and “trial balance (TB) codes”. There’s also no consistency in the names for the GL account that companies post their invoices to. Some companies call this account the “Sales Ledger Control Account”, while others might use “Accounts Receivable” or “Debtors Control Account”.
Differences in format or presentation
Format or presentation differences can be confusing as well. For example, the statement a media company in the UK sends to its customers looks very different when compared to such statements sent by media businesses elsewhere in the world.
In the UK, these statements typically show just the unpaid invoices and unallocated receipts that make up a customer’s balance. But in other parts of the world, such statements often show a “brought forward” balance, followed by a list of all transactions during the statement period, and ending with the closing balance. This means, unlike in the UK, you might see a fully paid invoice included in the statement.
When it comes to financial statement presentation, the accounting standard that a business uses can make a difference, too. Both the format and the line items required might be different, based on whether the company is using US GAAP or IFRS Standards.
“It can be easy to assume we all use the same names for basic finance terms,” says Claire Mitchell, Product Manager (Finance & Analytics) at Lineup. “What this discussion really highlights for me is how many different terms are in use for standard finance processes. It serves to make me more mindful of the need to always ensure that my audience understands the terminology I’m using.”