Basic Accounting Terms

Basic Accounting Terms
Here are some basic accounting terms to become familiar with. (Don’t get overwhelmed!) You don’t have to memorize these, but you need to be able to interpret them. Here are the most frequent accounting terms used.
Accounting - process of identifying, measuring, and reporting financial information of an entity.
Accounting Equation - Assets = Liabilities + Equity
Accounts Payable - money owed to creditors, vendors, etc.
Accounts Receivable - money owed to a business, i.e. credit sales.
Accrual Accounting - a method in which income is recorded when it is earned and expenses are recorded when they are incurred.
Asset - property with a cash value that is owned by a business or individual.
Balance Sheet - summary of a company's financial status, including assets, liabilities, and equity.
Bookkeeping - recording financial information.
Break-even – the amount of product that needs to be sold to create a profit of zero.
Cash-Basis Accounting - a method in which income and expenses are recorded when they are paid.
Chart of Accounts - a listing of a company's accounts and their corresponding numbers.
Cost Accounting - a type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions.
Credit - an account entry with a negative value for assets, and positive value for liabilities and equity.
Debit - an account entry with a positive value for assets, and negative value for liabilities and equity.
Depreciation - recognizing the decrease in the value of an asset due to age and use.
Double-Entry Bookkeeping - system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits).
Equity - money owed to the owner or owners of a company, also known as "owner's equity".
Financial Accounting - accounting focused on reporting an entity's activities to an external party; ie: shareholders.
Financial Statement - a record containing the balance sheet and the income statement.
Fixed Asset - long-term tangible property; building, land, computers, etc.
General Ledger - a record of all financial transactions within an entity.
Income Statement - a summary of income and expenses.
Job Costing - system of tracking costs associated with a job or project (labor, equipment, etc) and comparing with forecasted costs.
Journal - a record where transactions are recorded, also known as an "account"
Liability - money owed to creditors, vendors, etc.
Liquid Asset - cash or other property that can be easily converted to cash.
Loan - money borrowed from a lender and usually repaid with interest.
Net Income - money remaining after all expenses and taxes have been paid.
Non-operating Income - income generated from non-recurring transactions; ie: sale of an old building or piece of equipment.
Note - a written agreement to repay borrowed money; sometimes used in place of "loan"
Operating Income - income generated from regular business operations.
Payroll - a list of employees and their wages.
Profit - see "net income"
Profit/Loss Statement - see "income statement"
Revenue - total income before expenses.
Single-Entry Bookkeeping - system of accounting in which transactions are entered into one account.


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