Accounting is a complex field that uses a specific terminology to describe its concepts and practices. Here are some of the key terms and phrases used in accounting:
- Assets: Resources that a business owns or controls that have future economic benefits.
- Liabilities: Obligations a business owes to others that must be fulfilled at some point in the future.
- Equity: The residual interest in the assets of a business after liabilities are deducted.
- Revenue: The income a business earns from the sale of goods or services.
- Expenses: The costs incurred in running a business.
- Profit: The difference between revenue and expenses.
- Balance sheet: A financial statement that shows the assets, liabilities, and equity of a business at a specific point in time.
- Income statement: A financial statement that shows the revenues, expenses, and profit or loss of a business over a specific period of time.
- Cash flow statement: A financial statement that shows the inflows and outflows of cash in a business over a specific period of time.
- Accounts payable: Money owed by a business to its suppliers for goods or services purchased on credit.
- Accounts receivable: Money owed to a business by its customers for goods or services sold on credit.
- Depreciation: The decrease in value of a long-term asset over time due to wear and tear or obsolescence.
- Accruals: Expenses or revenues that have been incurred but not yet paid or received, respectively.
- General ledger: A record of all the financial transactions of a business.
- Trial balance: A statement that lists all the balances of a business's accounts to ensure that the debits equal the credits.
- Audit: An independent examination of a business's financial statements to ensure they are accurate and comply with accounting standards.
- Accounts payable (AP): The money that a business owes to its creditors or suppliers for goods or services that have been received but not yet paid for.
- Accounts receivable (AR): The money that a business is owed by its customers for goods or services that have been sold but not yet paid for.
- Accrual accounting: An accounting method that recognizes revenue and expenses when they are incurred, rather than when they are received or paid.
- Accruals: Expenses or revenues that have been incurred but not yet paid or received, respectively.
- Amortization: The process of gradually reducing the value of an intangible asset, such as a patent or trademark, over its useful life.
- Asset: Any resource that a business owns or controls that has future economic benefits.
- Audit: An independent examination of a business's financial statements to ensure they are accurate and comply with accounting standards.
- Balance sheet: A financial statement that shows the assets, liabilities, and equity of a business at a specific point in time.
- Book value: The value of an asset or liability as shown in the accounting records of a business.
- Capital expenditure: Money spent by a business on long-term assets, such as equipment or buildings, that will provide future economic benefits.
- Cash accounting: An accounting method that recognizes revenue and expenses when they are received or paid, rather than when they are incurred.
- Cash flow statement: A financial statement that shows the inflows and outflows of cash in a business over a specific period of time.
- Chart of accounts: A list of all the accounts used by a business to record its financial transactions.
- Cost of goods sold (COGS): The cost of producing or acquiring the goods sold by a business.
- Credit: An entry in the accounting records that increases the liability or equity of a business.
- Debit: An entry in the accounting records that increases the asset or expense of a business.
- Depreciation: The decrease in value of a long-term asset over time due to wear and tear or obsolescence.
- Dividend: A payment made by a business to its shareholders as a share of the profits.
- Equity: The residual interest in the assets of a business after liabilities are deducted.
- Expense: The cost of goods or services used in running a business.
- Financial accounting: The branch of accounting that deals with the preparation and presentation of financial statements for external users.
- General ledger: A record of all the financial transactions of a business.
- Gross profit: The profit a business makes after deducting the cost of goods sold but before deducting other expenses.
- Income statement: A financial statement that shows the revenues, expenses, and profit or loss of a business over a specific period of time.
- Intangible asset: An asset that has no physical substance, such as a patent or trademark.
- Inventory: The goods a business holds for sale or use in the production of goods for sale.
- Journal entry: The record of a financial transaction in a business's accounting system.
- Liabilities: Obligations a business owes to others that must be fulfilled at some point in the future.
- Net income: The profit a business makes after deducting all expenses, including taxes.
- Operating expenses: The costs incurred in running a business, such as
- Payroll: The total amount of money paid by a business to its employees for their work.
- Profit: The difference between revenue and expenses.
- Ratio analysis: The use of financial ratios to evaluate a business's financial performance and health.
- Retained earnings: The portion of a business's profits that are not paid out as dividends but are retained for future use.
- Revenue: The income a business earns from the sale of goods or services.
- Trial balance: A statement that lists all the balances of a business's accounts to ensure that the debits equal the credits.
- Working capital: The difference between a business's current assets and current liabilities.
- Accrued expenses: Expenses that have been incurred but not yet paid, such as salaries and wages.
- Bad debts: Accounts receivable that are unlikely to be collected and are written off as a loss.
- Contingent liabilities: Potential liabilities that may arise from future events, such as lawsuits or warranties.
- Cost accounting: The branch of accounting that deals with the measurement and analysis of the costs of producing goods or services.
- Double-entry accounting: The system of accounting in which every financial transaction is recorded as both a debit and a credit.
- Financial statement: A document that shows a business's financial performance and health, such as a balance sheet or income statement.
- Goodwill: The value of a business's reputation, customer relationships, and other intangible assets.
- Inventory turnover: The rate at which a business sells and replaces its inventory.
- LIFO/FIFO: Methods of inventory valuation in which the cost of goods sold is based on either the last-in, first-out or first-in, first-out principle.
- Materiality: The principle that financial information should be reported if it could affect the decisions of users of the information.
- Operating income: The profit a business makes from its primary operations before deducting interest and taxes.
- Owner's equity: The portion of a business's assets that is owned by its owner or owners.
- Return on investment (ROI): A measure of the profitability of an investment, calculated as the net profit divided by the total investment.