Basic Accounting Terms

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Accounting

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process of identifying, measuring, and reporting financial information of an entity

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Accounting Equation

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assets = liabilities + equity

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Accounts Payable

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money owed to creditors, vendors, etc.

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Accounts Receivable

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money owed to a business, i.e., credit sales

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Accrual Accounting

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a method in which income is recorded when it is earned and expenses are recorded when they are incurred

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Asset

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property with a cash value that is owned by a business or individual

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Balance Sheet

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summary of a company's financial status, including assets, liabilities, and equity

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Bookkeeping

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recording financial information

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Cash-Basis Accounting

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a method in which income and expenses are recorded when they are paid.

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Chart of Accounts

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a listing of a company's accounts and their corresponding numbers

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Cost Accounting

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a type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions

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Credit

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an account entry with a negative value for assets, and positive value for liabilities and equity.

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Debit

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an account entry with a positive value for assets, and negative value for liabilities and equity.

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Depreciation

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recognizing the decrease in the value of an asset due to age and use

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Double-Entry Bookkeeping

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system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits)

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Equity

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money owed to the owner or owners of a company, also known as "owner's equity"

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Financial Accounting

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accounting focused on reporting an entity's activities to an external party; ie., shareholders

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Financial Statement

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a record containing the balance sheet and the income statement

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Fixed Asset long-term

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tangible property; building, land, computers, etc.

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General Ledger

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a record of all financial transactions within an entity

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Income Statement

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a summary of income and expenses

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Job Costing

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system of tracking costs associated with a job or project (labor, equipment, etc) and comparing with forecasted costs

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Journal

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a record where transactions are recorded, also known as an "account"

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Liability

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money owed to creditors, vendors, etc

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Liquid Asset

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cash or other property that can be easily converted to cash

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Loan

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money borrowed from a lender and usually repaid with interest

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Net Income

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money remaining after all expenses and taxes have been paid

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Non-operating Income

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income generated from non-recurring transactions; ie., sale of an old building

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Note

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a written agreement to repay borrowed money; sometimes used in place of "loan"

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Operating Income

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income generated from regular business operations

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Payroll

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a list of employees and their wages

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Profit

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see "net income"

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Profit/Loss Statement

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see "income statement"

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Revenue

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total income before expenses.

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Single-Entry Bookkeeping

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system of accounting in which transactions are entered into one account