Basic Accounting Terminology
- Accounts Payable
- Accounts Payable represents the outstanding bills and invoices that a business owes to its suppliers or vendors
- Accounts Receivable
- Accounts Receivable is the money owed to a business by its customers for goods or services that have been delivered but not yet paid for
- Accrual Accounting/Accrual Basis Accounting
- Accrual accounting recognizes the revenue and expenses when they are earned or incurred, regardless of when the cash is exchanged
- Amortization
- Amortization is the gradual repayment of a loan or the gradual reduction of an intangible asset's value over time
- Assets
- Assets are the valuable resources owned by a person, business, or organization, representing economic value and contributing to overall wealth
- Audit
- An audit is a thorough examination and verification of a company's financial records, processes, and controls to ensure accuracy, transparency, and compliance with regulations
- Balance Sheet
- A balance sheet provides a snapshot of a company's financial position at a specific moment, detailing its assets, liabilities, and shareholders' equity
- Bank Reconciliation
- Bank reconciliation is the process of comparing and matching a company's financial records with the bank statement to ensure accuracy and identify any discrepancies
- Bankruptcy
- Bankruptcy is a legal status indicating that an individual or business is unable to repay their debts, leading to a formal process for the fair distribution of assets to creditors
- Capital
- Capital refers to the financial resources, assets, or funds available to a business, allowing it to operate, invest, and grow
- Cash Accounting
- Cash accounting records financial transactions when actual cash is received or paid, providing a real-time view of a business's cash flow
- Cash Equivalents
- Cash equivalents are highly liquid and short-term investments that can be quickly converted into cash, providing stability and flexibility for businesses
- Cash Flow
- Cash flow is the net amount of cash and cash equivalents entering and leaving a business, indicating its liquidity and ability to meet financial obligations
- Cash Flow Statement
- The Cash Flow Statement provides a comprehensive summary of a company's cash inflows and outflows, offering insights into its operating, investing, and financing activities
- Chart of Accounts
- A Chart of Accounts is a structured list of all the accounts used by a business to categorize and organize its financial transactions, providing a systematic overview of its financial activities
- Compliance
- Compliance refers to the adherence to laws, regulations, and standards within a business or industry, ensuring that operations align with legal and ethical requirements
- Cost of Goods Sold (COGS)
- The Cost of Goods Sold (COGS) represents the direct expenses associated with producing goods or services, including materials, labor, and overhead costs
- Credit
- Credit is the financial arrangement allowing a borrower to receive goods, services, or money with the agreement to repay at a later date
- Creditor
- A creditor is an individual or entity to whom money is owed, typically in the form of loans, goods, or services provided on credit
- Data Backup
- Data backup involves creating and storing duplicate copies of digital information to protect against loss, damage, or unauthorized access
- Debit
- Data backup debit is a method of recording expenses associated with the secure storage and protection of digital information against loss or damage
- Deficit
- A deficit occurs when expenses exceed revenues, resulting in a negative financial balance or shortfall
- Depreciation
- Depreciation is the systematic allocation of the cost of an asset over its useful life, reflecting its gradual loss in value
- Dividends
- Dividends are payments made by a company to its shareholders as a distribution of profits, providing a return on their investment
- Double Entry Accounting
- Double-entry accounting is a system where every financial transaction affects at least two accounts, ensuring a balanced representation of both debits and credits in the accounting records.
- Equity
- Equity represents the ownership interest of shareholders in a company, calculated as the residual interest in assets after deducting liabilities
- Expenditure
- Expenditure refers to the total amount of money spent or payments made by an individual, business, or government for goods, services, or investments
- Expense
- An expense is a cost incurred by a business or individual in the process of generating revenue, reflecting the amount spent on goods, services, or operational activities.
- Expense Tracking
- Expense tracking involves monitoring and recording all financial expenditures systematically, providing a comprehensive overview of where money is being spent
- Fair Market Value
- Fair market value is the unbiased and reasonable estimate of the price at which an asset or property would change hands between a willing buyer and a willing seller in an open and unrestricted market
- Financial Analysis
- Financial analysis involves evaluating and interpreting financial data to assess a company's performance, profitability, and overall financial health
- Financial Assets
- Financial assets are monetary instruments or securities representing ownership of economic value, such as stocks, bonds, and cash equivalents.
- Fiscal Year
- A fiscal year is a 12-month accounting period that a company or organization uses for financial reporting and budgeting purposes, not necessarily corresponding to the calendar year
- Fixed Assets
- Fixed assets are long-term tangible or intangible assets owned by a business, such as property, equipment, or patents, used in its operations for an extended period
- Forecast
- A forecast is a calculated estimation of future financial or operational outcomes based on current data and analysis, providing insight for planning and decision-making
- General Ledger
- The general ledger is the central accounting record that tracks all financial transactions of a business, providing a comprehensive overview of its financial position
- Gross Income
- Gross income is the total revenue generated by a business before deducting any expenses, representing the overall earnings from its primary operations
- Inflation
- Inflation is the sustained increase in the general price level of goods and services over time, resulting in a decrease in the purchasing power of a currency
- Integration
- Integration refers to the process of combining or coordinating different systems, components, or processes to work together seamlessly and efficiently
- Insolvency
- Insolvency occurs when an individual or business is unable to meet its financial obligations, with liabilities exceeding assets, leading to potential bankruptcy or financial distress
- Inventory
- Inventory represents the stock of goods and materials that a business holds for production, resale, or use in its operations
- Journal
- A journal is a chronological record of financial transactions, systematically documenting each entry with details of debits and credits
- Journal Entry
- A journal entry is a concise record in accounting that captures a specific financial transaction, detailing the debit and credit entries to maintain accurate and organized financial records
- Ledger
- A ledger is a comprehensive and organized collection of accounts that records financial transactions, serving as the core reference for a company's financial position
- Liability
- A liability is an obligation or debt that a business or individual owes to external parties, representing a claim on assets or future economic sacrifices
- Liquid Assets
- Liquid assets are easily convertible, cash-like holdings that a business or individual can quickly turn into cash to meet immediate financial obligations
- Liquidity
- Liquidity is the measure of how easily and quickly an asset can be converted into cash, indicating the financial flexibility and ability to meet short-term obligations.
- Margin
- Margin is the difference between the cost of goods sold and the selling price, representing the profit percentage or the additional amount earned on a product or service
- Net Debt
- Net debt is the total debt a company owes minus its cash and cash equivalents, providing a measure of its overall financial obligations net of available liquid assets
- Net Income
- Net income, also known as profit or net profit, is the amount remaining after deducting all expenses, taxes, and other costs from total revenue, indicating the final profit earned by a business
- Outsourcing
- Outsourcing is the practice of delegating specific business functions or processes to external third-party providers, often to enhance efficiency and reduce costs
- Overheads
- Overheads, also known as overhead costs, are indirect expenses incurred by a business in its operations, not directly tied to the production of goods or services
- Passive Income
- Passive income is money earned with minimal effort or active involvement, often generated from investments, real estate, or other sources that require little ongoing work
- Payment Gateway
- A payment gateway is an online service that facilitates secure and seamless financial transactions, allowing businesses to accept electronic payments from customers
- Payroll
- Payroll refers to the total amount of money a company pays to its employees for their work, including wages, salaries, and other benefits
- Payroll Taxes
- Payroll taxes are mandatory contributions imposed on employers and employees by the government
- Petty Cash
- Petty cash is a small amount of physical currency kept on hand by a business for minor and immediate expenses, providing a convenient way to cover small purchases without formal authorization
- Promissory Note
- A promissory note is a written and legally binding document containing a promise by one party to pay a specific sum of money to another party at a specified future date or upon demand
- Proprietorship
- A proprietorship is a business structure where a single individual owns and manages the business, assuming full control and responsibility for its operations and profits
- Quarter
- A quarter, in financial terms, refers to a three-month period, often used for reporting and analyzing financial performance on a quarterly basis.
- Rebate
- A tax rebate is a partial refund of taxes previously paid, typically offered by the government as an incentive or relief for specific qualifying conditions or activities
- Receivables
- Receivables, also known as accounts receivable, represent amounts owed to a business by customers for goods or services provided on credit, indicating future incoming cash flows
- Reconciliation
- Reconciliation is the process of comparing and adjusting financial records, statements, or accounts to ensure they accurately reflect the same transactions, promoting accuracy and transparency
- Retained Earnings
- Retained earnings are the cumulative profits that a company has retained and reinvested in its business after distributing dividends, serving as a measure of its overall financial resilience and growth
- Return on Investment (ROI)
- Return on Investment (ROI) is a performance metric that evaluates the profitability of an investment by comparing the gains or losses relative to its cost, expressed as a percentage
- Revenue
- Revenue is the total income generated by a business from its primary operations, encompassing sales, services, and other sources, before deducting any expenses or costs
- Risk Management
- Risk management is the systematic process of identifying, assessing, and mitigating potential challenges or uncertainties that could impact a business, ensuring proactive measures for resilience and success
- Sales Tax
- Sales tax is a consumption-based tax imposed by governments on the sale of goods and services, typically calculated as a percentage of the purchase price and collected by the seller
- Share
- A share represents ownership in a company, entitling the shareholder to a portion of its assets, profits, and voting rights in corporate decisions
- Share Holder
- A shareholder is an individual or entity that owns shares or stocks in a company, entitling them to a share of its profits, voting rights, and potential dividends.
- Sub-ledger
- A sub-ledger is a detailed accounting record that tracks specific transactions within a broader ledger, providing a more granular view of financial activities for a particular account or category
- Tax Refund
- A tax refund is a reimbursement from the government to a taxpayer when the amount of taxes paid exceeds the actual tax liability, often triggered by deductions, credits, or overpayment
- Transaction
- A transaction is an exchange or interaction involving the buying, selling, or transfer of goods, services, or financial assets between parties, often recorded for accounting and documentation purposes
- Trial Balance
- A trial balance is a financial statement that lists and summarizes the balances of all ledger accounts, ensuring that debits and credits are equal and facilitating the preparation of financial statements
- Valuation
- Valuation is the process of determining the monetary worth or fair market value of an asset, business, or investment, often through various methods such as market comparisons or income analysis
- Working Capital
- Working capital is the difference between a company's current assets and current liabilities, representing the funds available for day-to-day operations and short-term financial obligations
- Write-Off
- A write-off is the accounting action of recognizing a financial loss or reducing the value of an asset on the balance sheet, typically due to it being deemed uncollectible or no longer of value