Essential Accounting Terms

Definition: Resources owned by a business that have value.

Example: "The company’s assets include cash, computers, and office furniture."

Definition: Debts or obligations a business owes to others.

Example: "Loans and unpaid bills are listed as liabilities."

Definition: The owner's share in the company after subtracting liabilities from assets.

Example: "If the assets are $100,000 and liabilities are $40,000, the equity is $60,000."

Definition: Income earned from business activities like sales.

Example: "The store earned $10,000 in revenue last month."

Definition: Costs a business incurs to earn revenue.

Example: "Rent, utilities, and salaries are common expenses."

Definition: What remains after all expenses are subtracted from revenue.

Example: "After paying all expenses, the company made a profit of $5,000."

Definition: A financial statement showing a company’s assets, liabilities, and equity at a specific point in time.

Example: "The balance sheet showed healthy financial standing as of June 30."

Definition: A report that shows a company's revenue and expenses over a period of time.

Example: "The income statement revealed losses in the first quarter."

Definition: A report showing the inflow and outflow of cash in a business.

Example: "The cash flow statement helped them track where money was being spent."

Definition: Money owed to the business by customers.

Example: "We have $2,000 in accounts receivable from unpaid invoices."

Definition: Money the business owes to suppliers or vendors.

Example: "Our accounts payable include $1,500 to a printing company."

Definition: The decrease in value of an asset over time.

Example: "The company recorded depreciation on its delivery van."

Definition: Goods a company holds for sale.

Example: "The clothing store checks its inventory weekly."

Definition: A record of a transaction in the accounting books.

Example: "She made a journal entry to record the office rent payment."

Definition: A collection of accounts that shows all business transactions.

Example: "All financial records are posted to the general ledger."

Definition: A list of all accounts and their balances to check if total debits equal total credits.

Example: "The accountant prepared a trial balance at the end of the month."

Definition: A 12-month period used for accounting purposes.

Example: "Their fiscal year runs from April 1 to March 31."

Definition: Money or assets invested into a business by its owner(s).

Example: "He added more capital to help the business grow."

Definition: A portion of a company’s profit paid to shareholders.

Example: "The company paid a dividend of $2 per share."

Definition: An official inspection of a company’s accounts, often by an external firm.

Example: "The business had a financial audit at the end of the year."