Entering into the accounting field can be a little confusing at first with all of the new terminology to learn. Don’t feel left out in conversations and don’t be left behind because you aren’t sure what someone is talking about. Check out the accounting terms below and find out what that last conversation was about. Learn these terms before starting your first big job and you will WOW your employer. Learn these terms before your accounting classes start and you will definitely be a step ahead of everyone else in your classes.
Accounting Equation – The Accounting Equation is Assets = Liabilities + Equity. With accurate financial records, the equation balances.
Accounting – Accounting keeps track of the financial records of a business. In addition to recording financial transactions, it involves reporting, analyzing and summarizing information.
Accounts Payable – Accounts Payable are liabilities of a business and represent money owed to others.
Accounts Receivable – Assets of a business and represent money owed to a business by others.
Accrual Accounting – Records financial transactions when they occur rather than when cash changes hands. For example, when goods are received without payment, an Accounts Payable is recorded.
Accruals – Accruals acknowledge revenue when it is earned and expenses when they are incurred even though a cash transaction may not be involved.
Amortization – Reduces debts through equal payments that include interest.
Asset – Items of value that are owned.
Audit Trail – Allow financial transactions to be traced to their source.
Auditors – Examine financial accounts and records to evaluate their accuracy and the financial condition of the entity.
Balance Sheet – Provides a snapshot of a business’ assets, liabilities, and equity on a given date.
Bookkeeping – Recording of financial transactions in an accounting system.
Budgeting – Budgeting involves maintaining a financial plan to control cash flow.
Capital Stock – Total amount of common and preferred stock issued by a company.
Capital Surplus – The amount in excess of par value for shares of common stock.
Capitalized Expense – Accumulated expenses that are expensed over time.
Cash Flow – The difference in money flowing in and out. A negative flow indicates more money going out than coming in. A positive flow shows more money coming in than going out.
Cash-Basis Accounting – Records when cash is received through revenues and disbursed for expenses.
Chart of Accounts – An organization’s list of accounts used to record financial transactions.
Closing the Books/Year End Closing – Closing the Books occurs at the end of the annual period and allows for a start with a clean book at the beginning of the next year.
Cost Accounting – Used internally to determine the cost of operations and to establish a budget to increase profitability.
Credit – Entered in the right column of accounts. Liability, equity and revenue increase on the credit side.
Debit – Entered in the left column of accounts. Assets and expenses increase on the debit side.
Departmental Accounting – Shows individual departments’ income, expenses and net profit.
Depreciation – The decrease in an asset’s value over time.
Dividends – Profits returned to the shareholders of a corporation.
Double-Entry Bookkeeping – Requires entries of debits and credits for each financial transaction.
Equity – Represents the value of company ownership.
Financial Accounting – The accounting branch that prepares financial reporting primarily for external users.
Financial Statement – Financial Statements detail the financial activities of a business.
Fixed Asset – Used for a long period of time, e.g. – equipment or buildings.
General Ledger – Where debit and credit transactions are recorded.
Goodwill – Intangible asset a business enjoys like its reputation or brand popularity.
Income Statement – A Financial Statement documents the difference in revenue and expenses resulting in income.
Inventory Valuation – A valuation method modified for use in real estate and business appraisals.
Inventory – Inventory consists of raw materials, work in progress, and finished goods.
Invoice – An Invoice shows the amount of money owed for goods or services received.
In The Black – Makes reference to a profit on the books; opposite of “in the red.” Black Friday sales are known for the profit retailers are adding to their books.
In The Red – Makes reference to a loss on the books; opposite of “in the black.” In the days of handwritten accounting, ledger entries written in black meant there was a profit, but those in red meant there was a loss.
Job Costing – Job Costing tracks costs of a particular job against its revenues.
Journal – The first place financial transactions are entered. They are entered chronologically.
Liability – Liabilities are the obligations of an entity, usually financial in nature.
Liquid Asset – Consist of cash and other assets that can be easily converted to cash.
Loan – A monetary advance from a lender to a borrower.
Master Account – A Master Account has subsidiary accounts. Accounts Receivable could be a master account for various individual receivable accounts.
Net Income – Net Income equals revenue minus expenses, taxes, depreciation and interest.
Non-Cash Expense – Does not require cash outlay, e.g. – depreciation.
Non-operating Income – Income not generated from the business. An example might be the sale of unused equipment.
Note – A Note is a document promising to repay a debt.
Operating Income – Determined by subtracting operating expenses from operating revenue. Interest and income tax expenses are not included.
Other Income – Non-recurring income, e.g. – interest.
Payroll – An account listing employees and any wages and salaries due them.
Posting – Refers to the recording of ledger entries.
Profit – Profit is revenue minus expenses. Reductions for taxes, interest, and depreciation are included.
Profit/Loss Statement – A financial report issued by a company on a regular basis that discloses earnings, expenses and net profit for a given time period.
Reconciliation – The act of proving an account balances; debits and credits equal. An example of reconciling an account is to verify that the bank statement matches the checkbook balance, making allowances for outstanding checks and deposits.
Retained Earnings – Money left after all the bills have been paid and all the shareholder dividends have been distributed; often reinvested in the business.
Revenue – The actual amount of money a company brings in during a particular time period; gross income.
Shareholder Equity – A company’s total assets less its total liabilities; owner’s equity; net worth. Shareholder equity comes from the start-up capital of the business plus retained earnings amassed over time.
Single-Entry Bookkeeping – An accounting process that uses on one entry, instead of debit and credit entries. Small businesses using cash accounting system benefit from the ease of this system, which is much like keeping a checkbook.
Statement of Account – A written document that shows all charges and payments; accounts receivable statement; accounts payable statement. Generally, a monthly accounts receivable statement is sent to a charge customer; and reconciled by an accounts payable clerk for payment.
Subsidiary Accounts – Accounts that are under a control account; they must equal the main account balance. Examples of subsidiary accounts may be “Office Supplies,” or “Cleaning Supplies,” under the control account called “Supplies.”
Supplies – Consumable materials used in business and replenished as needed. Supplies are not inventory for sale; rather they are used to carry out business activities.
Treasury Stock – Shares a company retains or buys back once offered to the public for purchase.
Write-down/Write-off – An accounting transaction that reduces the value of an asset.