A List Of 20 Common Accounting Terms Explained
List of 20 Common Accounting Terminology ExplainedAccounting is a complex subject, full of jargon and technical terminology that can seem overwhelming to people who aren’t well versed in it. We have created a list of common accounting terms, along with explanations. This will help to demystify accounting. This list is a great resource for anyone interested in accounting, whether they are students, business owners, or just someone who wants to expand their knowledge. Let’s get started!
- Assets include anything valuable that an individual or business owns. This includes cash, equipment or property. The balance sheet of a business is largely based on assets.
- Liabilities include debts and obligations that a company or an individual owes, like loans, accounts payable or mortgages. These represent the financial obligations of a company.
- Revenue is the amount of income that comes from the sale or purchase of goods and services. It is a primary source of revenue for a company.
- Expenses: These are the daily costs that a business incurs. Rent, salaries, utilities and supplies are all included.
- Profit: Profit is calculated as the difference between revenue, and expenses. It’s a way to measure how well a company is doing financially.
- Balance Sheet A balance sheet provides an overview of the financial situation of a business at a particular point in time. It displays assets, liabilities and equity.
- Income Statement (also known as profit and loss statement): A company’s income, expenses and net income over a certain period are shown in an income statement.
- Cash Flow Statement A cash flow statement shows the inflows and outflows of cash within a company. It shows the cash generated and spent during a certain period.
- Depreciation : Depreciation refers to the systematic distribution of an asset’s cost over the course of its useful life. It is the value decrease of an asset with time.
- Gross Profit is the difference between the revenue and the cost for goods sold. It is the profit before operating expenses are deducted.
- Net Profit is the remaining profit after subtracting all costs, taxes and interest. It is a final measure of the profitability of a business.
- Accounts Payable – Accounts payable is the amount owed by an organization to its creditors or suppliers for goods and services that have been received, but are not yet paid.
- Accounts Receivables: Accounts receivables are the amounts that a customer owes a business for goods and services purchased on credit.
- Equity is the ownership interest of a company, after subtracting its liabilities. Also known as net assets or shareholders’ equity, it is the ownership interest in a company after subtracting liabilities.
- Audit: An independent auditor will examine the financial records, controls, and systems of a business to ensure accuracy.
- Cost of Goods Sold: COGS is the cost associated with the production or purchase of the goods sold by a business. This includes overhead, materials, and labor costs.
- Financial Statements are formal records that show the financial activities of an organization. These include the cash flow statement, income statement and balance sheet.
- Accrual Accounting: This accounting method records revenue or expenses as they are earned, regardless of the date that cash is exchanged.
- Fixed Assets are assets that are held for a long time by a business, like buildings, land or machinery.
- Return on Investment: ROI measures the profitability of an asset. It compares the profit or loss of an investment to its cost.
You will be able to better understand the financial side of a company if you are familiar with these accounting terms. You can make better decisions, whether you’re managing your own finances or running a business. Explore, learn, and increase your accounting knowledge now!