A List of 20 Common Accounting Terms Explained

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!

  1. 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.
  2. 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.
  3. 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.
  4. Expenses: These are the daily costs that a business incurs. Rent, salaries, utilities and supplies are all included.
  5. Profit: Profit is calculated as the difference between revenue, and expenses. It’s a way to measure how well a company is doing financially.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Gross Profit is the difference between the revenue and the cost for goods sold. It is the profit before operating expenses are deducted.
  11. Net Profit is the remaining profit after subtracting all costs, taxes and interest. It is a final measure of the profitability of a business.
  12. 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.
  13. Accounts Receivables: Accounts receivables are the amounts that a customer owes a business for goods and services purchased on credit.
  14. 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.
  15. Audit: An independent auditor will examine the financial records, controls, and systems of a business to ensure accuracy.
  16. 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.
  17. Financial Statements are formal records that show the financial activities of an organization. These include the cash flow statement, income statement and balance sheet.
  18. Accrual Accounting: This accounting method records revenue or expenses as they are earned, regardless of the date that cash is exchanged.
  19. Fixed Assets are assets that are held for a long time by a business, like buildings, land or machinery.
  20. 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!

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