Does accounting terminology have your head spinning? We're here to help with this handy list that defines the most common accounting terms. This explanation of accounting basics will introduce you to some basic accounting Some of the basic accounting terms that you will learn include revenues. about the performance of an organisation in monetary terms, are called financial .. The basic purpose of cost accounting is to provide a detailed break-.
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Glossary of Accounting Terms. Account: A record that varying interest compounding periods (daily, monthly, semiannually) on a common basis. It is computed. Accounting Terminology. Page 2. Contents. Page. 1. Accounting Period. .. Before Owners' Salary - this is a term used to indicate what the financial result is. A more formal definition of accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and.
Assets: All the things a company owns in order to successfully run its business, such as cash, buildings, land, tools, equipment, vehicles, and furniture. Liabilities: All the debts the company owes, such as bonds, loans, and unpaid bills. Equity: All the money invested in the company by its owners. Small businesses track money paid out to owners in a Drawing account, whereas incorporated businesses dole out money to owners by paying dividends.
Some companies also collect revenue through other means, such as selling assets the business no longer needs or earning interest by offering short-term loans to employees or other businesses.
Costs of goods sold: All money spent to download or make the products or services a company plans to sell to its customers. Other common bookkeeping terms Some other common terms used in bookkeeping include the following: Accounting period: The time period for which financial information is being tracked.
Most businesses track their financial results on a monthly basis, so each accounting period equals one month. Some businesses choose to do financial reports on a quarterly or annual basis. Businesses that track their financial activities monthly usually also create quarterly and annual reports.
Accounts payable: The account used to track all outstanding bills from vendors, contractors, consultants, and any other companies or individuals from whom the company downloads goods or services.
Accounts receivable: The account used to track all customer sales that are made by store credit. Store credit refers not to credit card sales but rather to sales in which the customer is given credit directly by the store and the store needs to collect payment from the customer at a later date. Example: She recorded the download of the new laptops as a debit entry. Credit Definition: An entry that shows how much money a company receives.
Credits are recorded on the right side of accounts. Double Entry Definition: An accounting system in which each transaction is recorded as both a credit and a debit, an asset and a liability. Example: Double entry bookkeeping gives you a better perspective than single entry bookkeeping because it helps you make sure each transaction is accurately recorded.
Net Definition: An amount of money that is left after taxes have been paid. Gross Definition: An amount of money before taxes are deducted. Profit Definition: The money a business is left with after deducting all the expenses. Example: In order to decide if the company was worth investing in, they wanted to look at the profit it had been making over the previous year.
Revenue Definition: The total amount of money a company receives from the services or products it sells. The revenue is higher than the profit, because in order to calculate the profit, you need to first see the costs of doing business.
Example: Our company has experienced a decrease in revenue due to the financial crisis.
Capital Definition: Cash and funds, but also machinery and tangible assets that can contribute to earning more money, like computers, company vehicles, etc. Intangible assets like expertise or reputation are not considered to be capital. Cash Flow Definition: Money coming in inflows and going out outflows of a company.
The word payroll also refers to the total amount of money paid by a company to its employees. Example: They have a lot of employees on their payroll, so they employ quite a few payroll accountants to calculate employee earnings.
Accounts Payable Definition: Money that a company owes to other parties—companies or people—called creditors. Accounts payable are considered liabilities.
Example: All of the accounts payable need to be cleared before we can invest in new software. Accounts Receivable Definition: Money that a company has to receive for products or services bought by customers or clients.
Example: You can calculate the accounts receivable by adding up all the invoices the company generated. Appreciation can be the result of an increase in demand for a product or service.
Depreciation Definition: The decrease in the value of products or services a company offers. Depreciation can be due to a high supply of similar products or services offered by competitors. Example: Because the company had almost no competitors just a year ago, nobody would have thought that their products would depreciate so much.
Overhead Definition: All the expenses a company needs to pay for, like the costs of advertising, labor, bills and taxes. Example: Their overhead expenses were so high that they had been making very little profit, so they decided to cut back on marketing.
Accounting Period Definition: The time period over which financial statements are produced, usually a year. Financial Statements Definition: Documents that show the financial situation of a company.
Example: The accountants were all busy working on the financial statements as the company was planning to refinance its loans. Share Definition: A unit of ownership in a company. The person or organization who owns shares the shareholder, see below is entitled to dividends usually cash , but they also share the responsibility if there are losses.
Example: He decided to invest in shares of a very profitable company instead of considering a savings account, because he was sure he could make money fast and he enjoyed taking risks.