Top 40 Accounting Terms to Know
It can often feel like accounting is its own language. With so many phrases, acronyms and organizations to recognize, we have created a cheat sheet to the 40 most commonly used accounting phrases worth knowing.
1. Debit: An accounting entry to record a transaction where there is either an increase in assets and expenses or a decrease in liabilities, equity, and revenue.
2. Credit: An accounting entry to record a transaction where there is either an increase in liabilities, equity, and revenue or a decrease in assets and expenses.
3. Double entry accounting method: A method of recording transactions in which each transaction is entered into one or more accounts. The account debits must equal the account credits.
4. Cash basis accounting: Accounting method by which revenues and expenditures are recorded when they are received and paid.
5. Accrual basis accounting: Accounting method that reports income when earned and expenses when incurred, rather than only in the periods in which cash is received or paid by the company.
6. GAAP: Stands for Generally Accepted Accounting Principles. GAAP represents a set of rules, conventions, and procedures set by the Financial Accounting Standards Board (FASB) to define accepted accounting practice in the United States.
7. Net worth: Equal to the excess of assets over liabilities.
8. Book value: Amount that an asset or liability shows on the balance sheet of a company.
9. Market value: Amount the investors are willing to pay for a share of stock on the open market.
10. Preferred stock: A type of capital stock that carries certain preferences over common stock, such as a priority claim on dividends and assets.
11. Common stock: The value assigned to a company’s issued shares. This type of capital stock has no preferences, such as in terms of dividends or voting rights.
12. Bank reconciliation: A comparison of the balance shown on the bank statement and the balance of the cash account in the company’s general ledger. Differences are identified and researched.
13. Write off: Charging an asset account to expense or loss.
14. Bad debt: Portion of an account, loan, or note considered to be uncollectible.
15. Contingent liability: Potential liability arising from a past transaction or a subsequent event.
16. Appreciation: Increase in the value of an asset such as a stocks, bonds, or real estate.
17. Depreciation: Expense allowance made for wear and tear on an asset over its estimated useful life.
18. Amortization: Allocation of the cost of an intangible asset over a period of time.
19. Salvage value: Selling price assigned to retired fixed assets or merchandise that are unsellable through regular channels.
20. Asset: What a company owns, such as any owned tangible or intangible item that has an economic value useful to the owner.
21. Liability: What a company owes, or a company’s debts or financial obligations.
22. Owners’ or Stockholders’ equity: An ownership interest in a corporation in the form of common stock or preferred stock. Equal to total assets minus total liabilities.
23. Paid in capital: The portion of the stockholders’ equity which was paid in by the stockholders, as opposed to capital arising from profitable operations.
24. Revenue: Money received by the company for goods sold or services provided.
25. Expense: The fixed, variable, or accrued costs that a company incurs through its operations.
26. Net income: A company’s net earnings or profit, equal to total revenue minus total expense.
27. General ledger: A financial record that contains all the asset, liability, owner equity, revenue, and expense accounts.
28. Subsidiary ledger: A financial record that contains the details to support a general ledger control account.
29. Trial balance: a financial record that lists and compares the totals of debit and credit balances in the general ledger to check that they are equivalent.
30. Chart of accounts: A complete listing of every account in the general ledger of an organization.
31. Balance sheet: A financial report that summarizes a company’s assets, liabilities, and owners’ or shareholders’ equity at a given time.
32. Profit and loss statement: A financial report that is used to summarize a company’s performance by showing revenues and expenses during a specific period of time such as monthly, quarterly, or annually. Also known as Income Statement.
33. Statement of cash flows: A financial report that shows cash inflow and outflow from operating, investing, and financing activities.
34. Accounts receivable: Money which is owed to a company by a customer for products and services that were provided on credit.
35. Accounts payable: Money a company owes its creditors for delivered goods or services that were purchased on credit.
36. Fixed cost: Costs that remain constant within a defined range of activity, volume, or time period.
37. Variable cost: Costs that change in direct proportion to changes in productive output.
38. Compilation: Presentation of financial statement data without the accountant’s assurance as to conformity with GAAP.
39. Review: Accounting service that provides some assurance as to the reliability of financial information. However, it does not involve a CPA conducting an examination under GAAP.
40. Audit: A professional examination of a company’s financial statement by a CPA to determine that the statement has been presented fairly and prepared using GAAP.
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