Basic Accounting Terms & Concepts

Accounting Cycle

Defines the length of time covered by a financial statement or operation.

Accounts Payable (AP)

Tracks money owed to creditors, such as bank loans and unpaid invoices.

Accounts Receivable (AR)

Tracks money owed to a business by its debtors.

Accrual Accounting

Records revenue and expenses when they first occur, regardless of when cash is exchanged.

Accruals

Revenues and expenses recognized but not yet recorded in accounts.

Assets

Items of value or resources that a business owns or controls.

Balance Sheet

A standard financial statement specifying a business's assets, liabilities, and owners' equity.

Capital

Any asset or resource a business can utilize to generate revenue.

Cash Basis Accounting

Records revenues and expenses when cash is actually received or paid.

Cash Flow

The balance of cash moving into and out of a company during a specified accounting period.

Chart of Accounts

A list of all accounts in an organization's general ledger.

Cost of Goods Sold (COGS)

The total costs incurred by a company in creating a product or providing a service.

Credits

Accounting entries that increase liabilities or decrease assets.

Debits

Accounting entries that increase assets or decrease liabilities.

Depreciation

The decline in value of fixed assets such as real estate and equipment.

Dividends

Portions of a company's profits paid out voluntarily to investors.

Equity

The remaining amount if a business sells all its assets and pays off all debts.

Fixed Cost

Cost that remains constant regardless of changes in output or revenues.

Income Statement

Specifies total revenues earned minus all expenses for a given accounting period.

Liability

An amount owed by an individual or business to another person or organization.

Liquidity

The ease of converting an asset into cash.

Net Profit/Income

The remaining money after deducting taxes and costs from total revenue.

Retained Earnings

The profits remaining after all costs have been paid in a given accounting period.

Return on Investment (ROI)

The level of profit or loss generated by an investment.

Revenue

Income earned by a business from selling products or services.

T-account

A financial record format that utilizes double-entry bookkeeping.

Variable Costs

Expenses that change depending on the volume of goods produced or sold.