Basic accounting terminologies
1.Assets: Resources owned by a business that has monetary value and are expected to provide future benefits.
2.Liabilities: Obligations of a business to pay debts or other financial obligations.
3.Equity: Equity refers to the ownership interest in a company or property, representing the residual value after all liabilities have been paid off.
4.Revenue: It refers to the amount of money a business earns through the sales of its products or services
5.Expenses: It refer to the expenditures incurred by a business while carrying out its operations and generating revenue.
6.Profit/Loss: The difference between revenue and expenses.
7.Depreciation: The distribution of the cost of a physical asset over its useful life.
8.Amortization: Amortization is the practice of allocating the cost of an intangible asset over its useful life.
9.Accruals: Recognition of revenue or expenses that have been earned or incurred but not yet received or paid.
10.Balance Sheet: A balance sheet is a financial statement that provides information about a company’s assets, liabilities, and equity as of a particular date.
11.Income Statement: The Income Statement is a financial report that details a company’s earnings and expenses during a given time frame.
12.Cash Flow Statement: A financial statement that reports a company’s inflows and outflows of cash over a period of time.
13.Trial Balance: Trial balance is a financial statement that lists all the accounts in a company’s general ledger and their corresponding debit or credit balances.
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14.General Ledger: A record of all financial transactions made by a business.
15.Chart of Accounts: A list of all accounts used by a business to record financial transactions.
FAQs:
What is accounting?
Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions to provide useful information for decision-making.
What is a balance sheet?
A balance sheet is a financial statement that presents a company’s financial position at a specific point in time, showing its assets, liabilities, and equity.
What are assets?
Assets are resources own by a business that have economic value and can provide future benefits, such as cash, inventory, and property.
What are liabilities?
Liabilities are obligations or debts that a business owes to external parties, such as loans, accounts payable, and mortgages.
What is equity?
Equity represents the ownership interest in a business, calculate as the difference between total assets and total liabilities.
What is revenue?
Revenue is the income generated from normal business operations, such as sales of goods or services, before any expenses are deducted.
What are expenses?
Expenses are the costs incurred by a business in order to generate revenue, including rent, salaries, utilities, and cost of goods sold.
What is a trial balance?
A trial balance is a statement that lists all the accounts in the general ledger along with their balances, used to verify that total debits equal total credits.
What is double-entry accounting?
Double-entry accounting is a system where every financial transaction is record in at least two accounts.
Ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.
What is the accounting equation?
The accounting equation is the fundamental principle of accounting that states that a company’s assets must equal the sum of its liabilities and equity (Assets = Liabilities + Equity).
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