Define common bookkeeping terms and phrases
In order to learn to speak the language of business (accounting), it is necessary to familiarize yourself with some of the most common terms and phrases used by bookkeepers and accountants.
- Account: An account is the physical record of the transactions incurred related to an asset, liability, revenue, expense, etc.
- Accounting Cycle: An accounting cycle is the series of steps to be followed while preparing financial statements. The steps in the accounting cycle are budgeting, journal entries, adjusting entries, ledger posting, preparing financial reports, and closing of accounts.
- Accounts Payable: Accounts payable are those accounts wherein the business has an obligation to pay for receiving goods or services. They are classified as a liability.
- Accounts Receivable: Accounts receivable are those accounts where the business is owed money for providing goods or services. They are assets.
- Accrual Concept: Accrual concept is one of the core accounting concepts. Accrual concept states that a economic event should be recorded in the period in which it is incurred rather than when it is paid for or when cash is received in return. This can apply to assets, liabilities, income, expenses, inventory, payroll, taxes, revenue and interest.
- Asset: Asset is something that is owned by a business that has commercial value or exchange value.
- Balance: Balance is the difference between the credit and the debit sides of an account.
- Balance Sheet: A balance sheet is the list of all the assets and liabilities of the business.
- Cash: Cash refers to the liquid money available with the business in the form of notes and coins for the purpose of payment.
- Cost Assignment: Cost Assignment is the assigning of costs of an account to the various accounts that are responsible for incurring the cost.
- Credit: Credit is an arrangement between a buyer and a seller for deferred payment on goods and services. A credit entry is an entry, which eventually will reduce assets or increase liabilities.
- Debit: A debit is an entry on the left side of a ledger account, which eventually increases the amount of assets or expenses or decreases the liabilities, revenue, or the net worth.
- Dividend : Dividend is a portion of the earnings of the business that is paid to the shareholders of the company.
- Earned Income: Earned income is the income earned by selling goods and services.
- Expenses: Expenses are daily costs incurred to run and maintain a business.
- Gross Profit: Gross profit is the excess of sales over production or sales costs.
- Inventory: Inventory is the stock of raw materials, work in progress or finished goods/merchandise available for sale
- Liability: Liability is a loan or a debt for the business that needs to be discharged.
- Net: Net is the final amount calculated after all the necessary deductions are made to the gross amount.
- Operating Expenses: Operating expenses are the general and administrative and selling expenses of the business.
- Payroll: Payroll is the list of all the employees in the organization and their salaries.
- Profit: Profit is the excess of income over expenses.
- Revenue: Revenue is the money that comes in on account of sales of goods or provision of services.
This is far from a comprehensive list of all of the phrases and terminology associated with bookkeeping. For additional terms and their definitions, click on this link: Glossary of Accounting Terms and Definitions.