Accounting Glossary

Money a business owes to suppliers or vendors for goods or services received on credit. It's a liability account representing future cash outflows.

Money owed to a business by customers for goods or services delivered on credit. It's an asset account that represents future cash inflows.

An accounting method where revenue is recognized when earned and expenses when incurred, regardless of when cash is exchanged. This provides a more accurate picture of financial performance.

Journal entries made at the end of an accounting period to update account balances before financial statements are prepared. They ensure revenues and expenses are recorded in the correct period.

The gradual write-off of an intangible asset's cost over its useful life. Similar to depreciation but applies to intangible assets like patents, copyrights, and goodwill.

Resources owned by a business that have economic value and can provide future benefits. Assets are listed on the balance sheet and include cash, inventory, equipment, and property.

A financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It represents the accounting equation and provides a snapshot of financial position.

An accounting method where revenue is recognized when cash is received and expenses when cash is paid. Simpler than accrual accounting but less accurate for long-term financial analysis.

A financial statement that shows the inflows and outflows of cash during a specific period, categorized into operating, investing, and financing activities.

A complete listing of all accounts in the general ledger, organized by category (assets, liabilities, equity, revenue, expenses). It provides the framework for the accounting system.

Journal entries made at the end of an accounting period to transfer temporary account balances (revenue, expenses, dividends) to permanent accounts, resetting them to zero for the next period.

The direct costs attributable to producing the goods sold by a company. This includes material costs, direct labor, and manufacturing overhead.

An accounting entry that decreases assets or expenses, or increases liabilities, equity, or revenue. Credits are recorded on the right side of a ledger account.

An accounting entry that increases assets or expenses, or decreases liabilities, equity, or revenue. In double-entry bookkeeping, debits are recorded on the left side of a ledger account.

The systematic allocation of the cost of a tangible asset over its useful life. It represents the wear and tear, deterioration, or obsolescence of assets like equipment and buildings.

An accounting system where every transaction affects at least two accounts, with equal debits and credits. This ensures the accounting equation (Assets = Liabilities + Equity) always balances.

The residual interest in the assets of a business after deducting liabilities. Also known as owner's equity or shareholders' equity, it represents the owners' claim on the business.

Costs incurred by a business in the process of earning revenue. Expenses reduce net income and include operational costs, salaries, rent, and utilities.

Generally Accepted Accounting Principles - a set of accounting standards, principles, and procedures used in the United States to prepare financial statements. It ensures consistency and comparability.

The complete record of all financial transactions of a business, organized by account. It serves as the central repository for accounting data and is used to prepare financial statements.

Revenue minus cost of goods sold. It represents the profit a company makes after deducting the costs directly associated with producing its goods or services.

International Financial Reporting Standards - a set of accounting standards developed by the International Accounting Standards Board (IASB) used in many countries worldwide.

A financial statement that shows a company's revenues, expenses, and net income over a specific period. Also called a profit and loss (P&L) statement.

A record of a business transaction in the accounting system, showing the accounts affected, amounts, and whether they are debits or credits. Journal entries are the first step in the accounting cycle.

Financial obligations or debts that a business owes to external parties. Liabilities represent claims against the company's assets and must be settled over time.

The total profit of a company after all expenses, including operating expenses, interest, and taxes, have been subtracted from total revenue. Also called net profit or the bottom line.

The cumulative net income of a company that has been retained (not distributed to shareholders as dividends) since inception. It's part of shareholders' equity.

Income earned by a business from its primary operations, such as selling goods or providing services. Revenue is recognized when earned, not necessarily when cash is received.

A report that lists all ledger accounts and their balances at a specific point in time. It's used to verify that total debits equal total credits before preparing financial statements.

Current assets minus current liabilities. It measures a company's short-term financial health and its ability to cover short-term obligations.