Accounting

Accounting Glossary

Accountant

A professional responsible for managing and analyzing financial records to ensure accuracy and compliance with laws and regulations.

Accounting

The systematic process of recording, summarizing, and analyzing financial transactions to provide useful information for decision-making. Read more

Accounting Cycle

The steps followed to keep financial records accurate, from recording transactions to preparing financial statements.

Accounting Period

Financial transactions are recorded and reported in a specific time frame (e.g., month, quarter, year).

Accounts Payable

Money a business owes to suppliers for goods or services received but not yet paid for, recorded as a liability.

Accounts Receivable

Money owed to a business by its customers for products or services delivered but not yet paid for, recorded as an asset.

Accrual Accounting

A method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

Accruals

Revenues earned or expenses incurred that have not yet been recorded, ensuring financial statements reflect the true financial position.

Accrued Expenses

Liabilities representing expenses a company has incurred but not yet paid, such as wages or utilities.

Adjusting Entries

Entries made at the end of an accounting period to update the balances of revenues and expenses, ensuring accurate financial reporting.

Amortization

The gradual reduction of a debt or the cost of an intangible asset over a specific period, spreading the expense over its useful life.

Annual Report

A comprehensive report on a company’s financial performance over the past year, including financial statements and operational activities.

Appreciation

An increase in the value of an asset over time.

Asset

Anything of value owned by a business, such as cash, inventory, equipment, or property, which can provide future economic benefits. Read more

Audit

An official examination of a company’s financial records and statements to ensure accuracy and compliance with accounting standards and laws.

Bad Debt

An amount owed to a business that is unlikely to be collected, usually written off as a loss.

Bad Debt Expense

The cost incurred when a business does not expect to collect money owed to it by customers, recorded as an expense.

Balance Sheet

A financial statement that shows a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

Bank Reconciliation

The process of comparing a company’s financial records with its bank statement to ensure accuracy and consistency.

Bank feed

A feature in accounting software that automatically imports transactions from a business’s bank account into the system.

Bookkeeping

The process of recording and organizing all financial transactions in a systematic manner to ensure accurate accounting.

Bootstrapping

Starting or growing a business using personal finances or operational revenues without external funding.

Break-Even Point

The point at which a business’s revenues equal its costs, meaning the business is not making a profit or a loss.

Budget

A financial plan that estimates income and expenses over a specific period, helping businesses allocate resources effectively.

Business Entity

A legally recognized organization, such as a corporation or partnership, that exists separately from its owners.

Capital

Financial resources used by a business to fund operations, purchase assets, and invest in growth. Read more

Capital Cost

The cost incurred to acquire or improve a long-term asset, such as machinery or buildings, recorded on the balance sheet and depreciated over time.

Cash Accounting

An accounting method where revenues and expenses are recorded only when cash is received or paid out.

Cash Basis Accounting

A simpler form of accounting that records financial transactions when cash is exchanged, rather than when they occur.

Cash Equivalents

Short-term, highly liquid investments that can be easily converted to cash, such as treasury bills or money market funds.

Cash Flow

The movement of money into and out of a business, used to assess its liquidity and financial health.

Cash Flow Statement

A financial report that shows a company’s cash inflows and outflows over a specific period, providing insights into its liquidity.

Chart of Accounts

A list of all the accounts used by a company to organize and record financial transactions in its accounting system.

Closing Entries

Entries made at the end of an accounting period to transfer balances from temporary accounts (like revenue and expenses) to permanent accounts (like equity).

Cost Accounting

A method of accounting that tracks, records, and analyzes the costs associated with a company’s operations. Read more

Cost of Goods Sold (COGS)

The direct costs associated with producing the goods a company sells, including materials and labor.

Credit Entries

Accounting entries that increase liabilities or equity, or decrease assets or expenses, recorded on the right side of a ledger.

Creditors

Individuals or businesses to whom a company owes money for goods or services received.

Current Assets

Assets that are expected to be converted into cash or used up within one year, such as cash, inventory, and accounts receivable.

Current Liabilities

Obligations that a business must settle within one year, such as accounts payable, short-term loans, and accrued expenses.

Current Ratio

A financial metric that compares a company’s current assets to its current liabilities, used to assess its ability to pay short-term obligations.

Debit Entries

Accounting entries that increase assets or expenses, or decrease liabilities or equity, recorded on the left side of a ledger.

Debt

Money that a business borrows and must repay, usually with interest, over time. Common forms of debt include loans and bonds.

Deferred Income

Revenue that has been received but not yet earned, recorded as a liability until the service or product is delivered.

Deferred Tax

A tax obligation that is recognized in the financial records but not yet due for payment, often due to timing differences in income recognition.

Depreciation

The process of spreading the cost of a tangible asset over its useful life, allowing a business to allocate the expense gradually.

Direct Costs

Expenses directly tied to the production of goods or services, such as raw materials or labor.

Dividends

Payments made by a corporation to its shareholders, usually from profits, as a return on their investment.

Double Entry Accounting

An accounting system where every transaction affects at least two accounts, with one account debited and another credited, ensuring the books stay balanced.

Drawings

Money or assets taken out of a business by the owner for personal use, reducing the owner’s equity in the company.

Earnings Before Interest and Taxes (EBIT)

A measure of a company’s profitability that looks at earnings before interest and taxes are deducted.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

A measure of profitability before accounting for interest, taxes, depreciation, and amortization.

Equity

The value of a business after all liabilities have been subtracted from its assets, representing the owner’s stake in the company.

Expense Tracking

Monitoring and recording all business-related costs to maintain budgetary control and financial awareness.

Expenses

Costs incurred in the normal course of business, such as rent, utilities, and salaries, which reduce a company’s profit.

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount to receive immediate cash.

Financial Accounting

Financial accounting is the process of recording, summarizing, and reporting a company’s financial transactions to provide accurate financial statements. Read more

Financial Records

Documents detailing a business’s financial activities and transactions, providing a comprehensive overview of its financial health.

Financial Statements

Reports that summarize a company’s financial performance, including the balance sheet, income statement, and cash flow statement.

Fixed Assets

Long-term tangible assets, such as buildings, machinery, and equipment, that are used in business operations and not easily converted to cash.

Fixed Costs

Business expenses that remain constant, regardless of production or sales levels, such as rent and salaries.

General Ledger

The master record of all financial transactions in a business, used to compile financial statements and track account balances.

Goodwill

An intangible asset that represents the value of a business’s reputation, customer relationships, and brand recognition.

Gross Income

The total income a business earns before any deductions, such as expenses or taxes, are applied.

Gross Profit

The difference between a company’s revenue and the cost of goods sold (COGS), showing the profit made from core business operations.

Income Statement

A financial statement that shows a company’s revenue, expenses, and profit or loss over a specific period.

Indirect Costs

Expenses that are not directly linked to production but are necessary for the business to function, such as administrative salaries or rent.

Interest Expense

The cost incurred by a business for borrowing money, such as loans or bonds, recorded as an expense in the income statement.

Internal Audit

An independent review conducted within an organization to assess the accuracy of financial records and compliance with policies.

Liabilities

Financial obligations a business owes to others, such as loans, accounts payable, and mortgages, representing claims on its assets.

Liquidity

A company’s ability to meet its short-term obligations using its most liquid assets, such as cash or assets that can quickly be converted to cash.

Loan

A sum of money borrowed by a business that must be repaid with interest over a specified period.

Long-Term Liabilities

Obligations that a company must repay after one year, such as long-term loans or bonds.

Net Income

The total profit a business earns after all expenses, taxes, and costs have been deducted from total revenue, also known as net profit or the bottom line.

Net Profit

The amount of money a business earns after all expenses, taxes, and other costs have been deducted from total revenue. It reflects the company’s profitability.

Nominal Ledger

Another term for the general ledger, where all financial transactions of a business are recorded.

Operating Costs

The day-to-day expenses required to run a business, such as rent, utilities, and wages, that are necessary for operations.

Operating Profit

The profit a company makes from its core business operations, excluding interest and taxes, often referred to as EBIT.

Overheads

Ongoing expenses not directly tied to production, such as rent, utilities, and administrative costs.

Owner’s Equity

The owner’s claim on the company’s assets after all liabilities have been paid, representing the net worth of the business.

Payroll

The total amount of money a company pays its employees for their work, including wages, salaries, and bonuses.

Petty Cash

A small amount of cash kept on hand to cover minor or everyday expenses, such as office supplies or small purchases.

Post-Dated Cheques

Cheques written with a future date, which cannot be cashed until that date is reached.

Prepaid Expenses

Payments made for goods or services in advance of receiving them, recorded as assets until the benefits are realized.

Profit

The financial gain made by a business after all expenses have been subtracted from total revenue.

Profit and Loss Statement

Another term for the income statement, which shows a company’s revenues, expenses, and profits or losses over a specific period.

Profit Margin

A financial metric that shows the percentage of revenue that remains as profit after expenses are deducted.

Profit Reports

Statements showing a company’s earnings after expenses are deducted, essential for assessing profitability.

Reconciliation

The process of ensuring that two sets of financial records, such as bank statements and internal records, match to ensure accuracy.

Retained Earnings

The portion of a company’s profits that are kept in the business for future growth or to pay down debt, rather than distributed as dividends.

Revenue

The total income earned by a business from its core operations, such as selling products or providing services, before any expenses are deducted.

Shareholders’ Equity

The owners’ share of the company, calculated as total assets minus total liabilities, representing the company’s net worth to its shareholders.

Suspense Account

A temporary account used to record uncertain or unclassified transactions until they can be properly assigned.

Tax Deduction at Source (TDS)

A tax deducted from payments made to an individual or business and paid directly to the government, typically for salaries, commissions, or rent.

Tax Liability

The total amount of taxes a business owes to the government, based on its taxable income or transactions.

Trial Balance

A report that lists the balances of all ledgers in a business’s accounting system, used to verify that the sum of debits equals the sum of credits.

Unearned Revenue

Money received by a business for goods or services that have not yet been delivered, recorded as a liability until the delivery is completed.

Unrealized Gain/Loss

The increase or decrease in the value of an investment that has not yet been sold, meaning the gain or loss is not yet realized or finalized.

Working Capital

The capital available to a business for day-to-day operations, calculated as current assets minus current liabilities, representing short-term financial health.

Write-Off

The process of removing an uncollectible debt or a worthless asset from a company’s books, reducing the company’s financial burden.

Yield

The earnings generated from an investment, typically shown as a percentage of the investment’s cost.