10 Basic Accounting Terms Everyone Should Know
– This article was last updated on 19 July 2021-
One great way to improve your accounting, is to use technology, for example by using expense management software to track and regulate business costs. But to get started in the accountancy field, there are many terms that are easily confused, so here we explore some of them:
Balance sheet – A snapshot of the company’s current economic status at a specific date and time. It’s called a balance sheet because the things owned by the company (assets) must equal the claims against said assets (liabilities and equity).
Assets – Things of value belonging to the company. Land, equipment, vehicles and furniture are common examples.
Liabilities – Everything the company owes, be it loans, unpaid bills or bonds.
Equity – Resources invested in the company by its owners. In a small company this is shown as a capital account, and in larger firms it’s shown as shares in stock.
Income Statement – Showing the economic activity over a given period of time, whether yearly, quarterly or monthly. Revenue – Costs = Profit or Loss.
Revenue – All income for the company. Money from the selling of goods and services, or from selling assets that the company owns.
Cost of goods sold – Purchase or manufacturing price of goods or services a company plans on selling to the customer.
Expenses – Cost of operating the business. Any money spent that is not related to selling individual goods or services.
Account Payable – This is an account used to track all outstanding bills from suppliers, vendors, consultants and other sources from whom the company buys goods or services.
Depreciation – The reduced value assets have over time. Every asset decreases in value as time passes, and may eventually need replacement. This includes both major and minor assets.