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Accountingterms are integral concepts that are used in reporting and financial management.
Knowledge ofaccountingterms aids individuals in better understanding the financial health of businesses for effective communication.
Geekflare has listed 25accountingterms you should know as a beginner to kick-start youraccountingjourney!
Accounts Payable (AP)
Accounts Payableor AP is a transaction account within the businesssgeneral ledger.
This account represents your companys responsibility to repay liabilities or debts to your suppliers or creditors.
Such debts are usually for the short term.
Theaccounts payablebalance on your businesssbalance sheetindicates the sum of total outstanding amounts that you owe to the vendors.
Theaccountingindustry sometimes uses the termAccounts Payable(AP) to refer to a business department.
Check out some of thebest Accounts Payable Automation Software.
An accountant usually lists accounts receivables as current assets on the companybalance sheet.
AR balance is a clear indication of the purchases made by your clients in credit.
Asset
The asset represents anything that your business owns with a monetary value.
After matching both credits and debits, thebalance sheetshould always be zero.
Here are some of thebest free balance sheet templatesto help you create the balance sheet with ease.
Book Value
An asset always loses its value in the business world.
It is known as the book value of an asset.
Usually, capital is a liquid fund obtained from own or other sources.
Cash Flow
A cash flow statement simply shows how money or cash flows in and out of the business.
Hence, cash flow explains the movement of liquid money throughout the company.
However, you must set a period for such calculations to get actionable data.
If you see a negative figure, that means you are losing cash faster.
On the contrary, seeing a positive number means your business got a huge cash boost.
8. Credit
You will find credit as an entry on the right-side column of your businesssbalance sheet.
It represents an increase in equities or liabilities or a decrease in assets on theaccountingledger.
Debit
A debit is just the opposite of a credit record.
It is always available on the left-side column of the company ledger book.
Whenever there is a decrease in equity or liability account, it is a debit transaction.
Depreciation
Depreciation gives you an idea of how a business asset loses its value over time.
Only assets with a significant purchase cost may have a depreciation value.
You will find depreciation value in the income statement as an expense, usually a non-cash expense.
Assets like vehicles, factory machinery, etc., have a depreciation value.
Expenses
Whenever you pay for something from your businesss account, that is an expense.
Expenses can be fixed, like paying rent for the office.
Again, there are variable expenses like recruiting daily wage construction workers whose payment varies with time.
Track your company expenses with theseexpense tracking software.
These are examples of fixed costs.
General Ledger
Thegeneral ledgeris the overall record of all the financial transactions over a businesss lifecycle.
For effortless understanding, accountants post transactions into separate sub-ledger accounts depending on the company.
Gross Margin
Gross Marginrepresents your businesss profitability in a percentage figure.
Gross Profit
Gross Profit shows us the profitability of a business in dollars.
you could compute this value by subtracting the cost of products sold from the revenue for the same period.
Liabilities
A company accrues certain financial obligations or debts to run its business operations.
That is known as liabilities on theaccountingbook of any business.
Liabilities are of two types: Current Liabilities or CL and Long-Term-Liabilities or LTL.
Supplier or vendor payments are CLs since you oughta pay them off in less than 12 months.
Liquidity
Liquidity explains how quickly a company can convert materials to cash without depreciating the materials value.
Net Income
Net Income is the monetary amount that your business earned as a profit.
Overhead
A business does not always incur expenses to produce products or provide services to its clients.
There could be other expenses, which are recorded as overhead expenses or cost in the business ledger.
Learn accounting.
Profit and Loss Statement
The Profit and Loss Statement is also known as the Income Statement.
It is afinancial statementprepared by the accountants to summarize your businesss performance and monetary status.
It includes expenses, revenues, and net profits over a while like quarterly, yearly, etc.
Heres Geekflaresfree online ROI calculator.
It is the actual money that a company generates at a given point in time.
Turnover
Turnover is another crucialaccountingconcept that indicates how fast a company conducts business operations.
Sometimes,accountingexperts also use this term to determine how quickly a business collects cash from its credit-based clients.
Hence, we also know turnover as the speed of accounts receivables (AR) operations.
Additionally, turnover can also represent the pace of inventory sales by a company.
you might get answers to all these questions by looking at account statements.
To create a reasonablebusiness budget, you needaccountingdata for your business.
Also, stock market-listed organizations must file companyaccountingstatements to the respective stock markets.
you gotta furnish standardized financial statements that only anaccountingteam can produce.
Again, you’re free to not just write an amount and send it to the authorities.
You need afinancial statementin standard format with audit data that theaccountingteam can prepare.
Final Words
So far, you have learned the essentialaccountingterms in plain English.
you might now confidently speak with fellow accountants in an office or school setup.
