Accounting is the recording of financial transactions and the keeping, sorting, retrieval, summarizing, and presentation of results in various reports and analyzes. Accounting is also a field of study and expertise dedicated to performing those functions.
Accounting focuses on presenting financial information in the form of general purpose financial statements – balance, revenue statement, etc., which are distributed to outside parties.
Accounting Vocabulary Words for Beginners
| Word | Meaning |
| Accounts Payable | Accounts Payable includes all of the expenses that a business has incurred but has not yet paid. |
| Accounts Receivable | Accounts Receivable include all of the revenue (sales) that a company has provided but has not yet collected payment on. |
| Accrued Expense | An expense that been incurred but hasn’t been paid is described by the term Accrued Expense. |
| Asset | Anything the company owns that has monetary value. |
| Balance Sheet | A financial statement that reports on all of a company’s assets, liabilities, and equity. |
| Book Value | As an asset is depreciated, it loses value. |
| Equity | Equity denotes the value left over after liabilities have been removed. Recall the equation Assets = Liabilities + Equity. |
| Inventory | Inventory is the term used to classify the assets that a company has purchased to sell to its customers that remain unsold. |
| Liability | All debts that a company has yet to pay are referred to as Liabilities. Common liabilities include Accounts Payable, Payroll, and Loans. |
| Cost Of Goods Sold | Cost of Goods Sold are the expenses that directly relate to the creation of a product or service. |
| Depreciation | Depreciation is the term that accounts for the loss of value in an asset over time. |
| Expense | An Expense is any cost incurred by the business. |
| Learn more about personal vs. business expenses here. | |
| Gross Margin | Gross Margin is a percentage calculated by taking Gross Profit and dividing by Revenue for the same period. |
| Gross Profit | Gross Profit indicates the profitability of a company in dollars, without taking overhead expenses into account. |
| Net Income | Net Income is the dollar amount that is earned in profits. |
| Net Margin | Net Margin is the percent amount that illustrates the profit of a company in relation to its Revenue. |
| Revenue Sales | Revenue is any money earned by the business. |
| Accounting Period | An Accounting Period is designated in all Financial Statements (Income Statement, Balance Sheet, and Statement of Cash Flows). |
| Allocation | The term Allocation describes the procedure of assigning funds to various accounts or periods. |
| Business Entity | This is the legal structure, or type, of a business. |
| Cash Flow | Cash Flow is the term that describes the inflow and outflow of cash in a business. |
| Credit | A credit is an increase in a liability or equity account, or a decrease in an asset or expense account. |
| Debit | A debit is an increase in an asset or expense account, or a decrease in a liability or equity account. |
| Diversification | Diversification is a method of reducing risk. |
| Fixed Cost | A Fixed Cost is one that does not change with the volume of sales. |
| General Ledger | A General Ledger is the complete record of a company’s financial transactions. |
| Interest | Interest is the amount paid on a loan or line of credit that exceeds the repayment of the principal balance. |
| Journal Entry | Journal Entries are how updates and changes are made to a company’s books. |
| On Credit / On Account | A purchase that happens On Credit or On Account is a purchase that will be paid at a future time, but the buyer gets to enjoy the benefit of that purchase immediately. “Bartender, put it on my tab…” |
| Overhead | Overhead are those Expenses that relate to running the business. |
| Payroll | Payroll is the account that shows payments to employee salaries, wages, bonuses, and deductions. |
| Receipts | A Receipt is a document that proves payment was made. |
| Return On Investment | Originally, this term referred to the profit that a company was making (Return), divided by the Investment required. |
| Trial Balance | Trial Balance is a listing of all accounts in the General Ledger with their balance amount (either debit or credit). |
| Variable Cost | These are costs that change with the volume of sales and are the opposite of Fixed Costs. |
Common Accounting Phrases
If you talk to an accountant and they say, “I’ve shortened the numbers, but I need a list of the accruals in the current financial year,” you might be tempted to ask what they are talking about. Like any industry, the financial world has its own jargon. Here are some words you can hear in the office.
- “Balance the books”: To add up all the debits and credits.
- “Ballpark figure”: To estimate a number to within a reasonable range (if the number is “within” the ballpark) or beyond a reasonable range (if the number is “outside” of the ballpark).
- “Bean counter”: A mildly insulting term for an accountant or finance professional— particularly one who does not often allow employees to spend money.
- “Bear market”: A phrase commonly used in the investing world. When share prices are falling by at least 20% so investors feel encouraged to sell.
- “Bull market”: A phrase commonly used in the investing world. When share prices are rising by at least 20% so investors feel encouraged to buy.
- “Cooked the books”: A slang term for when an accountant manipulates numbers to make a company’s finances look better than they actually are.
- “Crunching the numbers”: A phrasal verb. To calculate a large amount of numerical data.
- “Drill down”: A phrasal verb. To examine and analyze numbers in depth.
- “Get out of debt”: When a company or individual no longer owes money to people, corporations, or banks.
- “Loophole”: A small mistake in the law that allows someone to exploit the system for their own benefit. For accountants, it’s often heard in the context of taxes.
- “Take out a loan”: To borrow money in the short or long term, usually from a bank.
- “To go bust”: A phrasal verb. When a company loses all of its money.