Accounting Glossary

Definitions of some basic accounting terms and concepts.

Here is an Accounting Glossary of some basic accounting terms and concepts that are applicable to most standard accounting systems.

standard accounting system

The basic accounting terms I'm listing here are the ones I think most small business owners would need to reference.

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Accounting Glossary Terms

Accounting The process of recording, classifying, reporting, and interpreting financial data of an organization.

Account An accounting devise used to record and summarize increases and decreases in revenue, expense, asset, liability, and equity items.

Accounting equation An expression stating the equality of assets and equity, stated as such: Assets = Liabiilites + Owner's Equity.

Account Payable A debt owed to a creditor for goods or services purchased on credit.

Account Receivable An amount due from a debtor for good or services sold on credit.

Asset A property or resource owned by an individual or organization.

Balance Sheet A basic accounting financial report showing the assets, liabilities, and owner equity if an organization on a specific date. Learn more here.

Bookkeeping The record making phase of accounting. Entering transactions into journals. Paying bills. Preparing sales invoices.

Budgeting The phase of accounting that deals with planning the activities of an enterprise and then comparing actual performance to those plans.

Business Transactions An exchange of goods, services, money, or the right to collect money.

Capital Stock Ownership equity in a corporation, the result of selling shares of corporate stock to its shareholders.

Chart of Accounts A list of all accounts being used in a particular standard accounting system, in this order: assets, liabilities, equity, revenue, expenses. See a sample Chart of Accounts here.

Controller The top accounting officer of a large enterprise. Would be responsible for the entire accounting function, and would report directly to the owners, or possibly to a VP of Finance.

Cost accounting The part of basic accounting that focuses on collecting and controlling the costs of producing a certain product or service.

Cost of Goods Sold The cost of producing a good to sell, or the cost of offering a service to your customer. It includes materials to make the goods, labor costs to manufacture the goods (not administrative labor), subcontracted services costs, and freight or postage costs to deliver - whatever specific costs you have to buy to make a good or provide the service.

Equity A right, claim, or interest in a property. As it pertains to Owner's Equity, it would be an interest in the organization.

Expense Goods or services consumed in operating an enterprise.

Income Statement A basic accounting financial statement showing revenues earned by a business, the expenses incurred in earning that revenue, and the corresponding net income or loss. Learn more here.

Invoice An itemized statement of goods or services bought and sold.

Journal Book of original entry in your standard accounting system, in which business transactions are first recorded, and from which transactions are posted to ledger accounts. (think checkbook)

Ledger A group of accounts used by a business to record its transactions. (like summarizing your checkbook entries into separate lists by name or type of entry)

Liability A debt owed by the organization.

Posting The act of transcribing amounts from a journal to a ledger account.

Purchase order A standard accounting system form. This business form is used by a purchasing department to place an order. It authorizes the supplier to ship the merchandise ordered.

Trial Balance You probably won't use this, but you may here it from your CPA. It is a list of your ledger accounts with the balance in each account, and the total of all debit and credit balances, which should equal zero. This is a Chart of Accounts with balances.

Voucher A business form on which a transaction is summarized, its correction verified, and its recording and payment approved. I think the most widely used voucher is a bill received for goods or services purchased. The bill would be compared to the purchase order, if applicable, verifying that the bill is correct, then the information would be entered into an accounting software system as a voucher, to be paid at a later date.

This accounting glossary is by no means complete, and I may add more basic accounting terms and concepts in the future, but I hope you find it helpful!

Feel free to refer back to this accounting glossary as you move about this site. You can always find it on the main table of contents, just look for Accounting Glossary.

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Learn more about basic accounting.

Learn how to track your sales to grow your business.

Get ideas for maximizing your cash flow.

Learn how to set up and use a Cash Disbursements Journal.

Learn how to set up and use a Cash Receipts Journal.