Accounting Terminology Made Easy

You will often have to write documents and messages to an audience who is not familiar with accounting terminology. Consequently, you will have to find a way to explain complex jargon and concepts that will be easily understood by anyone. Here are some examples that can help you:

For accounting statements:

• Balance sheet: summary of a company's financial status, including assets, liabilities, and equity
• Income statement: a summary of income and expenses
• Cash flow: a summary of cash received and disbursed
• Shareholder equity: the capital and retained earnings in an entity attributed to the shareholders

General accounts:

• Asset: property with a cash value that is owned by a business or individual
• Liability: something owed to creditors, vendors
• Revenue: total income before expenses
• Expense: money spent

Debts and Credits:

• Balance the financial information in a company
• Total debits must equal total credits
• Every debit must be matched by a credit, and vice versa
• Rules of recording debits and credits for each account:

Other Important Terms:

• Accounts payable: money owed to creditors, vendors, etc
• Accounts receivable: money owed to a business
• Amortization: gradual reduction of amounts in an account over time, either assets or liabilities
• Auditors: third party accountants who review an entity's financial statements for accuracy and provide a statement to that effect
• Depreciation: decrease in the value of an asset due to age and use
• Dividends: amounts paid to shareholders out of current or retained holdings
• Goodwill: an intangible asset reflecting the value of an entity of its tangible assets
• Invoice: the original billing from the seller to the buyer, outlining what was purchased and the terms of sale, payment, etc.
• Liquid asset: cash or other property that can be easily converted to cash
• Net income: money remaining after all expenses and taxes have been paid
• Retained earnings: the amount of net profit retained and not paid out to shareholders over the life of the business
• Write-off: an accounting entry that reduces the value of an asset due to an impairment of that asset
  

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