Accounting is a very necessary subject in the field of commerce. It is very hard to imagine business without accounting. Accounting terminology gives the complete description of the terms that are used and it is important to know the accounting terminology before delving into the subject.
Accounting Terminology
It is important to learn about Accounting terminologies before starting with the study of accounting. Besides that, the knowledge about common terminologies of accounting help to easily understand the accounting in detail. Some of them are as follows.
Account
This is the first term is the glossary of the accounting terminology. An Account keeps the records in a classified manner in the general ledger.
Account Balance
It is of two types: first a debit balance and second a credit balance. When the sum of debit entries are more than the sum of credits than it is a debit balance and if the sum of debit entries is less than the sum of credits than it is a credit balance.
Accounting
Accounting is everything about the process that helps to record, summarize, analyze, and report data that concerns financial transactions. Besides that, it also takes care of the profits and loss issues in business.
Learn more Accounting Concepts, Principles and Conventions here in detail.
Accounts Payable
These are the liabilities in a business or an organization that shows the money owed to others. For example, money spent on pending bills and taxes.
Accounts Receivable
This is an asset that represents the money owed by the other to the business and the organization. For example, money the debtors owe the organization or credit sales made by the organization.
Accrual Basis
This is an accounting method that performs many functions like recognizing the revenue when earned, rather than when collected, and expensed that incurred rather than when they are paid. In other words, Accrual basis records all the financial transfers when they occur, i.e. in the period in which they occur rather.
Asset
It is a very important term in accounting terminology. It is a cash convertible property that one owns. For example, land, buildings, cash in bank accounts are all assets. There are broadly two types of assets – current asset and fixed asset.
Audit
The audit is a formal examination and evaluation of an organization’s records to ensure quality assurance, check internal control, elimination of fraud, and to check the effectiveness of the policies.
Balance Sheet
It is the summary report on a specific date of the assets, liabilities and net assets of the business.
Budget
Budget is the total requirement of assets in the whole coming year.
Credit
It represents the reduction of an asset or in other words, the expenditure made or added to a liability. Its entry is done on the right side of the balance sheet.
Debit
It represents the gain in the asset or the earnings made. The entry of debt is done on the left side of a double entry accounting system.
Double-Entry Accounting
Double-entry accounting records financial transactions in which each transaction is entered in two or more accounts. Furthermore, it involves two-way, self-balancing posting. Total debits must equal total credits. Which means for every entry there is an equal and opposing effect.
Expense
An expense is funds paid by the organization or business. For example, paychecks to employees, reimbursements to employees, payments to vendors for goods or services.
FASB
FASB stands for Financial accounting standards board. It is an independent, private, nongovernmental authority that establishes the accounting principles in the United States.
Financial Statements
Financial statements are a series of reports showing a summary view of the various financial activities of the business at a specific point in time. Also, each statement tells a different story about financial activity taking place in the organization. The three main aspects of financial statements are Profit and Loss A/c, Balance sheet, and Cash flow Statement.
Fiscal Year
A fiscal year is a period of 12 consecutive months chosen by an organization as its accounting period which may
or may not be a calendar year. The general fiscal year used in India is 1st April to 31st March.
Fixed Asset
A fixed asset is any real item with a useful life of more than one year and, i.e. it does not have liquidity. For example, the building of a company and the equipment required.
Fund Balance (Net Assets)
Fund balance represents the net assets of the company. To arrive at this number take total assets minus total liabilities. Also, Any excess revenue over expenses or cumulative appreciation or depreciation on investments will become a net asset at the end of the fiscal year.
GAAP
GAAP is an abbreviation for Generally accepted accounting principles which includes conventions, rules. In addition, the procedures that are necessary to define accepted accounting practice at a particular time. Besides that, The highest levels of such principles are set by FASB.
General Ledger
The general ledger is the collection of all assets, liability, fund balance (net assets), revenue and expense
accounts.
Income Statement
An Income statement is a summary report that shows revenues and expenses over a specific period of
time, such as a month, quarter or fiscal year.
Journal Entry
A journal entry is a group of debit and credit transactions that are included in the general ledger. Consequently, All entries in the journal must result in zero so debits must be equal to credits.
Liability
Liability is what the business organization owes to others. For example-loans, taxes, long-term debt from a bond issue, funds held by the college for a third party such as a student group.
Net Income (loss)
Net Income (loss) is the amount a department lost for a specific period of time. The arrival at this number takes total revenues minus total expenses.
Restricted Fund
A restricted fund is a fund established to account for assets whose income must be used for purposes
established by donors or grantors.
Revenue
Revenue is the funds collected by the business, it can also be called income. For example, tuition, fees, etc.
Subsidiary Ledger
A subsidiary ledger is a group of accounts containing the detail of debit and credit entries. For instance, detailed
information contained in Accounts Payable.
Unrestricted Fund
An unrestricted fund is an accounting terminology term that is a fund having no restrictions as to use or purpose.
Solved Questions for You
Q: What is meant by the term liability in accounting?
Ans: Liabilities are the company’s debts or financial obligations incurred during business operations. For example, a long-term liability would be a multi-year mortgage for office space.
Q: What is Cash flow?
Ans: The revenue expected to be generated through business activities or in other words, the expenditure expected to be generated through numerous business activities such as sales, manufacturing, etc. over a period of time.
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