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Basic Accounting Terminology Made SimpleWhether you're interested in pursuing a career in accounting or just need to brush up on terminology to help operate your business, it helps to have a working knowledge of some general, common accounting usage. Here are some useful, straightforward terms and their applications to get you on your way:Accounting is the umbrella phrase used to define a procedure applied in the recording of a business' income and expenses used to calculate tax rates, profitability, and overall financial well-being. Within the overall practice, you'll need to record credits and debits in a general ledger that tracks the account. Your accounting system may produce data including balance sheets, profit and loss statements, and cash flow reports. An account is the entity that holds recorded information about an individual business or business entities or clients grouped by type. Information printed out about the account is called a business statement, a document of paid or unpaid invoices for service. An invoice is a billing record of transactions submitted for payment. General ledger once was a physical document now replaced by accounting software that records postings to the business account -- either value in or value out (revenues, expenditures, accounts payable, and accounts receivable). Accounts payable details business debt, owed for merchandise, products, or services, often acquired on credit. Accounts receivable are documented debt owed you by clients and customers, including sales made on credit. Net income is derived by subtracting all expenses and losses from your annual gross income. |
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