Top 40 Accounting Terms to Know

It can often feel like accounting is its own language. With so many phrases, acronyms, and organizations to recognize, we have created a cheat sheet for the 40 most commonly used accounting phrases worth knowing.

1. Debit:  An accounting entry to record a transaction where there is either an increase in assets and expenses or a decrease in liabilities, equity, and revenue.

2. Credit:  An accounting entry to record a transaction where there is either an increase in liabilities, equity, and revenue or a decrease in assets and expenses.

3. Double entry accounting method:  A method of recording transactions in which each transaction is entered into one or more accounts. The account debits must equal the account credits.

4. Cash basis accounting:  Accounting method by which revenues and expenditures are recorded when received and paid.

5. Accrual basis accounting:  Accounting method that reports income when earned and expenses when incurred, rather than only in the periods in which cash is received or paid by the company.

6. GAAP:  Stands for Generally Accepted Accounting Principles. GAAP represents a set of rules, conventions, and procedures set by the Financial Accounting Standards Board (FASB) to define accepted accounting practice in the United States.

7. Net worth:  Equal to the excess of assets over liabilities.

8. Book value:  Amount that an asset or liability shows on the balance sheet of a company.

9. Market value:  Amount the investors are willing to pay for a share of stock on the open market.

10. Preferred stock:  A type of capital stock with certain preferences over common stock, such as a priority claim on dividends and assets.

11. Common stock:  The value assigned to a company’s issued shares. This type of capital stock has no preferences, such as regarding dividends or voting rights.

12. Bank reconciliation:  A comparison of the balance shown on the bank statement and the balance of the cash account in the company’s general ledger. Differences are identified and researched.

13. Write off:  Charging an asset account to expense or loss.

14. Bad debt:  Portion of an account, loan, or note considered uncollectible.

15. Contingent liability:  Potential liability arising from a past transaction or a subsequent event.

16. Appreciation:  Increase in the value of an asset such as a stocks, bonds, or real estate.

17. Depreciation:  Expense allowance made for wear and tear on an asset over its estimated useful life.

18. Amortization:   Allocation of the cost of an intangible asset over a period of time.

19. Salvage value:  Selling price assigned to retired fixed assets or unsellable merchandise through regular channels.

20. Asset:  What a company owns, such as any owned tangible or intangible item that has an economic value useful to the owner.

21. Liability:  What a company owes, or a company’s debts or financial obligations.

22. Owners’ or Stockholders’ equity:  An ownership interest in a corporation in common or preferred stock. Equal to total assets minus total liabilities.

23. Paid in capital:  The portion of the stockholders’ equity paid in by the stockholders, as opposed to capital arising from profitable operations.

24. Revenue:  Money received by the company for goods sold or services provided.

25. Expense: The fixed, variable, or accrued costs a company incurs through its operations.

26. Net income:  A company’s net earnings or profit, equal to total revenue minus total expense.

27. General ledger:  A financial record that contains all the asset, liability, owner equity, revenue, and expense accounts.

28. Subsidiary ledger: A financial record that contains the details to support a general ledger control account.

29. Trial balance:  a financial record that lists and compares the totals of debit and credit balances in the general ledger to check that they are equivalent.

30. Chart of accounts:  A complete listing of every account in the general ledger of an organization.

31. Balance sheet:  A financial report summarizing a company’s assets, liabilities, and owners’ or shareholders’ equity at a given time.

32. Profit and loss statement:  A financial report that summarizes a company’s performance by showing revenues and expenses during a specific period of time, such as monthly, quarterly, or annually. Also known as Income Statement.

33. Statement of cash flows:  A financial report that shows cash inflow and outflow from operating, investing, and financing activities.

34. Accounts receivable:  Money that is owed to a company by a customer for products and services that were provided on credit.

35. Accounts payable:  Money a company owes its creditors for delivered goods or services that were purchased on credit.

36. Fixed cost:  Costs that remain constant within a defined range of activity, volume, or time period.

37. Variable cost: Costs that change in direct proportion to changes in productive output.

38. Compilation: Presentation of financial statement data without the accountant’s assurance as to conformity with GAAP.

39. Review:  Accounting service that provides some assurance as to the reliability of financial information. However, it does not involve a CPA examining GAAP.

40. Audit:  A professional examination of a company’s financial statement by a CPA to determine that the statement has been presented fairly and prepared using GAAP.

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