Accounting is frequently called the language of business. Just like any language, there are terms you need to learn in order to properly speak and understand the language. If you don’t know the terms, you’re going to struggle to understand the information and communicate effectively. Learning the accounting vocabulary is an important step toward passing your accounting class. We’ve compiled a list of 51 basic accounting terms with easy-to-understand definitions to help you succeed. In addition, the accounting terminology below helps “unlock” some of the accounting concepts and basic accounting principles that are crucial to accounting.
I usually work with two types of students: accounting majors and everyone else. Most non-accounting majors simply want to pass accounting class and move on. I get it, not everyone likes accounting. However, if you’re in an accounting class, chances are your major deals with business. If that’s the case, you’re going to want to learn these accounting words as they will likely to show up in your other business classes. Additionally, there usually is an overlap in accounting and finance terms, so a lot of these terms are also thought of as basic financial terms or financial terminology.
Below are some of the basic accounting terms I see covered in first semester accounting classes. I’ve even seen MBA accounting classes cover the same terms early in the first semester. This partial accounting dictionary contains simplified definitions I use with my students. They are more practical and I like these definitions because they are simple. Use this list as a supplement to your book or professor’s notes to help solidify your understanding of these accounting terms.
Accounts Payable - the amount owed to creditors on account
Accounts Receivable - the amount customers owe on account
Accrued Expense - when an expense is incurred but not yet paid. An accrued expense is a liability (payable)
Accrued Revenues - when a service is performed, and payment hasn’t been received yet. An accrued revenue is an asset (receivable)
Adjusted Trial Balance - the list and balances of general ledger accounts at a given time after adjustments are made
Amortization - a way to allocate the cost of an intangible asset to an expense over the asset’s useful life
Assets - resources owned by a business
Authorized Stock - the number of shares a corporation is permitted to sell
Balance Sheet - Financial Statement reporting Assets, Liabilities, and Stockholders’ Equity at a specific date
Basic Accounting Formula - Assets = Liabilities + Stockholder’s Equity
Chart of Accounts - the list of general ledger accounts used by a company
Compound Entry - a journal entry using more than two accounts
Cost of Goods Sold (COGS) - total cost of merchandise sold in a given period
Credit - right side of an account
Current Assets - assets expected to be used or converted to cash within the longer of one year or the operating cycle
Current Liabilities - liabilities expected to be paid within the longer of one year or the operating cycle
Debit - left side of an account
Depletion - a way to allocate the cost of a natural resource to an expense over the resource’s useful life
Depreciable Cost - plant asset cost less its salvage value
Depreciation - a way to allocate the cost of an asset to an expense over the asset’s useful life
Dividend - corporate distribution to its stockholders
Expenses - cost incurred or money spent by an entity to generate revenue
First In, First Out (FIFO) - inventory valuation method that records the earliest purchased/produced items as sold first
Fraud - intentional deception resulting in personal gain
Fraud Triangle - financial pressure, opportunity, and rationalization
Gross Profit - Net Sales – Cost of Goods Sold = Gross Profit
Gross Profit Percentage - Gross Profit ÷ Net Sales = Gross Profit Percentage
Income Statement - Financial Statement reporting revenues, expenses, and net income (loss) for a specific period of time
Income Summary - temporary account used to close revenue and expense accounts
Last In, First Out (LIFO) - inventory valuation method that records the most recently purchased/produced items as sold first
Liabilities - amounts owed by a business to creditors
Long-Term Liabilities - liabilities expected to be paid after one year or the operating cycle, whichever is longer
Net Income - when revenues exceed expenses
Net Loss - when expenses exceed revenues
Net Sales - Gross Sales - Sales Returns and Allowances - Sales Discounts = Net Sales
Normal Balance - where an increase to an account is recorded, either Debit or Credit
Outstanding Stock - issued stock that is held by stockholders
Permanent Accounts - (also called Real Accounts) these are all the balance sheet accounts. Permanent accounts are carried forward to the next accounting period.
Prepaid Expense - future expenses that have been paid in advance. Prepaid expenses are assets.
Revenues - amount earned from customers for services performed or sale of goods
Salvage Value - an asset’s estimated value at the end of its useful life
Simple Entry - a journal entry using only two accounts
Statement of Cash Flows - Financial Statement reporting cash inflows and outflows for a specific period of time relating to net change in cash from operating, investing, and financing activities
Stockholders’ Equity - amounts owed by a business to its investors
T-Account - a simplified general ledger that lists the account name (top), debits (left), and credits (right)
Temporary Accounts - (also called Nominal Accounts) these are all the income statement accounts and the dividends account. Temporary accounts are closed, or zeroed out, at the end of the accounting period.
Treasury Stock - a corporation’s issued stock that has been reacquired from stockholders by the corporation
Trial Balance - the list and balances of general ledger accounts at a given time
Unearned Revenues - a liability account used to record cash received before services are performed
Useful Life - an asset’s estimated productive life
These are just some of the terms you'll want to learn for your accounting class. If you're struggling learning these basic accounting terms or need any other help with your accounting class, you can always reach out to me. In addition to my monthly membership plan here, I'm available for one-on-one tutoring here or check out some of my free videos on YouTube here. I'm here to help you pass your accounting class!
FREE Basic Accounting Terms Flashcards!
Enter your name, email, click the button, and check your email.
We won't send you spam. Unsubscribe at any time.