100 Useful Accounting Terms for Small Business
Welcome to Taxstra's Accounting Glossary! This comprehensive list of accounting terms is a valuable resource for anyone looking to understand the basics of accounting and finance. Whether you're a business owner, student, or just someone interested in learning more about accounting, this glossary is a great starting point. We have provided easy-to-understand definitions for each term, along with examples to help illustrate the concepts.
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Account: A record of financial transactions, such as income and expenses. Examples: Checking account, savings account.
Accounts Payable: Money a business owes to its suppliers. Examples: Accounts payable for raw materials, accounts payable for services.
Accrual: The recognition of income or expenses that have not yet been received or paid. Examples: Accrual of rent, accrual of interest.
Amortization: The process of gradually paying off a debt over time. Examples: Amortization of a loan, amortization of a lease.
Asset: Something of value owned by a business or individual. Examples: Cash, building, equipment.
Audit: An examination of a company's financial records by an independent auditor. Examples: Internal audit, external audit.
Bad Debt: A debt that is not expected to be paid. Examples: Bad debt from a loan, bad debt from a sale.
Balance Sheet: A financial statement that shows a company's assets, liabilities, and equity at a specific point in time. Examples: Year-end balance sheet, monthly balance sheet.
Bank Reconciliation: The process of comparing a company's bank statement to its own records to ensure that all transactions are recorded accurately. Examples: Monthly bank reconciliation, annual bank reconciliation.
Budget: A plan for how a company or individual will spend money in the future. Examples: Annual budget, monthly budget.
Capital Expenditure: Money spent to acquire or improve a fixed asset. Examples: Capital expenditure for a new building, capital expenditure for new equipment.
Capital Gain: The profit made from the sale of an asset. Examples: Capital gain from the sale of a stock, capital gain from the sale of a property.
Capital Loss: The loss made from the sale of an asset. Examples: Capital loss from the sale of a stock, capital loss from the sale of a property.
Capital: The money and property used to start or expand a business. Examples: Capital from investors, capital from loans.
Cash Basis Accounting: A method of accounting where income and expenses are recognized when cash is received or paid. Examples: Cash basis accounting for a small business, cash basis accounting for an individual.
Cash Flow: The amount of money coming in and going out of a business or individual. Examples: Positive cash flow, negative cash flow.
Chart of Accounts: A list of all the accounts used by a business to record financial transactions. Examples: Accounts payable, accounts receivable.
Consolidated Financial Statement: A financial statement that combines the financial statements of multiple companies. Examples: Consolidated financial statement for a holding company, consolidated financial statement for a merger.
Contingent Liability: A potential liability that may or may not occur. Examples: Contingent liability from a lawsuit, contingent liability from a warranty.
Credit: Money or goods given in exchange for a promise to pay later. Examples: Credit card, line of credit.
Current Asset: An asset that is easily converted to cash and is expected to be used within a year. Examples: Cash, accounts receivable.
Current Liability: A liability that is expected to be paid within a year. Examples: Accounts payable, short-term loan.
Deferred Revenue: Income that has been received but has not yet been earned. Examples: Deferred revenue from a subscription, deferred revenue from a deposit.
Depletion: A method of spreading the cost of a natural resource over its expected life. Examples: Depletion of a mine, depletion of a oil well.
Depreciation Expense: The expense incurred from the gradual reduction in value of a fixed asset over its useful life. Examples: Depreciation expense for a building, depreciation expense for a car.
Depreciation: A method of spreading the cost of an asset over its useful life. Examples: Depreciation of a building, depreciation of a car.
Dividend: A distribution of a company's profits to shareholders. Examples: Dividend from common stock, dividend from preferred stock.
Earnings: The amount of money a company makes after all expenses have been paid. Examples: Earnings per share, net earnings.
Equity: The difference between a company's assets and liabilities. Examples: Common stock, preferred stock.
Expense: Money spent on something, usually to make money or keep a business running. Examples: Rent, salaries, utilities.
Financial Ratio: A comparison of different financial figures to analyze a company's performance. Examples: Current ratio, return on equity.
Financial Statement: A document that shows a company's financial position at a specific point in time. Examples: Income statement, balance sheet.
Fiscal Year: A 12-month period that a company uses for financial reporting. Examples: Fiscal year ending December 31, fiscal year ending June 30.
Fixed Asset: An asset that is not easily converted to cash and is used for a long period of time. Examples: Real estate, machinery.
Goodwill: The value of a company's reputation and customer base. Examples: Goodwill from a merger, goodwill from a brand.
Impairment Loss: A loss incurred when an asset's value decreases. Examples: Impairment loss from a decline in market value, impairment loss from natural disaster.
Income Statement: A financial statement that shows a company's revenue and expenses for a specific period of time. Examples: Monthly income statement, annual income statement.
Income: Money received, usually from sales or investments. Examples: Salary, interest.
Inflation: A general increase in prices over time. Examples: Inflation of the cost of living, inflation of the cost of goods.
Insurance: Protection against loss or damage. Examples: Health insurance, life insurance.
Interest: Money paid for the use of borrowed money. Examples: Interest on a loan, interest on a credit card.
Internal Control: Procedures used to ensure the accuracy and reliability of financial information. Examples: Internal control for cash receipts, internal control for inventory.
Inventory: The goods a business has for sale. Examples: Raw materials, finished goods.
Investment: Money put into a project or venture with the expectation of making a profit. Examples: Investment in a stock, investment in a real estate project.
Journal Entry: A record of a financial transaction in a journal. Examples: Journal entry for a sale, journal entry for a payment.
Journal: A record of financial transactions in chronological order. Examples: General journal, cash receipts journal.
Lease: A contract where a person or business uses an asset for a certain period of time in exchange for payment. Examples: Lease of a car, lease of a building.
Ledger Account: A record of financial transactions for a specific account in a ledger. Examples: Ledger account for accounts payable, ledger account for cash.
Ledger: A book or computer program used to record financial transactions. Examples: General ledger, accounts payable ledger.
Liability: Something a business or individual owes to someone else. Examples: Loan, credit card debt.
Lien: A legal claim on an asset as security for a debt. Examples: Lien on a property, lien on a car.
Loan: Money borrowed from a bank or other lender. Examples: Auto loan, home loan.
Long-term Asset: An asset that is expected to be used for more than a year. Examples: Long-term investments, long-term property.
Long-term Liability: A liability that is expected to be paid in more than a year. Examples: Long-term loan, long-term lease.
Loss: When a business or individual spends more money than they make. Examples: Loss from a fire, loss from a bad investment.
Marketable Securities: Financial investments that can be easily bought or sold. Examples: Stocks, bonds.
Merger: The combination of two or more companies into one. Examples: Merger of two banks, merger of two retail stores.
Net Asset Value: The value of a company's assets minus its liabilities. Examples: Net asset value of a mutual fund, net asset value of a real estate trust.
Net Income: The amount of money a company has left after all expenses have been paid. Examples: Net income for the year, net income for the quarter.
Net Loss: The amount of money a company loses after all expenses have been paid. Examples: Net loss for the year, net loss for the quarter.
Notes Payable: Money a business or individual borrows and promises to pay back with interest. Examples: Notes payable to a bank, notes payable to an individual.
Operating Expense: The expense incurred in the day-to-day operations of a business. Examples: Rent, utilities, salaries.
Operating Income: The income a business makes from its operations, before interest and taxes. Examples: Operating income from sales, operating income from services.
Operating Lease: A lease where the lessor is responsible for maintaining and repairing the asset. Examples: Operating lease for a car, operating lease for a building.
Operating Profit: The profit a business makes from its operations, before interest and taxes. Examples: Operating profit from sales, operating profit from services.
Overhead: The indirect costs of running a business, such as rent and utilities. Examples: Overhead for a retail store, overhead for an office.
Payable: Money a business or individual owes to someone else. Examples: Accounts payable, notes payable.
Payroll: The process of paying employees for their work. Examples: Weekly payroll, monthly payroll.
Pension Plan: A retirement plan for employees. Examples: Defined benefit pension plan, defined contribution pension plan.
Petty Cash: A small amount of cash set aside for small expenses. Examples: Office supplies, parking meter fees.
Preferred Stock: A type of stock that gives the holder priority in dividends and assets in case of liquidation. Examples: Preferred stock with a fixed dividend, preferred stock with a variable dividend.
Price Earnings Ratio: A ratio that compares a company's stock price to its earnings per share. Examples: Price earnings ratio for a tech company, price earnings ratio for a retail company.
Private Equity: Investment in private companies, usually for the purpose of buying and restructuring them. Examples: Private equity investment in a restaurant chain, private equity investment in a software company.
Profit Margin: The percentage of revenue that is profit. Examples: Profit margin for a retail store, profit margin for a service company.
Profit: The amount of money a business or individual has left after all expenses have been paid and all income has been received. Examples: Profit from sales, profit from investements.
Property, Plant, and Equipment: Long-term assets used in a business, such as buildings and equipment. Examples: Property, plant, and equipment for a manufacturing company, property, plant, and equipment for a construction company.
Purchase Discount: A reduction in the price of goods or services when they are purchased in bulk or early. Examples: Purchase discount for bulk orders, purchase discount for early payment.
Purchase Order: A document that a business sends to a supplier to request goods or services. Examples: Purchase order for office supplies, purchase order for raw materials.
Rate of Return: The percentage of profit or loss on an investment. Examples: Rate of return on a stock, rate of return on a real estate investment.
Realized Gain/Loss: A gain or loss that occurs when an asset is sold. Examples: Realized gain from the sale of a stock, realized loss from the sale of a property.
Receivable: Money that is owed to a business or individual. Examples: Accounts receivable, notes receivable.
Record Keeping: The process of keeping financial records. Examples: Record keeping for a small business, record keeping for an individual.
Registered Share: A share that is registered in the shareholder's name and can be traded or transferred. Examples: Registered share of common stock, registered share of preferred stock.
Retained Earnings: The portion of a company's net income that is not distributed as dividends, but is kept in the company's reserves. Examples: Retained earnings from previous years, retained earnings for future expansion.
Return on Investment: The percentage of profit or loss on an investment. Examples: Return on investment for a stock, return on investment for a real estate project.
Revenue Recognition: The process of recording revenue when it is earned, rather than when it is received. Examples: Revenue recognition for a service company, revenue recognition for a subscription-based company.
Revenue: The money a business or individual receives from sales or services. Examples: Sales revenue, rental revenue.
Sale Leaseback: A transaction where a company sells an asset and then leases it back for continued use. Examples: Sale leaseback of a building, sale leaseback of equipment.
Sales Tax: Tax on the sale of goods and services. Examples: Sales tax on a car purchase, sales tax on a restaurant meal.
Sales Tax: Tax on the sale of goods and services. Examples: Sales tax on a car purchase, sales tax on a restaurant meal.
Secured Debt: A debt that is backed by collateral, such as a loan secured by a mortgage. Examples: Secured debt from a mortgage, secured debt from a car loan.
Securities: Financial investments, such as stocks and bonds. Examples: Common stock, preferred stock, bonds.
Share Capital: The money that shareholders have invested in a company. Examples: Share capital from common stock, share capital from preferred stock.
Shareholder: A person who owns shares in a company. Examples: Common shareholder, preferred shareholder.
Stock: Ownership in a company. Examples: Common stock, preferred stock.
Straight-line Depreciation: A method of spreading the cost of an asset over its useful life at a constant rate. Examples: Straight-line depreciation for a building, straight-line depreciation for a car.
Tax Credit: A credit that reduces the amount of tax owed. Examples: Tax credit for energy-efficient home improvements, tax credit for research and development.
Tax Deduction: An expense that can be subtracted from income to lower the amount of tax owed. Examples: Charitable donations, business expenses.
Trial Balance: A report that compares the total debit balance to the total credit balance of all accounts to ensure that they are in balance. Examples: Monthly trial balance, annual trial balance.
Unearned Revenue: Income that has been received but has not yet been earned. Examples: Unearned revenue from a deposit, unearned revenue from a subscription.