100 Useful Accounting Terms for Small Business

Introduction

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.

As a leading accounting and tax services firm, Taxstra is dedicated to helping our clients navigate the complex world of financial management. If you have any questions or need assistance with any of your accounting or tax needs, please don't hesitate to contact us at 217-788-0750 or contact@taxstra.com. Our team of experienced professionals is here to help you achieve your financial goals.

Accounting Terms

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.