Accounting Terms

Key concepts and vocabulary in accounting.

Double-entry bookkeeping

Account — the basic classification unit for recording transactions
Chart of accounts — the structured list of all accounts an entity uses
Debit and credit — the two sides of every double-entry transaction
Double-entry bookkeeping — the method of recording every transaction as equal debits and credits
Journal — the chronological record of transactions
Ledger — the record of transactions organized by account
Trial balance — the verification that total debits equal total credits

Adjusting entry — end-of-period entries that update account balances before financial statements
Closing entry — entries that zero out temporary accounts into retained earnings
Retained earnings — cumulative net income kept in the business

Accrual accounting — recording revenues when earned and expenses when incurred, regardless of cash timing
Accounts payable — money owed to suppliers for goods or services received
Accounts receivable — money owed by customers for goods or services delivered
Balance sheet — report of assets, liabilities, and equity at a point in time
Cash flow statement — report of cash inflows and outflows over a period
Cost of goods sold — direct cost of producing or purchasing goods sold during a period
Depreciation — systematic allocation of an asset’s cost over its useful life
Financial statements — the formal reports summarizing financial position and performance
Income statement — report of revenues and expenses over a period
Revenue recognition — the principle governing when revenue is recorded

Generally accepted accounting principles — the US framework governing financial reporting
International financial reporting standards — the international framework used in over 140 countries
Materiality — the threshold at which information influences financial decisions