Basic Accounting Terms All Business Owners Should Know

MTM Bookkeeping Services prides themselves on being clear about accounting terms and practices to help you make sound financial decisions for your company. We never want you to leave a bookkeeping consultation meeting confused by jargon!  Below is a list of some of the most common accounting terms for your reference along with their abbreviations and definitions. 

Accounts Payable (AP)

Accounts Payable include all of the expenses that a business has incurred but has not yet paid.  This account is recorded as a liability on the Balance Sheet. 

Accounts Receivable (AR)

Accounts Receivable include all of the revenue (sales) that a company has provided but has not yet collected payment on.  This account is on the Balance Sheet, recorded as an asset. 

Asset

Anything the company owns that has monetary value.  This account is listed on the Balance Sheet. 

Accrued Expense

An expense that has been incurred but not yet paid. 

Balance Sheet (BS)

A financial statement that reports on all of the company’s assets, liabilities, and equity. 

Book Value

As an asset is depreciated, it loses value.  The Book Value shows the original value of an asset less any accumulated depreciation.

Liability

All debts that a company has yet to pay are referred to as Liabilities.  Common liabilities include AP, Payroll, and Loans.

Depreciation

Depreciation is the term that accounts for the loss of value in an asset over time.  Common assets that are depreciated include vehicles, equipment, and buildings.  Depreciation appears on the Income Statement as an expense. 

Expense

An expense is any cost incurred by the business.  Expenses are shown on the Income Statement.

Revenue

Revenue is any money earned by the business.  Revenue is shown on the Income Statement.

Income Statement

The Income Statement (often referred to as the P&L) is the financial statement that shows revenues, expenses, and profits over a given period of time. 

Net Income (NI)

Net Income is the dollar amount that is earned in profits.  It is calculated by subtracting expenses from revenue in a given period. 

Accounting Period

An Accounting Period is a span of time that is reported in the financial statements. 

Cash Flow (CF)

Cash Flow is the term that describes the inflow and outflow of cash in a business.  The net cash flow for a period of time is found by taking the beginning cash balance and subtracting the ending cash balance. 

Debit

A debit is an increase in an asset or expense account, or a decrease in a liability or equity account.

Credit

A credit is an increase in a liability or equity account, or a decrease in an asset or expense account. 

General Ledger (GL)

A General Ledger is the complete record of a company’s financial transactions.  The GL is used in order to prepare all of the Financial Statements.

Interest

Interest is the amount paid on a loan or line of credit that exceeds the repayment of the principle balance.

Journal Entry (JE)

A Journal Entry is the method used to record all individual financial transactions made by a company into its journal. 

Trial Balance (TB)

A Trial Balance is a listing of all accounts in the general ledger with their balance amount (either debit or credit).  The total debits must equal the total credits.