Good to know terms & definitions
Basic Accounting Equation Assets - Liabilities = Equity
Assets – Resources owned by a business that have economic value.
Liabilities – Debts or obligations a company owes.
Equity – The owner’s claim after subtracting liabilities from assets.
Balance sheet – Shows assets, liabilities, and equity at a point in time.
Income statement – Reports revenue, expenses, and profit over a period.
Cash flow statement – Shows how cash enters and exits the business.
Types of Assets
• Current Assets: Assets expected to be converted into cash within a year.
• Fixed Assets: Long-term tangible assets like machinery and buildings.
• Inventory: Goods available for sale or raw materials used in production.
• Prepaid Expenses: Payments made for expenses before they are incurred.
• Accounts receivable: Money owed by customers.
• Petty cash: A small amount of cash kept on hand for minor expenses.
• Amortization: The gradual repayment of a loan or spreading out of intangible asset costs.
• Depreciation: The reduction in the value of an asset over time.
Planning & Forecasting
• Budgeting: Planning future income and expenses.
• Forecasting: Predicting future financial performance.
Types of Liabilities
• Current Liabilities: Liabilities due within a year.
• Long-Term Liabilities: Debts or obligations not due within the current year.
• Deferred Revenue: Money received before services or products are delivered.
• Accounts Payable: Money owed to vendots or suppliers.
Financial Health & Analysis
• Liquidity: A company’s ability to meet short-term obligations.
• Working Capital: Current assets minus current liabilities.
• Break-Even Point: When total revenue equals total costs.
• Return on Investment (ROI): Profit relative to an investment.
• Capital: Financial assets or resources used for operations.
• Capital Expenditure: Money spent to acquire or upgrade long-term assets.
Income, Costs & Profitability
• Revenue: Income earned from operations.
• Expenses: Costs incurred in generating revenue.
• Cost of Goods Sold (COGS): Direct costs of producing goods sold.
• Gross Profit: Revenue minus COGS.
• Operating Income: Profit from regular business operations.
• Net Profit: Total profit after all expenses, taxes, and interest.
• Profit: Financial gain after expenses.
• Loss: When expenses exceed revenue.
Variable Costs: Costs that change with production volume.
Fixed Costs: Costs that remain constant regardless of production.
Overhead: Indirect costs like rent and utilities.
Payroll: Total compensation paid to employees.
Taxable Income: The portion of income subject to taxes.
Principles & Systems
• Double-Entry Accounting: A system where every transaction affects at least two accounts.
• Accrual Accounting: Records income and expenses when earned or incurred.
• Cash Accounting: Records transactions when cash is received or paid.
• Journal Entry: The method used to record transactions.
• General Ledger: A record of all financial transactions.
• Trial Balance: Ensures debits and credits are equal.
• Accounts Reconciliation: Comparing records to ensure accuracy.
• Audit: Examination of financial records.
• GAAP: Common accounting principles and standards.