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.