This is the List of Accounting Terms Everyone Should Know

As a “creative” type of person since I was in college, math has never been my thing. And accounting was my sister’s specialty, not mine. Thankfully, big sister sat me down early in my career and showed me why it is important for so-called non-financial people like me to at least have a basic knowledge of accounting terms for getting ahead.

Accounting is the “universal language of business.” Regardless of your role or level within an organization, to communicate well with your boss, understanding that language is important. The accounting process is a system designed to record, classify, report and interpret financial data. Take the time to understand the language.

Common accounting terms you need to learn now:

  1. Accrual method: 

    Recognizes revenue at the point of sale and recognizes expenses when incurred

  2. Asset: 

    An item of value owned by a business or individual, whether or not there is a claim on the item

  3. Balance sheet: 

    Summary statement of the firm’s financial position at a given point in time

  4. Bottom line

    This is profit. Something that affects net earnings or net income, e.g., revenues or expenses.

  5. Capital expenditure: 

    An outlay of funds by a company, expected to produce benefits over a period greater than one year

  6. Current assets: 

    The value of all assets expected to be converted into cash within one year

  7. Current liabilities: 

    Short-term liabilities, due within one year

  8. Depreciation: 

    The systematic charging of a portion of the cost of a fixed asset against the annual revenues generated by the asset

  9. Equity: 

    The value of the owners’ interest in property remaining after all claims and liens against it

  10. Fixed cost:

    An expense that doesn’t vary based on changes in the volume of goods or services a company produces

  11. Gross margin:

    Percent of revenue a company retains after deducting the expenses to produce goods or services. Overhead (salaries, rent, etc.) is deducted from gross margin.

  12. Income statement: 

    Provides a financial summary of the company’s operating results during a specified period

  13. Leverage: 

    The amount of borrowed funds that a company uses to finance company growth and development, usually through the purchase of assets

  14. Liability: 

    A legal commitment to pay some amount or transfer some benefit, at some point in the future

  15. Retained earnings: 

    Those earnings of a company that are not distributed as dividends

  16. Sales forecast: 

    The prediction of a company’s sales over a given period, used as the key input to the short-run financial planning process

  17. Statement of cash flows: 

    A cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents. The cash flow statement is concerned with the flow of cash in and out of the business.

  18. Statement of retained earnings: 

    Reconciles the net income earned in a year and any cash dividends paid with the change in retained earnings between the start and the end of that year

Know the basic accounting concepts of the business world and understand how they affect your company’s bottom line. It’ll give you the confidence to speak up when the time is right. Hey, big sisters never lie!

This Post Has 2 Comments

  1. DR

    This list is quite helpful for the layman who does not deal with accounting However, this list could have a little bit more terms defined. Some of these terms reference other terms that are not defined and make it just a little confusing for the layperson who does not handle accounting items. Example: Item 2 uses the term “claim” yet this is not defined. A few more terms not defined: Lien, dividends, outlay, systematic charging, fixed asset, revenue. Outside of some of the terms not clearly defined, the list seems really good!

    I was trying to find a list to help me understand some terms with my personal finances, and my job requirements. This list has definitely helped.

    1. Dan Rose

      Thank you for reading this post and we’ll take some of your suggestions in mind for a future return to the topic. I think you’ve illustrated the point perfectly. Sometimes people don’t know certain things that we assume they know and we have to be careful about that. Again, thank you so much for reading and commenting and have a terrific day!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.