Accounting Terminology
1. Accounting: The process of recording, summarizing, and analysing financial transactions to
provide information useful in making business decisions.
2. Ledger: A book or other collection of financial accounts in which all the transactions of a
business are recorded.
3. Journal: A chronological record of all financial transactions of a business, showing the
details of each transaction.
4. Debit: An entry on the left side of an account, representing the addition of assets or
expenses, or the reduction of liabilities, equity, or income.
5. Credit: An entry on the right side of an account, representing the reduction of assets or
expenses, or the addition of liabilities, equity, or income.
6. Balance Sheet: A financial statement that summarizes a company's assets, liabilities, and
shareholders' equity at a specific point in time.
7. Income Statement: A financial statement that shows a company's revenue and expenses
over a specific period, resulting in a net profit or loss.
8. Assets: Resources owned by a business that have economic value and can be expressed in
monetary terms.
9. Liabilities: Obligations of a business that it is required to pay in the future.
10. Equity: The residual interest in the assets of a business after deducting liabilities, also
known as owner's equity or shareholders' equity.
11. Revenue: The income generated from normal business operations and includes discounts
and deductions for returned merchandise.
12. Expenses: The costs incurred in the process of earning revenue.
13. Trial Balance: A statement that lists the balances of all ledger accounts to check the
accuracy of the bookkeeping.
14. Capital: The amount of money invested by the owner in the business.
15. Drawings: The amount of money or goods taken by the owner for personal use from the
business.
16. Depreciation: The reduction in the value of an asset over time due to wear and tear,
obsolescence, or age.
17. Accrual Basis: An accounting method where revenue and expenses are recorded when
they are earned or incurred, regardless of when the cash is actually received or paid.
18. Cash Basis: An accounting method where revenue and expenses are recorded only when
the cash is received or paid.
19. Double-Entry System: A system of bookkeeping where every transaction affects at least
two accounts, with at least one debit and one credit.
20. Current Assets: Assets that are expected to be converted into cash or used up within one
year, such as cash, inventory, and accounts receivable.
