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Basic Accounting Terms Explained

Basic Accounting Terms Explained

  • July 23rd, 2014
  • jrhassociates
  • Comments Off on Basic Accounting Terms Explained

In order to start a conversation about accounting, it’s important to clarify what certain industry terms mean in order to establish a universal understanding. After all, what good would it be to discuss these things if we weren’t all on the same page with regard to the terminology? It certainly wouldn’t be productive.

As we begin to roll out this blog over the next few weeks, we’ll be touching on many fundamental principles of accounting in order to provide a basic glossary of terms and phrases. This post of basic account terms explained will provide a reference for all of our future posts when we refer to these topics further in depth.

Basic Accounting Terms Explained

Accounting: Accounting is “the action or process of keeping financial accounts,” if you were to consult a dictionary. The problem with such a vague definition is that it makes the job seem much less complex than it actually is. All businesses, no matter their size, have an array of fiscal and legal obligations as far as their operations are concerned. As businesses grow, more and more pieces fall into play, making the task of keeping track of the company’s records all the more difficult.

Accountants are experienced professionals who know the ins and outs of the legalities of business operations, and are equipped with the knowledge to handle all of your financial matters. This is why all businesses should entrust the financial recordkeeping to a seasoned accountant who understands every aspect involved in the process.

Accounts Payable: Every business relies on the products and services of other businesses in order to operate. This means that all businesses wind up owing money to other companies, such as suppliers, vendors, and creditors. Any bills that you have not yet paid to those companies are categorized as ‘accounts payable.’ On your balance sheet, the sum of all of your accounts payables is listed as a ‘current liability.’

Accounts Receivable: Contrariwise, other businesses will require your company’s products and services in order to operate. Any company that owes you money and has not yet paid is considered an accounts receivable. On your balance sheet, the sum of all of your accounts receivables is listed as a ‘current asset.’

Assets: Anything of value that is owned by your business is considered an asset. This includes buildings, land, equipment, furniture, vehicles, inventory, cash, etc.

  • Current Assets: Anything that will used within a year, such as cash, inventory, and accounts receivable.
  • Fixed Assets: Long-term assets such as buildings, land, or equipment.

Balance Sheet: A statement that summarizes your company’s financial standing, showing your assets, liabilities, and owner’s equity during a specific period of time.

 

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