| Term | Definition |
|---|
| Accounts Payable (A/P) | Money the business owes to suppliers or vendors for goods or services purchased on credit. |
| Accounts Receivable (A/R) | Money owed to the business by customers for goods or services provided on credit. |
| Accrual Basis Accounting | Records income and expenses when they are earned or incurred, not when cash is exchanged. |
| Amortization | The gradual reduction of a debt or the cost of an intangible asset over time. |
| Asset | Anything a business owns that has value (e.g., cash, inventory, equipment). |
| Balance Sheet | A financial statement that shows a company’s financial position at a specific point in time (Assets = Liabilities + Equity). |
| Cash Basis Accounting | Records income and expenses only when cash is received or paid. |
| Cash Flow | The movement of money in & out of a business over a period of time. |
| Chart of Accounts | A list of all accounts used in a business’s accounting system. |
| Cost of Goods Sold (COGS) | The direct costs of producing or purchasing the goods sold during a period. |
| Credit | An entry on the right side of an account. It typically increases liabilities, equity, and revenue, and decreases assets. |
| Debit | An entry on the left side of an account. It typically increases assets and expenses, and decreases liabilities and equity. |
| Depreciation | The process of allocating the cost of a tangible asset over its useful life. |
| Equity | The owner’s claim on the business after liabilities are subtracted from assets. Also called net assets. |
| Expense | Costs incurred in operating a business (e.g., rent, utilities, wages). |
| Fiscal Year | A 12-month period used for accounting purposes, which may or may not align with the calendar year. |
| General Ledger | A complete record of all financial transactions over the life of the business. |
| Income Statement (Profit & Loss Statement) | A financial report that shows revenue, expenses, and profit over a specific time period. |
| Inventory | Goods held for sale by a business. |
| Journal Entry | A record of a transaction in the accounting system. |
| Liability | A financial obligation or debt a business owes to others (e.g., loans, accounts payable). |
| Loss | When expenses exceed revenue during a period. |
| Profit | What remains after all expenses are subtracted from revenue. Also called net income. |
| Reconciliation | The process of comparing two sets of records to ensure they match, often done for bank statements. |
| Revenue | Income a business earns from its normal business activities, usually from sales or services. |
| Statement of Cash Flows | A financial statement that summarizes cash inflows and outflows from operating, investing, and financing activities. |
| Trial Balance | A worksheet listing all accounts and their balances to check the accuracy of bookkeeping. |