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Glossary of Accounting Terms

posted Jul 28, 2014, 3:36 PM by Surendra Dhanpaul   [ updated Jul 28, 2014, 3:36 PM ]
I know that you can find these anywhere else on the internet but I thought it would be worthwhile to add them here as well, increasing the contents on this site. 

This is a listing of accounting terms that are most commonly and widely used in the language of business. You will find a lot of these terms being used in this document and its best that you familiarize yourself with these since it will benefit you always in the future.



Accounting Equation

Assets = Liability + Capital


Probable future economic benefit owned and controlled by the business entity. In other words, assets are what the business entity owns.

Balance Sheet

This is a financial statement that shows the financial position of the business. It contains everything the business owns (Assets) and owes (liability and capital).

Capital or Owner equity

This is the amount of assets provided by the owner. It is also known as net assets.

Cash Flow

Net profit is not net cash. This financial statement serves to reconcile net cash to net profit and further show the inflow and outflow of cash.

Current Assets

Cash and other assets expected to be turned into cash within a year or operating cycle. These include: cash, short term investments, receivables, inventory, and prepaid expenses.

Depreciation or Amortization

This is the cost charged as expense over the useful life of the assets. It is not a method of valuation.


This refers to a decrease in economic benefit that results in a decrease in owner equity. Incurrence of an expense is usually to generate revenue.

Financial Statements

These are formal records of the entity that reflect the state of affairs of the business.

Fixed Assets

These are assets purchased for long term use in earning revenue for the business. Example: land, building, plant and machinery, etc.

Income Statement

This shows the results of the operations (profit/loss) of the business for a fiscal period or any point in time.

Intangible Assets

These are assets that lack physical form or appearance but expect to bring benefits to the company.


This is an obligation of an entity arising from past events. The settlement of a liability (debt) requires transferring of assets or render service. In other words, this refers to what the business owes.

Long term liability

These are debts that are not payable in full within one year.

Manufacturing account

Business entities engaged in converting raw materials into finished goods deal in manufacturing. A manufacturing account is prepared to show cost of goods manufactured.


These are costs that cannot be traced to the end product. Example of these are: rent, supervisor salary, etc.

Prime cost

These are cost that can be directly traced to the finished goods. Example: direct labour, raw material cost, etc.


This refers to income of a business from normal business activity. This is usually from sales or services provided by the business entity.


In corporations, these are owners of the company. Each share, in essence, represents one piece of the company.

Short term liability

These are debt that are payable within one year.

Trial Balance

This is a listing of accounting ledgers and their balances at the end of accounting period.

Ration Analysis

This is very useful tool used in finance and accounting. It uses figures from financial statements and puts them into perspective. Some commonly used ratios are: Quick Ratio, Current Ratio, Leverage Ratios, etc.