Accounting Basics Glossary

Accounts Payable

Money a business owes to its vendors, suppliers, or contractors for goods and services received but not yet paid for.

Accounts Receivable

Money owed to a business by its customers for goods or services that have been delivered but not yet paid for.

Accrual Accounting

An accounting method in which revenue is recorded when it is earned and expenses are recorded when they are incurred, regardless of when cash is actually received or paid.

Balance Sheet

A financial statement that shows a business's assets, liabilities, and owner's equity at a specific point in time, providing a snapshot of the company's financial position.

Cash Basis Accounting

An accounting method in which revenue is recorded when cash is actually received and expenses are recorded when they are actually paid, regardless of when they were earned or incurred.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the gradual decline in the asset's value through use, age, or obsolescence.

Double-Entry Bookkeeping

An accounting system in which every financial transaction is recorded in at least two accounts — as a debit in one account and a corresponding credit in another — ensuring the books always balance.

General Ledger

The master accounting record of all financial transactions made by a business, organized by account type and used to prepare financial statements.

Profit & Loss Statement

A financial statement that summarizes all revenues, costs, and expenses over a specific accounting period, showing whether a business made a profit or incurred a loss.

Trial Balance

An internal accounting report that lists all account balances from the general ledger at a specific point in time to verify that total debits equal total credits.