ACCOUNTING 101
BASIC ACCOUNTING TERMINOLOGIES
What is accounting?
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Accounting is the process of recording, analyzing, and interpreting financial transactions.
It is vital aspect that everyone needs. Accounting helps in terms of tracking down
financial transactions and financial health of individuals and businesses. It keeps record
and tracks down expenses, profits, and losses. Through accounting, there is a
maintenance of accurate financial records for future use.
Accounting Basic Formula:
Assets = Liability + Equity
Assets – this are something or anything that is owned and controlled which has economic value
or future benefits. Assets includes building, machineries, house, car, financial security,
investments and etc. These assets generate income to the owner and can make more profit in the
future. As other asset like building depreciates over time, there is possibility of more income in
the future.
Liability – is something a person or a company owes. This primarily includes cash, accounts
payable, mortgages, warranties, and etc. A person or a company is obliged to pay a certain
amount to the other party or to the lender.
Equity – is the owner’s capital invested. The equity is calculated and evaluated after the
deduction of assets and liabilities. This account is also known as owner’s equity.
*Accounting is essential in today’s generation with the improved technology we had.
Transactions are made either online or offline, so a knowledge in accounting terms and
principles is a must and an edge.
Accounts Receivable (AR) – this accounting term means the amount of money that a customer
or a client owes in the company for the product or services that’s been delivered or used.
Accounts Payable (AP) – this account includes all the amount of money that the company or
businesses owes to the supplier in return for the delivered goods and services.
Accrued Expense – an expense that has been incurred but hasn’t been paid.
Balance Sheet – is a financial statement that reports on all of the business assets, liabilities, and
equity. It covers all the business has.
Inventory – it is a term used to identify the business assets that’s been purchased to sell to its
customers or clients. The more sales, the lesser inventory of items remains.
Income Statement – is a financial statement that covers the business financial profit and loss.
Depreciation – is an accounting term that accounts for a loss of value of an asset over time. An
example of this is a car. The value of a car will depreciate over years.
Expense – is any amount or expenses incurred by the business.
Revenue – is the amount of money earned by the business.
Cash Flow – is the term used to describe the inflows and outflows of cash in a business entity.
Credit – is a term used as an increase in the liability and a decrease in the asset.
Debit – is a term used as decrease in the liability and a increase in the asset.
Interest – is a common term used to describe the amount that is paid to a loan or line of credit
aside from the principal amount.
*The most important aspect in accounting is the statement of profit and loss. In this financial
report, a business owner will know how a business makes money, and how much gain it makes. It
can also determine the business financial health if it is financially stable or not. A good
accounting operation must be present in order to maintain good financial standing of a business
venture.
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*GVM