Basic Accounting Terminology

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account

a place or location within an accounting system in which the increases and decreases in a specific asset, liability, equity, revenue or expense are recorded and stored.

assets

properties or economic resources owned by the business; more precisely, probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

balance sheet

a financial statement providing information that helps users understand a company's financial status; lists the types and dollar amounts of assets, liabilities, and equity as of a specific date; also called the statement of financial position.

chart of accounts

a list of all accounts used by a company; includes the identification number assigned to each account.

equity

the difference between a company's assets and its liabilities; more precisely, the residual interest in the assets of an entity that remains after deducting its liabilities; also called net assets

expenses

outflows or the using up of assets as a result of the major or central operations of a business.

income statement

the financial statement that shows whether the business earned a profit (net income) or loss. It lists the types and amounts of revenue expenses.

journal

a record in which the effects of transactions are first recorded; amounts are posted from the journal to the ledger.

ledger

the collection of all accounts used by a business.

liabilities

debts owed by a business or organization; probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

liquidity

is the ability to generate amounts of cash for specific purposes

posting

the process of copying journal entry information to the ledger.

solvency

is the ability of a company to pay its debts as they mature

statement of cash flows

a financial statement that describes where a company's cash came from and where it went during the period

revenues

inflows of assets received in exchange for goods and services provided to customers as part of the major or central operations of the business

trial balance

a summary of the ledger that lists the accounts and their balances; the total debit balances should equal the total credit balances

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