7 Common Accounting Terms and Definitions
Posted by Administrator at 11:17 AM on Apr 25, 2022 File ID 71965886 | © Syda Productions | Dreamstime.com
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Whether you are the CEO of a small-scale business or a well-established one, learning the basics of accounting and finances is a must if you wish to run your business successfully. Here are ten standard accounting terms and definitions to help you understand and effectively communicate with your online bookkeeping service provider.
- Balance Sheet
A balance sheet can be defined as the financial statements that provide snapshots of an organization’s shareholder equity, assets, and liabilities at specific moments in time. To create a balance sheet, an accountant uses the basic balance sheet equation that is “Capital/Stockholder Equity + Liabilities = Assets.”
- Assets
Assets are everything owned by the business without a loan or lien. Assets can be in the form of goods sold to customers or items that depreciate over time, such as property, buildings, equipment, warehouse inventory, investments, and cash.
- Loss
When an expense exceeds the revenue of an asset or when a product or service sells for less than its manufacturing or supply cost, it is called a loss.
- Gross Margin
Also known as profit, gross margin is the total number of sales made in a year after subtracting the cost of sold goods. Its formula is “Net Sales – Cost of Goods Sold = Gross Margin.”
- On Account/On Credit
In terms of accounting, on account or on credit means services or products that have been sold with the use of credit. No payment has been provided for the items, and there might be an interest in ownership of these.
- Revenue
Otherwise known as sales, revenue is the total amount of income that a business makes through normal business operations. Revenue may include credit purchases, cash sales, interest income, and subscription fees. “Revenue = Number of Units Sold x Sales Price.”
- Trail Balance
It is a periodic bookkeeping worksheet that ensures the mathematical accuracy of bookkeeping system entries. A trial balance comprises the balance of ledgers into the debit and credit columns that equal each other.
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