1. Introduction to accounting

Word

Example

accounting

Accounting is essential for tracking a company's financial health

bookkeeping

Proper bookkeeping helps businesses manage their expenses effectively

ledger

All transactions are recorded in the ledger

assets

The company's assets include cash, equipment, and real estate

liabilities

The firm has to manage its liabilities carefully

equity

Equity represents the ownership interest in a company

revenue

The company's revenue increased by 10% last year

expenses

Reducing expenses is crucial for profitability

balance sheet

The balance sheet provides a snapshot of financial position

double-entry system

The double-entry system ensures that debits and credits are balanced

debit

A debit entry increases assets and expenses

credit

A credit entry increases liabilities and revenue

journal

Transactions are initially recorded in the journal

financial statement

The company prepares a financial statement quarterly

trial balance

A trial balance ensures the books are balanced

general ledger

The general ledger contains all financial transactions

fiscal year

The company's fiscal year ends in December

chart of accounts

Every business has a chart of accounts to classify transactions

depreciation

The company calculates depreciation on its assets yearly

accrual basis

Under the accrual basis, revenue is recorded when earned

cash basis

The cash basis records revenue when cash is received

accounts payable

The company's accounts payable must be settled monthly

accounts receivable

The company has a large accounts receivable balance

financial reporting

Financial reporting helps stakeholders understand the company's performance

GAAP

The company follows GAAP standards

IFRS

Many multinational firms adopt IFRS

cost accounting

Cost accounting helps in pricing decisions

audit trail

An audit trail ensures all transactions are verifiable

internal control

Strong internal control prevents fraud

financial ratio

The financial ratio analysis helps assess company performance

inventory

The company maintains an accurate inventory record

fixed assets

Buildings and machinery are examples of fixed assets

current assets

Cash and receivables are current assets

profit and loss statement

The profit and loss statement shows the company's earnings

cash flow

A positive cash flow is crucial for business operations

operating income

Operating income is calculated before taxes

tax liability

The company has a high tax liability this year

break-even point

The business reached its break-even point within a year

retained earnings

The company reinvested its retained earnings into expansion

dividends

Shareholders receive dividends annually

net income

Net income is calculated after all expenses

overheads

Overheads include rent and utilities

liquidity

High liquidity ensures smooth operations

solvency

Solvency is critical for long-term stability

risk management

Effective risk management minimizes financial loss

accounting cycle

The accounting cycle includes recording and reporting transactions

matching principle

The matching principle ensures expenses align with revenues

going concern

The going concern assumption assumes the business will continue operating