Prof.

El Ghouati
Hassan II Mohammedia University
Master Programs: ICFF & CCA

Accounting Vocabulary
Easy-to-learn English Terms for
Accounting
1. Assets
Definition: Everything a company owns, including cash, accounts receivable (money
a company is going to receive, see below), property and goods.
Example:
The company’s assets were easy to calculate, but it was difficult to quantify the value
of the employees’ expertise.
2. Liabilities
Definition: Everything that a company owes to others, like loans and mortgages.
Example:
Liabilities are recorded on the right side of the balance sheet, while assets are listed
on the left.
3. Balance Sheet
Definition: A document that records a company’s assets and liabilities at a certain
moment in time. If we’re talking about a public company, it also shows the
shareholders’ equity (how much the shareholders own).
The balance sheet is based on the accounting equation:
assets = liabilities + owner’s equity
The balance sheet is important for potential investors because they can see how the
company is doing.
Example:
We studied the balance sheet carefully to see if the assets exceeded the liabilities and
shareholders’ equity.
4. Debit
Definition: An entry that shows what a company spends. Debits are recorded on the
left side of an account.
Example:
She recorded the purchase of the new laptops as a debit entry.
5. Credit
Definition: An entry that shows how much money a company receives. Credits are
recorded on the right side of accounts.
Example:
She realized that the total debits didn’t equal the total credits, so she had to check
each entry all over again.
6. Double Entry
Definition: An accounting system in which each transaction is recorded as both a
credit and a debit, an asset and a liability.
Example:
Double entry bookkeeping gives you a better perspective than single entry
bookkeeping because it helps you make sure each transaction is accurately recorded.
7. Net
Definition: An amount of money that is left after taxes have been paid.
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Example:
She couldn’t tell me her net salary because she didn’t know all the taxes she was
paying; moreover, salaries are not transparent in her company.
8. Gross
Definition: An amount of money before taxes are deducted.
Example:
Her gross income exceeded his, but they still couldn’t afford to get the house they’d
been dreaming about for such a long time.
9. Profit
Definition: The money a business is left with after deducting all the expenses.
Example:
In order to decide if the company was worth investing in, they wanted to look at the
profit it had been making over the previous year.
10. Revenue
Definition: The total amount of money a company receives from the services or
products it sells. The revenue is higher than the profit, because in order to calculate
the profit, you need to first see the costs of doing business.
Example:
Our company has experienced a decrease in revenue due to the financial crisis.
11. Capital
Definition: Cash and funds, but also machinery and tangible assets that can contribute
to earning more money, like computers, company vehicles, etc. Intangible assets like
expertise or reputation are not considered to be capital.
Example:
He couldn’t start a business because he didn’t have enough capital, so he decided to
work as a freelancer for the time being.
12. Cash Flow
Definition: Money coming in (inflows) and going out (outflows) of a company.
Example:
They had a cash flow problem because only a small percentage of their customers
decided to use early settlement discounts, which meant that they had very high
financing costs.
13. Payroll
Definition: A list of all a company’s employees and their salaries. The word payroll
also refers to the total amount of money paid by a company to its employees.
Example:
They have a lot of employees on their payroll, so they employ quite a few payroll
accountants to calculate employee earnings.
14. Accounts Payable
Definition: Money that a company owes to other parties—companies or
people—called creditors. Accounts payable are considered liabilities.
Example:
All of the accounts payable need to be cleared before we can invest in new software.
15. Accounts Receivable
Definition: Money that a company has to receive for products or services bought by
customers or clients.
Example:
You can calculate the accounts receivable by adding up all the invoices the company
generated.
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16. Appreciation
Definition: The increase in the value of a company’s assets. Appreciation can be the
result of an increase in demand for a product or service. The verb form is to
appreciate.
Example:
Although their balance sheet didn’t look very promising, the company seemed worth
investing in because of an anticipated appreciation in the value of their product.
17. Depreciation
Definition: The decrease in the value of products or services a company offers.
Depreciation can be due to a high supply of similar products or services offered by
competitors. The verb form is to depreciate.
Example:
Because the company had almost no competitors just a year ago, nobody would have
thought that their products would depreciate so much.
18. Overhead
Definition: All the expenses a company needs to pay for, like the costs of advertising,
labor, bills and taxes.
Example:
Their overhead expenses were so high that they had been making very little profit, so
they decided to cut back on marketing.
19. Accounting Period
Definition: The time period over which financial statements are produced, usually a
year.
Example:
The accounting period the investors were interested in was longer than a financial
year because they wanted to get the big picture of the company’s profitability.
20. Financial Statements
Definition: Documents that show the financial situation of a company. They include
the balance sheet (showing assets, liabilities and shareholders’ equity, see above), the
income statement (showing revenues and expenses) and statement of cash flows
(showing cash flow fluctuations in a certain accounting period).
Example:
The accountants were all busy working on the financial statements as the company
was planning to refinance its loans.
21. Share
Definition: A unit of ownership in a company. The person or organization who owns
shares (the shareholder, see below) is entitled to dividends (usually cash), but they
also share the responsibility if there are losses.
Example:
He decided to invest in shares of a very profitable company instead of considering a
savings account, because he was sure he could make money fast and he enjoyed
taking risks.
22. Shareholder
Definition: A person or organization (company or any other institution) that owns
shares in a company. Shareholders are, in a way, the owners of a company. If the
company is doing well, the value of the shares goes up. If, on the contrary, the
company is not profitable, the value of its shares decreases.
Example:

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Because he was a shareholder in the company, he had to attend annual General
Meetings in order to keep up with the latest news and to vote for new members of the
Board of Directors.
23. Owner’s Equity
Definition: A part of a company’s assets that the owner has. It’s calculated as assets
minus liabilities.
Example:
Unfortunately, in his company’s case, the owner’s equity didn’t amount to much: they
had a lot of liabilities and not enough assets.
24. Auditor
Definition: A person whose job is to evaluate accounting records in order to make
sure they have been done properly and to check if the company is being run
efficiently.
Example:
When the auditors asked for additional information about the financial statements,
our accountants complied without delay.
25. Bookkeeper
Definition: A person whose job is to record daily transactions, issue invoices and
complete payrolls. Bookkeepers are usually supervised by accountants. Bookkeepers
are required to have less experience than accountants and don’t need a degree in
accounting.
Example:
She was training to become an accountant, but in the meantime she had a part-time
job as a bookkeeper.
26. Chartered Accountant
Definition: An accountant who has a certain amount of experience and who has
passed certain exams that qualify them to be a member of an institution, such as the
Institute of Chartered Accountants in the UK. In the US a similar title is that of
Certified Public Accountant (CPA).
Example:
She’s been studying to become a chartered accountant for a few years now, but she
just couldn’t manage to pass the final exam.
27. Creative Accounting
Definition: An accounting practice that tries to present an improved image of a
company’s financial situation by highlighting mainly the aspects that are favorable.
Creative accounting is considered to be legal, but is often seen as unethical.
Example:
As soon as our potential investor realized we had done some creative accounting,
they decided to hire an auditor.
28. Income Tax
Definition: Money that individuals and companies owe to the government, based on
the income they make.
Example:
She was a sole proprietor and she hired an accountant to file her income tax return
every year.
29. Value Added Tax (VAT)
Definition: A tax that consumers pay on most products and services, except most
food and drugs. Not all countries have a VAT system. In the US, most states have
something similar, called a sales tax.
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Example:
The bookkeeper had to calculate the Value Added Tax in order to issue the invoice.
30. Return on Investment (ROI)
Definition: The profitability ratio of a certain investment. The return on investment is
calculated as the benefit gained from the investment divided by the cost of the
investment.
Example:
As their return on investment hit the lowest point in the last 5 years, they decided to
stop investing in our company.
Exercise
Look at the following sentences and choose the correct answer. Sometimes, there’s
more than one correct answer.
When you’re done, check your answers in the key at the bottom!
1. They had to hire a(n) ___ because Jane was not qualified to produce all the
documents for the audit in June.
A. auditor B. accountant C. bookkeeper
2./3. Her ___(2.) salary at her new workplace was higher than her ___(3.) salary in the
old one, so she was much happier here.
2. A. net B. gross
3. A. net B. gross
4./5./6. The basic accounting equation is: ___(4.) = ___(5.) + ___(6.)
4. A. assets B. liabilities C. owner’s equity
5. A. liabilities B. owner’s equity C. assets
6. A. owner’s equity B. assets C. liabilities
7./8. In order to see what a company’s ___(7.) is/are, you need to have a look at the
___(8.) and subtract all the expenses of doing business.
7. A. profit B. capital C. revenues
8. A. revenues B. profit C. liabilities
9. The ___ is an important accounting document showing a company’s assets,
liabilities and the owner’s equity.
A. cash flow statement B. balance sheet C. income statement
10./11./12. In ___(10.), you need to record ___(11.) on the left side and ___(12.) on
the right side.
10. A. double entry bookkeeping B. single entry bookkeeping
11. A. debits B. credits
12. A. credits B. debits
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13. He was hoping to be able to raise enough ___ to set up his own business in five
years’ time.
A. assets B. capital C. equity
14. As she was calculating the company’s liabilities, she realized she forgot to include
the ___.
A. accounts payable B. accounts receivable
15. They wanted to resort to ___ in order to convince investors of their company’s
high profitability, but then they realized that the auditors that worked for the investors
would see right through it.
A. bookkeeping B. accounting C. creative accounting
16. He had been trying to pass his exams in order to become a(n) ___, but in the end
he gave up and decided to charge a higher fee for his bookkeeping services in order to
make ends meet.
A. chartered accountant B. shareholder C. investor
17. The auditor was looking at the financial statements that the company presented
him when he realized he was actually interested in a different ___. He then had to ask
for a different set of financial statements.
A. income statement B. payroll C. accounting period
18. She was considering giving up working as an accountant for that company and
becoming a self-employed freelancer because the ___ she had to pay was lower. She
also had the expertise to file her own tax return, which was an additional advantage.
A. income tax B. Value Added Tax
19. The idea of becoming a shareholder seemed really bad now that the ___ was lower
than in any other previous year.
A. share price B. return on investment
20. Their ___ was too high during the past few months, so they have been thinking of
either not giving their employees any bonuses this year or investing less in
advertising.
A. overhead B. appreciation C. depreciation