ACCOUNTING TERMS

Profit and
Balance Cash Flow
Loss
Sheet Statement
Statement
1. Asset 1. Expense 1. Cash Flow
2. Liability 2. Fixed Cost 2. Present Value
3. Equity 3. Variable Cost
4. Accounts Payable 4. Revenue
5. Accounts 5. Net Income
Receivable
6. Inventory
7. Debit
8. Credit
9. Depreciation
 ACCOUNTING BASICS

Accounting Terms - Balance

Sheet
• Asset: This includes items having a monetary
value that a company owns, e.g., land, building,
machinery, and patent.
• Liability: This includes money owed by a
company, e.g., loans, and payment to suppliers.
• Equity: This includes portion of funds provided by
owners, e.g., money invested by promoters.
 ACCOUNTING BASICS

Accounting Terms - Balance

Sheet
• Accounts Payable: It includes all of the expenses
that a business has incurred but has not yet paid,
e.g.: Atul Motors purchased spare parts from
suppliers but has not yet made the payment.
 ACCOUNTING BASICS

Accounting Terms - Balance

Sheet
• Accounts Receivable: It includes all of the
revenue (sales) that a company has provided but
has not yet collected payment on, e.g.: Atul Motors
has sold a car to a customer but has not yet
collected the payment.
 ACCOUNTING BASICS

Accounting Terms - Balance

Sheet
• Inventory: It includes the assets purchased by the
company to sell, which remain unsold.
E.g.: Atul Motors bought 100 headlights, but only
60 were sold; 40 units go down as inventory.
 ACCOUNTING BASICS

Accounting Terms - Balance

Sheet
• Debit: It is an accounting entry that shows either
an increase in assets or a decrease in liabilities on
a company's balance sheet.
• Credit: It is an accounting entry that may either
decrease assets or increase liabilities and equity
on the company's balance sheet, depending on the
transaction.
 ACCOUNTING BASICS

Accounting Terms - Balance

Sheet
• Depreciation: It accounts for the loss of value of
an asset over time.
E.g., In 2015, Atul Motors bought a machine with a life
of 10 years. Over the last five years, the machine’s
value depreciated by 50%.
 ACCOUNTING BASICS

Accounting Terms - Profit and Loss

Statement
• Expense: It is the cost incurred by a business,
e.g., spending on machine repairing.
• Fixed Cost: This cost does not change with sales
volumes, e.g., rent and salaries do not change if a
company’s sales are high.
• Variable Cost: This cost changes with sales
volumes, e.g., raw material cost.
• Revenue: It is the total money earned by a
business.
• Net Income: It is the money earned in profits.
 ACCOUNTING BASICS

Accounting Terms - Cash Flow

statement
• Cash Flow: It describes the inflow and outflow of
cash in a business.
• Present Value: This term refers to the value of an
asset today, as opposed to a different point in time.
It is based on the theory that cash today is more
valuable than cash tomorrow, due to the concept of
inflation.