30 Easy-to-learn English Terms for Account

ing
1. Assets
Definition: Everything a company owns, including cash, accounts receivable (money a comp
any 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 e
mployees’ 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 l
eft.
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 m
uch 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 shareh
olders’ 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 beca
use 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.
Example:
She couldn’t tell me her net salary because she didn’t know all the taxes she was paying; mo
reover, 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 dre
aming 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 s
ells. 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 earn
ing more money, like computers, company vehicles, etc. Intangible assets like expertise or re
putation 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 t
o 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 refe
rs 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 accountant
s to calculate employee earnings.
14. Accounts Payable
Definition: Money that a company owes to other parties—companies or people—called credi
tors. 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 customer
s or clients.
Example:
You can calculate the accounts receivable by adding up all the invoices the company genera
ted.
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 investin
g 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 f
orm 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 de
cided 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 bec
ause 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 bala
nce sheet (showing assets, liabilities and shareholders’ equity, see above), the income stateme
nt (showing revenues and expenses) and statement of cash flows (showing cash flow fluctuati
ons in a certain accounting period).
Example:
The accountants were all busy working on the financial statements as the company was plan
ning 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 res
ponsibility 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:
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 li
abilities.
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 acco
untants complied without delay.
25. Bookkeeper
Definition: A person whose job is to record daily transactions, issue invoices and complete p
ayrolls. Bookkeepers are usually supervised by accountants. Bookkeepers are required to hav
e 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 certai
n 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 coul
dn’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 fi
nancial 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 decid
ed to hire an auditor.
28. Income Tax
Definition: Money that individuals and companies owe to the government, based on the inco
me they make.
Example:
She was a sole proprietor and she hired an accountant to file her income tax return every ye
ar.
29. Value Added Tax (VAT)
Definition: A tax that consumers pay on most products and services, except most food and dr
ugs. Not all countries have a VAT system. In the US, most states have something similar, call
ed a sales tax.
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 calcula
ted 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 inv
esting in our company.