Important Accounting Terms

If you have a keen interest in financial information and are able to provide an accurate picture of any given financial situation, then you can opt for a career in accountancy. However, before pursuing your career in this particular field, you need to understand the various terminologies used in accounting. Having a clear explanation of these terms will enable you to understand your course program in a much better way. The various important accounting terms include:

Revenue: This term refers the monetary value that you have earned by selling a product or service within a given period of time. An organization may earn its revenue from several factors such as services, sales, as well as from sources like dividend interest, and commission, etc.

Equity: In a broader sense, this term signifies the total claims made against an enterprise. Equity is further sub-divided into two categories. These are Owners claim or capital and Outsiders’ claim or liability. The Outsiders’ claim or liability is defined as the costs, which the company owes to the outsiders including the business creditors and bank overdrafts etc. The Owners claim or capital is calculated as the excess of resources over the total liabilities of the company.

Entity: It can be a government unit, a business enterprise, an educational institute or even a charitable organization and includes each and every element of the financial statement. In certain cases, an entity may encompass several other associated entities. Thereby, it is very important to record the accounting information, in order to accumulate and present those records with reference to an identifiable entity.

Expenses/ Costs: This term refers the total expenditure made a business organization to earn its revenue. The business organization generally consumes benefits of expenditure ‘in present’, which includes salaries and privileges, raw materials consumed, and expenditure used to meet other requirements.

Assets: It can be defined as anything that can be utilized for future operation of the business organization. Generally, it refers to all belongings of the company such as land, debtors, cash, goodwill, building, machinery, and other movable or immovable property of the business organization.