Accounting Terminology

Specific terms and language is used within every trade and profession, which to the outsider can seem a little daunting. Accounting as a profession requires this specific language, as it enables the profession to communicate with each other and get the job done. PrimeBooks Accounting has compiled a list of the most common accounting terms you might encounter to assist you in communicating with your us and possibly to use at dinner parties.

Accounts Payable The bills for which payment is required by your business to suppliers. They are also sometimes referred to as creditors.
Accounts Receivable

The amounts owed to you by your customers. They are also sometimes referred to as debtors.

Accrual Accounting Income and expenditure is recorded when the transaction occurs not necessarily when the money is received or paid.
Assets Items held by the business that are of value. These can be cash at bank, tools, computers, motor vehicles, office furniture and software just to name a few.
Balance Sheet It is normally referred to as a snapshot of your current financial position at a given point in time. This is where your assets, liabilities and owners equity (capital) are shown.

Cash  Accounting

Income and expenditure is recorded when the money is received or paid instead of when the transaction occurs.
Chart of Accounts The list of accounts used to record a businesses transactions.
Creditor A business or individual whom you owe money to for services or goods you have purchased or received.
Current Assets These are assets that are easily convertible to cash. Some examples of these include cash at bank, accounts receivable and inventories.
Current Liabilities As a general rule these are liabilities that are payable within a one-year period. Some examples of these are accounts payable and tax payable.
Debtor A business or individual whom owes you money to for services your have performed or goods you have sold.
Depreciation An annual non-cash transaction that takes into account the wear and tear on assets. Depreciation is listed as an expense on the income statement.
Equity The net worth of the business. Can also be called owners equity or capital. Equity comes from the owners investment in the business plus or minus any profit or loss.
Loss When your expenses exceed your income. Generally this is not what a business is trying to achieve.
Non-Current Asset Assets that are generally not converted to cash within one year. Examples of these are motor vehicles, land and buildings.
Non-Current Liabilities Liabilities that a generally not payable within a year. Examples of these are mortgages, long-term business loans, and motor vehicle loans.
Income Accounts These are accounts used to record your income.
Income Statement Also referred to as the Profit & Loss Statement or “P&L”. It lists your income, expenses and net profit (or loss). The net profit (or loss) is calculated using the formula Income minus your Expenses.
Inventory Goods or products you hold for sale or resale. Can also be referred to as “stock”. An example of a businesses inventory is goods on shelves in a supermarket.
Liabilities What your business owes to creditors. These consist of current and non-current liabilities. Some examples are accounts payable, loans, income tax payable and GST payable.
Profit When your income is greater than your expenses. Generally this is the reason why a business does what it does and continues to do.
Retained Earnings Profits of the business that have not been paid out to the owners and instead are “retained”.