What are the Basic Terms and Types of Accounting?

Are you interested in becoming an accountant and want to learn some of the basic terminology that you will need to know to succeed? During the Bachelor or Associate Accounting degree programs at Florida National University, you will build your accounting vocabulary that will serve you well as an accountant. So, what are the basic terms of accounting?

What are the Basic Terms of Accounting?

While the NYS Society of CPAs offers an accounting terminology guide, here are a few of the more common accounting terms:

Accounts Payable – the amount owed to a creditor for goods or services.

Accounts Receivable – uncollected amount from a debtor from a completed sale or service.

AICPA – American Institute of Certified Public Accountants, establishes ethical and auditing standards for accountants.

Amortization – gradual or periodic reduction in transaction amount. For example, a business machine or vehicle is added to the cost of a business over 3 to 5 years.

Appreciation – increase in the value of an asset.

Bad Debt – an uncollectible account that can be written off on taxes.

Bank Reconciliation – an accountant determines why there is a difference between the balance of a bank statement and the cash on hand, or general ledger.

Balance Sheets – a statement of assets, liabilities, and capital of a business in a given accounting period.

Capital Gain – a portion of a total gain from a sale of a non-inventory asset, not taxed as an ordinary income. Typically, capital gains taxes are capped at 20 percent.

Cash Flows – the net of cash receipts and disbursements in relation to the activity in an accounting period.

Certified Public Accountant – CPA, an accountant that has completed the requirement education, experience, and examination requirements.

Closing Entry – an entry made at the end of an accounting period to prepare for the next accounting period. Thereby clearing the balances of temporary accounts and summarizing the period’s revenues and expenses.

Collateral – an asset provided to secure a loan.

Corporate Income Tax – the tax a business must pay to the federal, state and city governments.

Cost of Goods Sold – the direct cost of producing a good or service.

Creditor – someone that loans money or assets to another party. For example, a bank that loans money to a business.

Depreciation – expense for wear and tear of an asset over the life of the asset.

Ending Inventory – the amount of merchandise at the end of an accounting period.

Expense – the cost of something for a particular use that is purchased.

Fiduciary – an individual that is responsible for administration of property owned by another person.

Financial Statement – the inclusion of balance sheets, income statements and statement of cash flow for an operations period.

Generally Accepted Accounting Principles (GAAP) – conventions, rules, and procedures to define accepted accounting practices.

General Ledger – a collection of all assets, liabilities, owner’s equity, revenue, and expenses.

Gross Income – starting income before profit, cost and taxes are removed

Gross Margin – the difference between net sales and the cost of goods sold.

Gross Sales – total amount of sales for cash and credit accumulated for an accounting period.

Income Statement – a summary of the revenues and expenses for an accounting period.

Interest Rate – percentage of interest charged for borrowing money.

Invoice – a bill submitted to a purchaser for goods or services.

Ledger – a book of accounts that summaries debit and credit entries.

Liability – the debts owed by a debtor to a creditor payable in cash, goods, or services.

Margin – the excess value of a unit compared to the selling price.

Margin of Profit – the amount of gross profit compared to the net sales.

Net Assets – the excess value of cash or receivables over the liabilities of the business.

Net Income – excess of the total revenue compared with the total expenses for an accounting period.

Net Loss – the difference between expenses and revenue when revenue is exceeded in an accounting period.

Net Sales – gross invoice amounts less adjustments for returns, allowances, or discounts.

Operating Expense – an expense other than the cost of goods sold incurred while running a business.

Operating Profit (or Loss) – the difference between revenue and related costs.

Overhead – the cost of doing business outside of the production or sale of goods or services.

Profit – the positive difference between the selling of products and services and the cost of producing them.

Profit Margin – a measurement of the percentage of each dollar that results in net income.

Receivables – amount of money due from a customer.

Return on Assets – the profitability of a business or how efficiently a business uses its assets to produce income.

Revenue – sale of products and services, plus earnings from interest, dividends, and rents.

Standard Cost – the actual cost for direct materials, labor or factory overhead as determined before they occur.

Statement of Cash Flow – categorizes net cash used during an accounting period as operating, investing, and financing activities. It is reconciled cash at the beginning and end of the accounting period.

Transaction – an event or condition written into an accounting book.

Unearned Income – payments for services not yet performed.

Working Capital – the excess of current assets over current liabilities.

What are the Basic Types of Accounting?

Accrual Accounting – recording financial transactions in the period in which they occur rather than when cash is received.

Cost Accounting – the rational classification, recording, and allocation of current or predicted costs for a product or production process by assessing the variable and fixed costs of each step of production.

Double Entry Bookkeeping – the recording of financial transactions where each transaction is entered two or more accounting to self-balance debits and credits.

Fund Accounting – assets and liabilities grouped to track the amount of money allocated to various operations.

Installment Accounting Method – reporting gain on the sale received or considered to have received.

Managerial Accounting – accounting to assist management in making decisions and planning for the future.

Push-Down Accounting – where values that arise from an acquisition are pushed down (at the purchase price) to the account of the acquired company.

Want to Learn More?

Now that you know more about our accounting degree programs, it is time to learn more about Florida National University. Start a rewarding career as an accountant today and prepare your organization for the future.

Accounting, Bachelor of Science

The accounting degree provides students with a solid academic foundation for entry into professional careers in accounting-related areas of business and government. The program also prepares students to pursue advanced education in accounting and accounting-related fields. Students are cautioned that the Bachelor in Accounting degree alone will not satisfy the eligibility requirements to sit for the Uniform Certified Public Accounting Exam or to practice as a CPA in the State of Florida.

Accounting, Associate of Arts

The program is designed for students planning to pursue a higher-level degree in accounting as well as to prepare the student for employment as an entry-level accountant, bookkeeper, or general accounting clerk. The program is designed to provide the student with an intensive background in general accounting procedures and principles, business principles and automated accounting procedures. The program includes a thirty-nine credit-hour component of general education/liberal arts courses. Florida National University awards an Associate of Arts Degree in Accounting upon graduation.

 

If you are interested in accounting, let Florida National University answer any questions you may have. Contact us today to learn more about our accounting degree programs.