Basic Accounting Terms
This presentation covers fundamental accounting terms essential for understanding financial statements and
bookkeeping. It aims to provide a clear overview of key concepts that are vital for anyone entering the field of
accounting.
Assets and Liabilities
Assets
Resources owned by a business that have economic value.
Liabilities
Obligations or debts that a company owes to external parties.
Net Assets
The difference between total assets and total liabilities.
Understanding Equity and Revenue
Revenue
2
The income generated from
normal business operations,
primarily from the sale of goods
Equity and services.
The residual interest in the 1
assets of a company after
deducting liabilities. Expenses
Costs incurred in the process of
earning revenue, which are
3 subtracted from revenue to
determine profit.
Accounting Principles
Accrual Basis Double-Entry Consistency Principle
An accounting method where Accounting This guideline mandates
revenue and expenses are A system requiring every businesses to use the same
recorded when they are transaction to be recorded in accounting methods over
earned or incurred, regardless at least two accounts, periods for comparability.
of cash exchange. ensuring a balanced
accounting equation.
Financial Statements Overview
Balance Sheet Income Statement Cash Flow Statement
A financial statement that Also known as a profit and loss A report that shows the cash
presents a company's financial statement, it summarizes inflows and outflows from
position at a specific point in revenues and expenses over a operating, investing, and
time, detailing assets, liabilities, specific period, highlighting the financing activities, providing
and equity. company's profitability. insights into liquidity and cash
management.
Journals and Ledgers
General Ledger
2 A complete set of accounts that
summarizes all transactions
recorded in the journal.
Journal
The initial record where all 1
financial transactions are
entered chronologically. Trial Balance
A report that lists all account
3 balances from the general ledger
to ensure total debits equal total
credits.
Depreciation and Amortization
Depreciation Amortization Accumulated
Allocation of tangible asset Similar to depreciation, but for Depreciation
costs over useful lives, intangible assets like patents. Total depreciation recorded
impacting taxable income. against an asset, reducing its
book value.
Budgeting and Forecasting
Budgeting Forecasting Variance Analysis
The process of creating a The practice of estimating
The comparison of budgeted
financial plan that outlines future financial outcomes based
figures to actual performance,
expected revenues and on historical data and market
identifying discrepancies and
expenses over a specific period, analysis, aiding in strategic
helping management
helping guide business planning and resource
understand the reasons behind
operations and financial allocation.
financial outcomes.
decisions.
Conclusion and Importance of Accounting
Terms
Understanding basic accounting terms is crucial for effective financial management and decision-making in
any business. These terms provide a foundation for analyzing financial statements, enabling better insights
into a company's performance and financial health. A solid grasp of accounting principles not only aids in
compliance but also enhances strategic planning and operational efficiency.
Foundation for Analysis
2
Effective Financial
1
Management
3 Enhancing Strategic
Planning