| Accounting Equation: |
Assets = Liabilities + Owner's Equity. The accounting equation is the basis for the financial statement called the Balance Sheet hence it is sometimes called the Balance Sheet equation. |
| Accounts Payable: | Also known as Creditors is the money owed by the business to vendors for goods or services received. |
| Accounting Period: | The interval, generally yearly, at which a business closes its books and generates a Profit and Loss Statement and Balance Sheet. |
| Accounts Receivable: | Also known as Debtors is the money the business's customers owe for goods or services provided. |
| Accrual basis: | A method of accounting that records transactions as they occur rather than waiting until cash is exchanged. |
| Assets: | Items of value held by the business. Assets are Balance Sheet accounts. Examples of assets are cash, accounts receivable, and furniture and fixtures. |
| Audit trail: | Information captured by the accounting system that allows you to reconstruct how a transaction affected each account balance, who performed the processing, and so on. |
| Balance Sheet: | Also called a statement of financial position, it is a financial "snapshot" of your business at a given point in time. It lists the assets, liabilities, and the owner's equity or investment. |
| Capital: | Money invested in the business by the owners. It is part of Owners Equity. |
| Cash basis: | An accounting method that reflects only cash activity. Revenue is recorded when cash is received, and expenses are recorded when cash is disbursed. This is contrasted with accrual basis |
| Cash Payments: | Money paid out, generally by cheque, to vendors for goods and services. |
| Chart of accounts: | A complete list of a business's account names and numbers, usually organized into logical groupings. |
| Closing Entries: | Closing the books refers to procedures that take place at the end of an accounting period. Adjusting entries are made, and then the income and expense accounts are "closed." The net profit that results from the closing of the income and expense accounts is transferred to an equity account. |
| Company: | A separate legal entity owned by one or more shareholders. |
| Cost of Goods Sold: | Cost of inventory items sold to your customers. It may consist of several items, such as purchases and cartage inwards. It is used to help calculate Gross Profit. |
| Credits: | One component of every accounting transaction is a credit. Credits increase liabilities, Revenue and Equity and decrease Assets and Expenses. |
| Current Assets: | Assets that are in the form of cash or will generally be converted to cash or used up within one year. Examples are accounts receivable and inventory. |
| Current Liabilities: | Liabilities payable within one year. An example is accounts payable. |
| Debits: | One component of every accounting transaction is a debit. Debits increase Assets and Expenses and decrease Liabilities, Revenue and Owner's Equity. |
| Depreciation: | An allowed amount written-off the value of fixed assets, such as vehicles and equipment. Depreciation is listed among the expenses on the Profit and Loss statement. It is used to recognise the loss in value of an asset due to wear and tear |
| Double-entry accounting: | In double-entry accounting, every transaction has two journal entries: a debit and a credit. Debits must always equal credits. Double-entry accounting is the basis of a true accounting system. |
| Drawing account: | A general ledger account used by sole traders and partnerships to keep track of amounts drawn out of the business by an owner. |
| Expense accounts: | These are the accounts you use to keep track of the costs of doing business. Examples are Rent, Insurance and Wages. Expenses are with Revenue used to calculate Profit. |
| Fixed assets: | Assets that are generally not converted to cash within one year. Examples are equipment and vehicles. |
| General ledger: | A general ledger is the collection of all accounts used to keep the accounting records of a business. |
| Gross Profit: | The profit calculated in the Trading account representing the difference between the Revenue and the Cost of Goods Sold |
| Inventory: | Goods you hold for sale to customers. Inventory can be merchandise you buy for resale, or it can be merchandise you manufacture or process, selling the end product to the customer. |
| Journal: | The day-to-day transactions of a business are recorded in sales, cash receipts, and cash disbursements journals. A general journal is used to enter period end adjusting and closing entries and other special transactions not entered in the other journals. In many computerised systems journals are skipped as the transactions are posted directly to the accounts. |
| Liabilities: | What your business owes creditors. Liabilities are Balance Sheet items. Examples are accounts payable and loans. |
| Long-term liabilities: | Liabilities that are not due within one year for example a mortgage. |
| Markup: | The amount added to the cost of a product by a retailer to determine a selling price. |
| Net Profit: | Also called profit or net income, it is equal to Revenue minus Expenses. Net Profit is the bottom line of the Profit and Loss Statement. |
| Owner's Equity: | The net worth of your company or capital. Owner's Equity comes from investment in the business by the owners, plus accumulated net profits of the business less Drawings. Owner's Equity accounts are Balance Sheet items. |
| Partnership: | An unincorporated business with two or more owners. |
| Post: | To enter transactions into the General Ledger. |
| Profit and Loss Account: | An account in the ledger used to calculate Nett profit by accepting the closing balances of the Trading account, sundry revenue accounts and expense accounts. Like the Trading Account it is a temporary account. |
| Profit and Loss Statement: | Also called an Income statement or a "P&L." It lists your income, expenses, and net profit (or loss). The net profit (or loss) is equal to your income minus your expenses. |
| Revenue accounts: | These are the accounts you use to keep track of your sources of income. Examples are sales, fees and interest received. |
| Sole Trader: | A business with only one owner. |
| Trial balance: | A trial balance is prepared at the end of an accounting period by adding up all the account balances in your general ledger. The debit balances should equal the credit balances. It is an internal accounting report used to help check the accuracy of the bookkeeping process. |
| Trading Account | An account in the ledger used to calculate Gross Profit by accepting the closing balances of the revenue accounts and expense accounts associated with getting the stock ready for sale. For example the sales, purchases, cartage inwards and changes in the opening and closing stock levels |