Accounting terms

Emma Glover

I have been here for 5 weeks now and have been taught a lot of things that sounded like gibberish to me in the beginning and went over my head at times. I thought to myself I would not be the only one thinking this. So, the thought came to mind that I should break down a few of the basic terms so that everyone else can understand them like I do now.

Assets – assets are something that someone owns, this can generate cash, or it can be converted into cash such as property, vehicles, equipment, and inventory.

Debtor – a person or business that owes a business money.

Current Asset – an asset in cash or something you can convert into cash within 12 months.

Fixed Asset – a physical asset used in the running of a business.

Intangible Asset – non-physical assets with no fixed value, such as goodwill and intellectual property rights.

Capital – wealth in the form of money or property owned by a business.

Liability – any financial expenses or amount owed by a business.

Current Liability – a liability that is due for payment within 12 months.

Creditor – a person or business that allows you to purchase a good or service with an agreement to pay at a later date. A creditor can also be anyone who you owe money to such as a lender or supplier.

Drawings – a personal expense paid for from the business account.

Equity – the value of ownership interest in the business, calculated by deducting liabilities from assets.

Break–Even Point – the exact point when a business’s income equals a business’s expenses.

Financial statement – a summary of a business’s financial position for a given period. Financial statements can include a profit & loss, balance sheet and cash flow statement.

Turnover – the total money earned by a business before you deduct any expenses.

Gross Profit – the difference between sales and the direct cost of making the sales.

Inventory – a list of goods or materials a business is holding for sale.