Accounting Terms You Should Know

Accountant works on his laptop creating a presentation

A career in accounting can be extremely rewarding. If you like working with numbers and technology, then a career in accounting might be right for you. Accountants must also be great communicators who are detail-oriented and can work well under pressure. If this sounds like you, then you might consider getting an accounting degree.

A Bachelor of Science in Accounting degree program will provide the skills you need to pursue this rewarding and engaging career. This includes learning about accounting principles, budgeting, job order costing systems, financial statements and ethical issues faced by auditors. You will also learn an assortment of important accounting terms you are likely to come across if you continue into this career field after graduating.

Here are just a few of the accounting terms you should be familiar with.

Accounting

This term refers to keeping, organizing and analyzing financial records for an individual, organization or business. Accounting is especially important in the business world because companies use financial statements to tell if they are making or losing money. They also use these documents to determine the steps needed to improve profits.

Accounts Payable

Accounting involves keeping track of how much money a business is making as well as how much they are spending. Accounts payable tracks the money a business owes to any creditors or suppliers. This is technically a debt that the business owes, so it is important to make sure the number is accurate and can be paid off on schedule.

Accounts Receivable

On the other end of the spectrum is accounts receivable, which refers to any money that is owed to the company from customers or other businesses that have already received their requested goods or services. It is important for businesses to keep track of who owes them money, and how much they are owed, so they can ensure they are paid for the goods and services they provided.

Balance Sheet

Accountants are responsible for keeping track of a company’s finances. They do this by maintaining a balance sheet, which is a report that highlights what the business owns, what it owes and other financial matters related to the company’s profitability.

Capital

This term refers to cash and other assets that business owners can put into the company to help it succeed and grow. The four major types of capital include debt, equity, trading and working capital.

Cash Flow

Part of accounting is to keep track of how much money is going in and out of a business. Cash flow refers to money coming into a business from customers and where money is being spent by a business. A positive number indicates that more cash flowed into the business than out, whereas a negative number indicates the opposite.

Current Assets

Different types of assets are listed on the balance sheet, including current and fixed assets. Current assets are those that are likely to be turned into cash within one fiscal year. This can include cash, debt securities, accounts receivable and inventory.

Diversification

Investments play an important role in every business and accountants help manage those investments. Diversification refers to the process of spreading money into several different investments instead of investing lumps of cash in one place. This can protect businesses from losing a large sum of cash on a risky investment.

Equity

This term refers to the business owner’s interest in a company and how much it is worth. Equity is measured by calculating the difference between assets and liabilities on the balance sheet. The difference represents the value of a business, which can be a positive or negative number.

Fixed Assets

Unlike current assets, fixed assets are those that are likely to last longer than one fiscal year. These are long-term assets, such as buildings, land, company vehicles, machinery and equipment.

Liabilities

Another aspect of accounting involves keeping track of how much a business owes, also referred to as its liabilities. A company’s debts are typically referred to as its liabilities.

Net Income

This term is also commonly referred to as a net profit and it describes the total amount of money a business has earned within a certain period. This can be calculated by subtracting all expenses from a company’s revenue.

Return on Investment

Accountants help companies build bigger profits by finding the best ways to spend less and make more. This includes calculating the return on investment, or ROI. This term refers to how much money is made in relation to how much was spent.

You can learn much more about an accounting career with the Bachelor of Science in Accounting degree program offered by the Colangelo College of Business at Grand Canyon University. This program can prepare you to apply for many rewarding job opportunities, including an accountant, revenue agent, financial examiner, bookkeeper or credit analyst. If you would like to learn more about our accounting degree programs, you can click on the Request Info button located at the top of this page.

 

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