Accounting Terms Every Businessperson Should Know

 

This glossary of accounting terms will get you up to speed if you're new to business.

 

A big part of understanding the financial side of your business consists of nothing more than learning the language of accounting. Once you're familiar with basic terms, you'll be better prepared to make sense of basic written reports and better able to communicate with others about important financial information.

 

Accounting is a general term that refers to the overall process of tracking your business's income and expenses, and then using these numbers in various calculations and formulas to answer specific questions about the financial and tax status of the business.

 

Bookkeeping refers to the task of recording the amount, date, and source of all business revenues and expenses. Bookkeeping is essentially the starting point of the accounting process. Only with accurate bookkeeping numbers can meaningful accounting be done.

 

An invoice is a written record of a transaction, often submitted to a customer or client when requesting payment. Invoices are sometimes called bills or statements, though the latter term has a separate meaning, as explained below.

 

A ledger is a physical collection of related financial information, such as revenues, expenditures, accounts receivable, and accounts payable. Ledgers used to be kept in books preprinted with lined ledger paper -- which explains why a business's financial info is often referred to as the "books" -- but are now commonly kept in computer files that can be printed out.

An account is a collection of financial information grouped according to customer or purpose. For example, if you have a regular customer, the collection of information regarding that customer's purchases, payments, and debts would be called his or her "account." A written record of an account is called a statement, as explained below.