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Common Accounting Terms Every Beginner Should Learn

Accounting may seem like a world of spreadsheets and jargon, but once you understand the key terms, it becomes a powerful tool for decision-making and financial clarity. Whether you're preparing for the CPA exam, launching a business, or just trying to decode your first balance sheet - this glossary-style guide is your starting point.

🧾 1. Assets

What you own.

Includes cash, inventory, equipment, and property. Assets are listed on the balance sheet and categorized as current (short-term) or non-current (long-term).

🧾 2. Liabilities

What you owe.

Debts and obligations like loans, accounts payable, and taxes owed. These are also split into current and long-term liabilities.

🧾 3. Equity

Your ownership stake.

Also called net assets or capital. It’s calculated as:

Equity = Assets – Liabilities

🧾 4. Revenue

Money earned from business activities.

Also known as sales or income. It’s the top line of your income statement.

🧾 5. Expenses

Costs incurred to earn revenue.

Includes rent, salaries, utilities, and depreciation. Subtracted from revenue to calculate profit.

 6. Profit (or Net Income)

What’s left after expenses.

If revenue exceeds expenses, you have a profit. If not, it’s a loss.

 7. Accounts Receivable

Money owed to you by customers.

Recorded when you sell on credit. It’s an asset until paid.

🧾 8. Accounts Payable

Money you owe to vendors.

Recorded when you buy on credit. It’s a liability until paid.

🧾 9. Accrual Accounting

Records income and expenses when they’re earned/incurred, not when cash changes hands.

Provides a more accurate picture of financial health.

🧾 10. Cash Accounting

Records transactions only when cash is received or paid.

Simpler, but less reflective of actual performance.

🧾 11. General Ledger

The master record of all financial transactions.

Every entry flows through the ledger, organized by account.

🧾 12. Trial Balance

A report that lists all ledger accounts and their balances.

Used to check that debits equal credits before preparing financial statements.

🧾 13. Depreciation

The gradual reduction in value of assets over time.

Used to spread the cost of assets like machinery or vehicles across their useful life.

🧾 14. Chart of Accounts

A structured list of all accounts used in your accounting system.

Includes assets, liabilities, equity, income, and expenses.

🧾 15. Double-Entry Accounting

Every transaction affects at least two accounts.

Ensures the accounting equation stays balanced:

Assets = Liabilities + Equity

🎯 Final Thoughts

Learning accounting terms is like learning a new language — once you’re fluent, you can read financial statements, make smarter decisions, and even teach others.

At TaxTime Academy, we simplify accounting through hands-on learning, real-world examples, and downloadable resources that make these concepts stick.