Basic Accounting Terms:

Account – a record of transactions that apply to a certain area.  For example, your personal checking account is a log of all your personal financial transactions.  Another example, your 401K plan is a retirement account which shows investments made for retirement.

Accounts Receivable (AR) – the amount of money that customers owe a business for goods and/or services.

Accounts Payable (AP) – the amount of money that a business owes in return for goods and services that they need (supplies, rent, machinery, etc.).

Balance Sheet – a report that illustrates a company’s assets, liabilities and owner’s equity.

Credit – a transaction that adds value to an account.  For example, depositing your paycheck into your checking account would be a credit.

Cash Flow – the revenue (cash inflow) and expenses (cash outflow) that a business has over a period of time.

Certified Public Accountant (CPA) – a financial professional who, passed a standardized test, fulfilled government-mandated work experience and completed educational requirements necessary to practice accounting.

Debit – a transaction that removes value to an account.  For example, writing a check to pay for your rent would be a debit.

General Ledger – a main location where all accounts are managed and maintained.

Journal Entries – a record of financial transactions to an account.  For example, your checking account register book is where you would put your entries for all debits and credits regarding that checking account.


Asset – something you own that adds value to your worth.

Liability – something you owe that removes value from your worth

Equity – the investment amount incurred by an owner.

Revenue – income generated.

Expense – costs incurred.

For example: Your home is an asset.  The mortgage is a liability. The equity that you have in the home is all the mortgage payments that you have made, in addition to the deposit you put down.  The expenses would be oil for heat, repairs, electricity, etc.  If you used a portion of your home to rent out to another person, you would be generating revenue with that collected rent.


As you can begin to see, Accounting is not some complicated system of tax codes that only requires attention in April – it has every day, real-life applications.