Accounting Terms

Accrual Accounting

Also called accrual basis accounting) recognizes the effects of accounting events when such events occur regardless of the time cash is exchanged. Revenues are recognized when they are earned and expenses are recognized when they are incurred, regardless of when cash is received or paid.

Assets

Are the economic resources a business uses to accomplish its main goal (i.e., increase the owners' wealth). There three are characteristics of assets: future probably economic benefit; controlled by the entity; and result from prior events or transactions. Assets can be current (e.g., cash, accounts receivable) and non-current (e.g., fixed assets, long-term investments)

Liabilities

are debts and obligations of an entity. Liabilities can be short-term (current) or long-term (non-current). Examples of liabilities include salaries payable, accrued rent expense, loan payable, and warranties payable.

Owner’s Equity

(also called net worth or net assets) is what an entity "owes" to owners. Equity can be called shareholders' equity in a corporation or owner's equity in a sole proprietorship. Equity is the difference between assets and liabilities: Equity = Assets - Liabilities. Equity accounts may include contributed capital (paid-in capital) and retained earnings. Equity accounts normally have credit balances.

Capital

Capital is the amount of cash and other assets owned by a business. Capital can also represent the accumulated wealth of a business, represented by its assets less liabilities. Capital can also mean stock or ownership in a company.

Revenue

is an increase in assets (e.g., cash sale) or decrease in liabilities (e.g., recognition of unearned service revenue as earned revenue) resulting from operating activities of an entity. Revenue accounts normally have credit balances. Revenues are compared to expenses to calculate net income

Expense

are decreases in assets (e.g., rent expenses) or increases in liabilities (e.g., accrued utility...