Basic accounting jargon for business owners

Knowledge of basic accounting terms is important, especially for business owners.  It is also essential to be familiar with the jargon for them to communicate well with bookkeepers, accountants, and other finance professionals regarding the state of their company.  Here are some accounting words and their meanings:

Debit and credit:  When it comes to accounts, a debit entry pertains to an increase in an asset and a decrease in liabilities.  On the other hand, a credit entry decreases assets and increases liabilities. 

Accounts receivable:  This refers to the amount of money owed to a business by clients, customers, or debtors. 

Accounts payable:  This is the amount of money a business owes to outside creditors such as suppliers, and legal and finance professionals.  This is usually a short-term liability. 

Asset and liability:  Assets can be tangible and intangible.  This refers to everything the company owns.  On the other hand, liability refers to a company's financial obligations for a particular period. 

Return on investment (ROI):  The ROI is a result of the net profit divided by the cost of the investment. It is usually expressed in a percentage and is considered crucial in evaluating the growth of a business. 

Profit and loss statement (P&L):  This is a quarterly or annual financial statement that presents the company's financial capacity while taking into account factors like revenues, costs, and expenses. 

As an aspiring accountant, my goal is to help others understand how the accounting process goes even at a basic level.  If you think you're not the best with numbers, don't worry.  You just have to be aware of these terms to have an idea regarding the financial state of a business. 

Hi! My name is Michelle Marquez, and my dream is to become a Certified Public Accountant. I’m currently attending UCLA and working on my accounting degree. For more updates about accounting, check out this blog.