Basic Accounting Terms and Definitions

Every profession uses its own language with its own definitions and context. Accountants use terminology foreign to many outside of this profession. Understanding the financial condition of the business and the accounting principles used to determine the financial condition is critical for business owners. Understanding the meaning behind basic accounting terms opens the communication between accountants and business owners.

Accounting Equation

Accrual Accounting

Chart of Accounts

Net Income

Net income represents the amount of money the company earns after considering its expenses for the period. The calculation of net income appears on the company’s income statement. The income statement lists all of the revenues earned during the period, all of the expenses incurred during the period and the difference between the two. If the revenues exceed the expenses, the company reports a net income. If the expenses exceed the revenues, the company reports a net loss.