Bookkeeping Key Terms

Learn bookkeeping key terms in order to understand the bottom line of your business

Bookkeeping is a necessary part of any business. It is the process of tracking your sales and expenses and is how you know whether you are making a profit or not. The bookkeeper uses a chart of accounts to identify the assets, liabilities and owners’ equity. After establishing this, the bookkeeper lists the accounts in a ledger and leaves room for new accounts as the business expands.

Deducting the liabilities from the assets is the way to determine owners’ equity. Once the bookkeeper does this, she than uses a journal to keep track of the business's day-to-day operation. Journal entries record every transaction the business makes on a daily basis, and mainly involves expenses and revenue.

 

Asset

An asset is something you own, such as cash, a car, a building or accounts receivable. It can even be something intangible, such as a reputation or the intellectual rights. In terms of bookkeeping, however, most assets are tangible, i.e., can be assigned a value.
Try: Accountz gives a glossary of accounting terms, which includes assets and the different types of assets. Sweet Haven Publishing Services covers the basics of setting up a chart of accounts and more information on assets and their two forms: current and fixed.

Accounts payable (AP) or liability

A liability, or accounts payable, is something you owe, such as a mortgage or a car payment.
Try: Investopedia provides a definition of an accounts payable or liability with some examples.

Owners' equity, capital or equity

Owners' equity or capital is the value of what the owner has invested in the business.
Try: AccountingAide.com has a sample statement of owner's equity.

Ledger

A ledger has a list of all a business's assets and liabilities, each on its own page.
Try: Bookkeeping Services India gives additional information on the general ledger. Accounting System Basics provides more information on the general ledger.

Revenue or income

Revenue or income is the money a business makes. Revenue comes from the sale of inventory or the money you earn from fulfilling contracts.
Try: So You Want to Learn Bookkeeping offers a formal definition of revenue or income, an informal definition, and an additional explanation.

Expense accounts

Expenses are the cost s associated with doing business. These include advertising, salaries and the cost of inventory or equipment purchases.
Try: Accounting Glossary offers a detailed account of what an expense account is and how you handle them in a business.

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