Understanding key accounting terms is essential for success in any introductory accounting course. Whether you’re a business student or simply interested in financial literacy, familiarizing yourself with these concepts will give you a head start.
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- Accounting: The process of recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions.
- Balance Sheet: A financial statement that provides a snapshot of a company’s financial position by showing its assets, liabilities, and equity at a specific point in time.
- Income Statement: A financial statement that summarizes a company’s revenues and expenses over a period of time, typically a quarter or a year.
- Cash Flow Statement: A financial statement that shows how changes in a company’s balance sheet and income statement have affected its cash position over a period of time.
- Assets: The economic resources that a company owns or controls and that are expected to provide future benefits.
- Liabilities: The debts or obligations that a company owes to others and that must be paid back at some point in the future.
- Equity: The residual interest in the assets of a company after deducting its liabilities.
- GAAP (Generally Accepted Accounting Principles): The set of accounting standards and guidelines that companies in the United States are required to follow when preparing financial statements.
- Debit: An entry on the left side of an account that represents an increase in assets or a decrease in liabilities or equity.
- Credit: An entry on the right side of an account that represents a decrease in assets or an increase in liabilities or equity.
With these foundational terms in mind, you’ll be better equipped to navigate the world of accounting with confidence.
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