10 Common Accounting Terms That Will Help You Feel Ahead on Your First Day of Class

10 Common Accounting Terms That Will Help You Feel Ahead on Your First Day of Class

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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