Understanding accounting terms can significantly enhance an entrepreneur’s ability to manage finances more effectively and make informed business decisions. Here are the 50 key accounting terms:

1. Accounts Payable (AP): Money owed by a business to its suppliers or creditors.
2. Accounts Receivable (AR): Money owed to a business by its customers for goods or services delivered.
3. Assets: Economic resources owned by a business, expected to benefit future operations.
4. Balance Sheet: A financial statement that summarizes a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
5. Bank Reconciliation: Process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement.
6. Bookkeeping: The systematic recording of financial transactions in appropriate books of account.
7. Capital: The financial assets needed for a business to produce goods and services.
8. Cash Flow: The total amount of money being transferred in and out of a business.
9. Credit: An accounting entry that either decreases assets or increases liabilities and equity on a company’s balance sheet.
10. Debit: An accounting entry that either increases an asset or expense account, or decreases a liability or equity account.
11. Depreciation: The systematic reduction of the recorded cost of a fixed asset.
12. Dividends: Payments made by a corporation to its shareholder members.
13. Equity: The value of the shares issued by a company.
14. Expense: The cost required for something; the money spent on something.
15. Financial Statements: Formal records of the financial activities and position of a business, person, or other entity.
16. Fixed Assets: Long-term tangible assets that are used in the operations of a business.
17. General Ledger: The master set of accounts that summarize all transactions occurring within an entity.
18. Gross Margin: The difference between revenue and cost of goods sold.
19. Income Statement: A financial statement that shows a company’s revenues and expenses over a specified period.
20. Inventory: The raw materials, work-in-process, and finished goods that are considered to be the portion of a business’s assets that are ready or will be ready for sale.
21. Journal: An accounting record where all transactions are first recorded.
22. Liabilities: What a company owes to others—debts or obligations.
23. Liquidity: The availability of liquid assets to a company.
24. Net Income: The total earnings, reflecting revenues adjusted for costs, expenses, and taxes.
25. Payroll: The list of a company’s employees and the amount of compensation due to each of them.
26. Profit and Loss Statement (P&L): A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period.
27. Retained Earnings: The amount of net earnings left in the company after dividends have been paid to shareholders.
28. Revenue: The total amount of money generated by the sale of goods or services related to the company’s primary operations.
29. Trial Balance: A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal.
30. Variable Costs: Costs that vary depending on a company’s production volume.
31. Accrual Accounting: The recording of revenue when earned and expenses when incurred regardless of when cash transactions occur.
32. Cash Basis Accounting: An accounting method where payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid.
33. Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold by a company.
34. Diversification: The process of allocating capital in a way that reduces the exposure to any one particular asset or risk.
35. GAAP (Generally Accepted Accounting Principles): A common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.
36. Goodwill: An intangible asset that arises when a buyer acquires an existing business.
37. Insolvency: The state of being unable to pay the money owed, by a person or company, on time.
38. Inventory Turnover: A ratio showing how many times a company has sold and replaced inventory during a given period.
39. Journal Entry: The method used to enter an accounting transaction into the accounting records of a business.
40. Ledger: A book or other collection of financial accounts of a particular type.
41. Margin: The difference between the selling price of a product or service and the cost of production or providing the service.
42. Overhead: All ongoing business expenses not including or related to direct labor, direct materials, or third-party expenses that are billed directly to customers.
43. ROI (Return on Investment): A performance measure used to evaluate the efficiencyor of the amount of money made on an investment relative to the amount of money invested.
44. Solvency: A company’s ability to meet its long-term financial commitments.
45. Subsidiary: A company controlled by another company, referred to as the parent company or holding company.
46. Variance: The difference between a budgeted, planned, or standard amount and the actual amount incurred/sold.
47. Working Capital: The difference between current assets and current liabilities.
48. Write-Off: An accounting action whereby the book value of an asset is reduced to zero.
49. Year-End: The end of a fiscal year.
50. Zero-Based Budgeting: A budgeting method where all expenses must be justified for each new period.

Mastering basic accounting terms is essential for every founder. If you want to have more detailed introduction to accounting, then take a look at our article “Accounting Basics“