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As students pursue their course in accounting, they will come across some very essential and frequently-used terminologies they should keep in mind. These terms and definitions will help students even as they pursue a career in accounting in future.
Moreover, grasping the keywords and facts regarding this subject will help students when they graduate and enter workplaces. Also, a firm grounding in these terms once and for all is essential since it lays the foundation for lifelong knowledge.
Therefore, on that note, take a look at the list of basic accounting terms given below.
Accounting Terms
Accounting:
Accounting refers to the standardised method or way of putting together and presenting all the financial transactions for a business or organisation
Accounting provides investors with an idea of the company’s financial health in terms of various figures
It is a straightforward method of gauging the company’s financial status by all business stakeholders
Accounts Receivable:
Accounts receivable refers to the amount of money that any client or customer owes a business after receiving the goods or services
On the Balance sheet, you will find this figure recorded as an asset likely to convert into cash shortly
A simple way of defining this basic accounting term is to say the money owed to the business but not yet paid
Accounts Payable:
Accounts Payable refers to the amount of money that a business owes to others for goods or services it has received
In a Balance Sheet, this amount comes under the liability section
However, it can be understood as what the company needs to pay others in simpler terms
Asset:
Roughly, an asset is anything that the company owns. It could be cash, land, machinery, office space, etc. Assets can be of different types:
Fixed: Long-term assets that provide benefits after a year
Current: Assets that are converted to cash in one year
Liquid: Cash is the most liquid asset
Prepaid expenses: Any advance payment made for goods
Balance Sheet:
A balance sheet is one of the most well-known and crucial accounting terms
It refers to the summary of any company’s assets, liabilities, and the owner or shareholder equity
It can be summarised in an equation: assets+liabilities+equity
A balance sheet is an indication of the company’s worth
Book Value:
Book value is another important accounting term you will need in your arsenal
It can be stated in this simple formula: Book Value = Asset Value – Liability/Depreciation
Moreover, the book value also shows how much value an asset has lost
For instance, if the total asset is $1000 and the liability is $200, the book value will be $800
Cash Flow:
Cash flow refers to all the money a business makes through its operations, financing and investment
It also refers to the net cash that flows in and out of a company
Cash received represents cash inflow, while cash spent represents outflows
Cash flow is an integral basic accounting term for class 11
Capital:
The money, assets, or goods that a proprietor invests in a business are capital
Capital is invested to produce profits
Usually, profits are divided in proportion to the money an investor pumps into the business
Equity:
Equity can be summarised in this simple formula: Assets – Liabilities = Equity
It refers to the portion of the business that the investors and shareholders own
Therefore, equity is among the essential basic accounting terms for your class 11 notes
Proprietor:
A proprietor is a person who invests capital in the business. He has the right to all the profits from the company. There are different categories of proprietors, such as:
Sole proprietorship: This refers to the person who is the business’s sole owner
Partnership firm: The different partners are the proprietors of the firm
Company: Shareholders are the proprietors of the company
Liabilities:
Any financial obligation or debts
These result in the outflow of resources from the company
There are two types of liabilities: current and non-current liabilities
Current liabilities need to be paid within a year, while non-current liabilities are those whose payment is due much later
Therefore, it is crucial to get a proper understanding of these basic accounting terms for class 11
Depreciation:
The final basic accounting term is depreciation
It refers to the loss in value of an asset over time
For example, some assets that depreciate are cars and machinery
Depreciation has been categorised as a non-cash expense
Conclusion
To sum up, learning these are some of the basic accounting terms that can benefit students. They will get a firm grounding on the subject and its nitty-gritty. Accounting is a very complex subject with many important topics to imbibe. Hence, students can use this material as a reference for further study. Include these basic accounting terms in class 11 notes for the board exams and beyond.
