General Accounting Principle or very often termed as Accounts, is one of the most important sections for 2 major sectors of students. One if you are from a Commerce background or else you are preparing for government exams like JKSSB Finance Account Assistant, UPSC EPFO EO 2020. Questions from accounts also seldom appear in other government exams like SEBI Grade A, RBI Grade B, and more. This makes it all the more important to be aware of the important terms, used in the context. Students from non-commerce backgrounds often face the issue of not being aware of the important terminologies of accounts. Hence, in this article, we will help you learn important accounting terminologies used widely and their meanings.
So next time, when you are around a conversation on accounts, you will have a fair idea of the communication and the aspect of it.
1. Important Accounting Terms & Definition
1.1 Balance Sheet Terms – Basic Accounting
- Balance Sheet – It is a financial record of every incoming and outgoing monetary expense, liabilities, and expense. A Balance sheet is often described by the equation (Assets = Liability + Equity).
- Accounts Payable – This term refers to the business that a firm undertakes or avails and the payment is still to be made for the case. It is marked as a liability when we are talking about the Balance Sheet.
- Accounts Receivable – When a company provides a service the payment is often done cyclically and note immediately, this is shown as the accounts receivable when we make it in the balance sheet.
- Accrued Expenses – AE or Accrued Expense is an expense that has already been done by the company but it is still to be paid to the service provider.
- Assets – Anything that a company owns that has monetary value, it could be in the form of cash, land, shares, stakes, etc. are termed as an asset.
- Book Value – Any Asset over time loses its value in terms of money and life. The Book Value shows the price of the assets in today’s day after applying the depreciation value.
- Equity – It is defined as when all the liabilities are being removed from the assets the remaining part is called equity. This is the part that is owned by owners and investors.
- Liability – All the debts that are still to be paid by the company are termed as Liability. This happens often because a service is availed and the payment terms state that the payment to be done after a period.
1.2 Income Statement – Important Accounting Terms
- Cost of Goods Sold – This term defines the total cost that is incurred in the production and selling of the goods starting from the raw materials. This also includes the labor charges paid to the workers.
- Depreciation – An asset purchased at a certain value cannot keep the same value intact over the years. It has to undergo depreciation in order to be marked for price after certain years of purchase.
- Gross Margin – It is defined by calculating the gross profit over the revenue generated for the period. This will us the gross margin. It also excludes the cost of sold goods.
Gross Margin = Gross Profit/Revenue Generated
- Gross Profit – Gross Profit marks the overall profit that is generated by the companies over a period, it also includes the cost of sold goods.
- Income Statement – The income statement is a sheet that shows the revenues, expenses, profits generated and all att a single place. Revenue earned is at the top of the sheet and is further distributed into lower expenses and income.
- Net Income – Net income is calculated by taking into account the total revenue and subtracting the expenses from the list.
- Net Margin – Net margin represents the profit in terms of its revenue.
1.3 General Important Accounting terms
- Accounting Period – This represents the period during which the revenue, expense, income, etc. has been marked in the balance sheet.
- Allocations – The term defines the value in terms of money that is assigned to the business for overcoming a need. Departmental and business allocations are a part of it.
- Business Entity – This refers to a legal structure that a company forms in order of its requirement and market demands.
- Cash Flow – It defines the incoming and outgoing cash in a business. The Net Cash Flow for a period of time is found by taking the Beginning Cash Balance and subtracting the Ending Cash Balance. The positive cash flow would mean that more incoming cash and less outflow of cash.
- Credit – A credit can be termed as an increase in the liability or equity account.
- Debit – Debit can e termed as the decrease in the liability or equity account.
- Diversification – It is termed as the formula for reducing risks. Here the money is divested into different assets so the bad performance of any one asset does not harm the overall output.
- Enrolled Agent – An Enrolled Agent is a professional accounting designation assigned to professionals who have successfully passed tests showcasing expertise in business and personal taxes. (source – paysimple.com)
- Fixed Cost(FC) – A fixed cost is a value that does not change with the sales volume. This best describes the salaries given to an employee. Companies would not give more salaries at the end of the month if they are doing more sales.
- General Ledger (GL) – This is kept to keep a complete record of financial transactions. Financial statements are prepared keeping the general ledger as a base.
- Generally Accepted Accounting Principles(GAAP) – These are the rules that all accountants abide by when performing the act of accounting. These general rules were established so that it is easier to compare ‘apples to apples’ when looking at a business’s financial reports. (source – paysimple.com)
- Journal Entry – This marks the changes that are being done in the company books. A unique identifier is to be allotted to each entry so that it could be tracked at a later stage.
- Liquidity – It refers to the cash value of an asset. If an asset can be converted into the cash flow may it be inward or outward, it will come under liquidity.
- On Credit/On Account Payment – A payment that will be done over time but the benefits are available to availed immediately are called On Credit/ On Account payment.
- Overhead Expenses – These expenses include the extra charges that are put in order to run the business and product. This excludes all the CoGS.
- Payroll – This is one of the most commonly used terms that define the records kept for salaries, wages, deductions, and benefits given to employees. This is often marked as the liability in the balance sheet.
- Present Value – This defines the value of an asset in today’s date. Due to the possibility of inflation, the cash value today is considered more as of tomorrow.
- Return on Investments – This term is used to define the profit that the company is making over the amount of money put starting from the production to marketing to selling.
- Trial Balance – Trial Balance is a listing of all accounts in General Ledger with their balance amount (either debit or credit). The total debits must equal the total credits, hence the balance. (source – Paysimple.com)
- Variable Cost – These are costs that change with the volume of sales undergone over a certain period. Variable costs incline with more sales because they are an expense that is incurred in order to deliver the sale.
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This was all from us in this blog, Important Accounting Terms. Account terms should now be clear to you and you will be able to comprehend the accounts section for upcoming exams. We hope that you like it and it proves to be helpful in understanding and learning when you prepare for JKSSB Finance Account Assistant Exam 2021.
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