Accounting can be very confusing. It is an industry with an in-depth vocabulary and for the layman, it can be hard to understand. Here are the most common accounting terms, letters A through C. View D-F here.

Learning the vocabulary involved within accounting practices is important because again, it allows for a deeper level of education, whether the reader is a consumer, a student or even an accountant.

Accounting does not need to be hard to understand. With the right vocabulary and clear definitions, it can be simple and concise, informing consumer decisions in a very important and thorough way.


Account & Accountant: a record of financial transactions; usually refers to a specific category or type, such as travel expense account or purchase account. An accountant is a person who is trained to prepare and maintain financial records.

Accounting Period: the period of time over which profits are calculated. Normal accounting periods are months, quarters, and years (fiscal or calendar).

Accounts Payable: amounts owed by a company for the goods or services it has purchased from suppliers.

Accounts receivable: amounts owed to the company by its customers.

Accrual basis, system, or method: an accounting system that records revenues and expenses at the time the transaction occurs, not at the time cash changes hands.

Accruals:  an expense which has been incurred but not yet paid for. Salaries are a good example. Employees earn or accrue salaries each hour they work. The salaries continue to accrue until payday when the accrued expense of the salaries is eliminated.

Aging: a process where accounts receivable are sorted out by age (typically current, 30 to 60 days old, 60 to 120 days old, and so on.) Aging permits collection efforts to focus on accounts that are long overdue.

Amortize: to charge a regular portion of an expenditure over a fixed period of time.

Appreciation an increase in value.

Assets things of value owned by a business. An asset may be a physical property, an object or a right, such as the right to use a patented process.

Audit: a careful review of financial records to verify accuracy.

Bad debts:  amounts owed to a company that are not going to be paid. An account receivable becomes a bad debt when it is recognized that it won’t be paid.

Balance sheet: a statement of the financial position of a company at a single specific time (often at the close of business on the last day of the month, quarter, or year.) The balance sheet normally lists all assets on the left side or top while liabilities and capital are listed on the right side or bottom. The total of all numbers on the left side or top must equal or balance the total of all numbers on the right side or bottom.

Bond: a written record of a debt payable more than a year in the future.

Book value: total assets minus total liabilities. Book value also means the value of an asset as recorded on the company’s books or financial reports.

Breakeven point: the amount of revenue from sales which exactly equals the amount of expense.

Capital: money invested in a business by its owners.  A capital investment is an investment in a fixed asset with a long-term use.

Capitalize: to capitalize means to record an expenditure on the balance sheet as an asset, to be amortized over the future. The opposite is to expense.

Cash: money available to spend now. Usually in a checking account.

Cash flow: the amount of actual cash generated by business operations, which usually differs from profits shown.

Chart of accounts: a listing of all the accounts or categories into which business transactions will be classified and recorded. Each account usually has a number. Transactions are coded by this number for manipulation on computers.

Contingent liabilities: liabilities not recorded on a company’s financial reports, but which might become due. If a company is being sued, it has a contingent liability that will become a real liability if the company loses the suit.

Cost of sales, cost of goods sold: the expense or cost of all items sold during an accounting period. Each unit sold has a cost of sales or cost of the goods sold. In businesses with a great many items flowing through, the cost of sales or cost of goods sold is often computed by this formula: Cost of Sales = Beginning Inventory + Purchases During the Period – Ending Inventory.

Credit: an accounting entry on the right or bottom of a balance sheet. Usually an increase in liabilities or capital, or a reduction in assets. The opposite of credit is debit.