Accounting Terms A–Z

Accounting Terms A–Z is your definitive gateway into the language that powers every financial statement, audit, and business decision. Accounting has its own vocabulary, and mastering it transforms confusion into clarity and hesitation into confidence. This collection is built to guide you from the basics to the nuanced, breaking down essential terms in a clear, approachable way while still respecting the depth behind each concept. Whether you’re decoding a balance sheet, navigating tax documents, or exploring advanced reporting standards, these entries connect definitions to real-world use. Accounting Terms A–Z is designed for students building foundations, professionals refining expertise, and entrepreneurs who want to truly understand the numbers behind their operations. Each term is presented with purpose, context, and relevance, helping you see how individual concepts fit into the broader financial picture. This is more than a glossary—it’s a roadmap through the structure, logic, and rhythm of accounting itself, giving you the tools to read financial language fluently and apply it with confidence across every stage of business and financial growth.

1. Accrual: Recording revenue/expenses when earned/incurred, not when cash moves.

2. Amortization: Spreading an intangible asset cost over its useful life.

3. Book value: Asset value on the books (cost minus accumulated depreciation/amortization).

4. Chart of accounts: The master list of accounts used to categorize transactions.

5. Debit: Left-side entry; increases assets/expenses, decreases liabilities/equity/revenue (generally).

6. Credit: Right-side entry; increases liabilities/equity/revenue, decreases assets/expenses (generally).

7. Depreciation: Allocating a tangible asset’s cost over its useful life.

8. Double-entry: System where every transaction affects at least two accounts and stays balanced.

9. General ledger: The complete record of all posted transactions by account.

10. Journal entry: The formal record of a transaction posted to the ledger.

1. Accounts payable (AP): Bills owed to vendors/suppliers.

2. Accounts receivable (AR): Amounts customers owe for invoices.

3. COGS: Cost of goods sold; direct costs to produce what you sell.

4. Contribution margin: Sales minus variable costs; what’s left to cover fixed costs.

5. Current ratio: Current assets ÷ current liabilities (liquidity snapshot).

6. DSO: Days sales outstanding; average collection time for AR.

7. Gross profit: Revenue minus COGS.

8. Gross margin: Gross profit ÷ revenue.

9. Net income: Profit after all expenses, interest, and taxes.

10. Working capital: Current assets minus current liabilities.

1. Bank reconciliation: Matching book cash to the bank statement and explaining differences.

2. Close (month-end close): The repeatable process to finalize a period’s numbers.

3. Cutoff: Rules for what transactions belong in a specific period.

4. Internal control: Policies that reduce errors/fraud (approvals, segregation of duties, etc.).

5. Materiality: Importance threshold—what would change a decision if wrong.

6. Prepaid expense: Cash paid now for a future benefit (insurance, software, rent).

7. Reclass: Moving amounts between accounts to correct classification.

8. Rollforward: Schedule showing how a balance changed from beginning to end of period.

9. Supporting schedule: Backup that proves a balance (AR aging, debt schedule, etc.).

10. Variance analysis: Comparing actuals to budget/prior period and explaining differences.

1. Accumulated depreciation: Total depreciation recorded to date (contra-asset).

2. Allowance for doubtful accounts: Estimated uncollectible AR (contra-asset).

3. Clearing account: Temporary holding account until items are properly matched/categorized.

4. Contra account: Account that offsets another (allowance, accumulated depreciation).

5. Deferred revenue: Cash received before earning revenue (a liability until earned).

6. Impairment: Write-down when an asset’s value drops below its carrying value.

7. Payroll liabilities: Amounts owed for wages, taxes, and withholdings not yet paid.

8. Retained earnings: Cumulative profit kept in the business (net of distributions/dividends).

9. Suspense: Temporary bucket for unknown items—should be cleared quickly.

10. Unearned expense (accrued expense): Expense incurred but not yet billed/paid.

1. Audit: Independent examination of financial statements and controls.

2. Break-even: The point where total revenue equals total costs (profit = 0).

3. Capital expenditure (CapEx): Spending on long-term assets (equipment, buildings).

4. Expense recognition: Recording expenses in the period they help generate revenue.

5. Going concern: Assumption that a business will continue operating.

6. Matching principle: Aligning expenses with the related revenues.

7. Owner’s equity: The owner’s claim on assets after liabilities (varies by entity type).

8. Revenue recognition: Rules for when revenue is considered earned.

9. Trial balance: List of all account balances used to check debits = credits.

10. Write-off: Removing an uncollectible receivable or obsolete asset from the books.

Q: What’s the difference between bookkeeping and accounting?
A: Bookkeeping records transactions; accounting interprets them, adjusts for accuracy, and reports insights.

Q: What’s accrual vs cash basis?
A: Accrual tracks when earned/incurred; cash tracks when money moves.

Q: What is an adjusting entry?
A: A period-end journal entry to align accounts with reality (accruals, prepaids, depreciation).

Q: What’s the purpose of a bank reconciliation?
A: To prove cash is accurate and catch duplicates, missing items, and timing differences.

Q: Why do contra accounts exist?
A: They preserve the original balance while showing reductions separately (cleaner reporting).

Q: What does “capitalized” mean?
A: Recorded as an asset first, then expensed over time (depreciation/amortization).

Q: What is materiality in plain English?
A: “Would this error change a decision?” If yes, it’s material.

Q: What’s a clearing account used for?
A: Temporary parking for transactions until they’re matched and coded correctly.

Q: What’s a rollforward schedule?
A: A bridge showing how a balance moved from beginning to ending over the period.

Q: What’s the trial balance used for?
A: To verify the ledger is mathematically balanced and to prep for financial statements.

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