It’s important to have a basic understanding of these common accounting terms!
Anything that has monetary value and is owned by an individual or organization is considered an asset. Examples of assets include cash, stocks, and real estate.
These are the debts and obligations that an individual or organization owes to others. Examples of liabilities include loans, accounts payable, and mortgages.
The difference between an organization’s assets and liabilities is called equity. It represents the value of the organization that belongs to the owners.
The income generated from the sale of goods or services is called revenue. This is the primary source of income for most organizations.
The costs incurred in the production of goods or services are called expenses. Examples of expenses include salaries, rent, and utilities.
The difference between revenue and expenses is called profit. This is the amount of money that an organization makes after deducting all expenses.
The movement of money in and out of an organization is called cash flow. It is important to manage cash flow effectively to ensure the financial stability of an organization.
This is a financial statement that shows an organization’s assets, liabilities, and equity at a specific point in time.
This is a financial statement that shows an organization’s revenue and expenses over a specific period.
An audit is a process of examining an organization’s financial records to ensure accuracy and compliance with accounting standards.
In conclusion, having a basic understanding of common accounting terms is crucial for individuals and organizations to manage their finances effectively. This knowledge helps to ensure that financial decisions are made based on accurate information and that financial stability is maintained. By understanding these concepts, individuals and organizations can make informed decisions and have greater control over their financial well-being.
Finding faithful financial professionals is as easy as working with Riedel-Hogan CPA, who serves clients with joy through financial services that support their success! Schedule an appointment with us today to get started.