Definitions of Accounting Terms

Accounting is the basic process that an individual or an organization uses to record information about the property that the individual or organization owns, as well as the property or services that the individual or organization owes. This information is typically used to help individuals or organizations make decisions related to the individual's or the organization's finances. However, there are some basic accounting terms that an individual must understand in order to use this information.

Assets

An asset is something of value that an individual or an organization owns. Assets may include buildings, furniture, land and the money that an individual or organization is expecting to receive ("accounts receivable").

Liabilities

A liability is something of value that an individual or an organization owes to another individual or organization. Liabilities may include equipment costs, mortgage payments, payroll costs and taxes.

Equity

Equity refers to the value of the assets that an individual or organization will have after they pay all of their liabilities. Equity is also known as capital, owner's equity, partner's equity or shareholder's equity.

Balance Sheet

A balance sheet is an accounting document that provides information about the assets, liabilities and equity that a particular individual or organization has on a specific date.

Credit

A credit is an entry in an accounting ledger that indicates a decrease in the value of an asset or an increase in the value of a liability.

Debit

A debit is an entry in an accounting ledger that indicates an increase in the value of an asset or a decrease in the value of a liability.

Resources

• Money Instructor: Accounting Introduction
• New York State Society of Certified Public Accountants: Accounting Terminology
• University of California: Accounting Glossary