What Are Accounting Terms?
Accounting terms are standardized words used to describe financial information. Learning these terms is essential for understanding financial statements, bookkeeping, and business performance.
This article explains the most important accounting terms in simple language.
What Are Assets?
Assets are things that a person or business owns that have value.
Examples of assets include:
- Cash
- Bank accounts
- Equipment
- Buildings
- Inventory
Assets help generate income or provide future benefits.
What Are Liabilities?
Liabilities are obligations or debts that must be paid in the future.
Examples include:
- Loans
- Credit card balances
- Unpaid bills
- Taxes owed
Liabilities represent money that leaves the business or individual later.
What Is Equity?
Equity represents the owner’s interest after liabilities are deducted from assets.
In simple terms:
Equity = Assets − Liabilities
Equity shows how much of the business truly belongs to the owner.
What Is Revenue?
Revenue is the money earned from normal business activities.
Examples:
- Sales income
- Service fees
- Consulting income
Revenue increases equity when it is earned.
What Are Expenses?
Expenses are costs incurred to generate revenue.
Examples include:
- Rent
- Utilities
- Salaries
- Marketing costs
Expenses reduce profit and equity.
How These Terms Work Together
All accounting systems are built around the relationship between assets, liabilities, equity, revenue, and expenses.
Understanding these terms allows you to:
- Read financial statements
- Track business performance
- Make informed financial decisions
They are the language of accounting.
These accounting terms come together in real situations, as shown in this simple accounting example.
Start With the Basics
If you haven’t already, begin with a simple overview of what accounting is and why it matters.
👉 Read first: What Is Accounting? A Simple Explanation for Beginners