Major Bookkeeping Terms
Bookkeeping Language
Major Bookkeeping Terms
The Major Terms are critical to understanding bookkeeping and accounting.
Terms are one of the stepping stones to understanding bookkeeping and accounting.
Account -a separate record for each type of asset, liability, equity, revenue, expense, and draw used to show the beginning balance and to record the increases and decreases for a period and the resulting ending balance at the end of a period.
Accounting Equation -mathematical expression of the relationship of property and property rights.
Also called the Balance Sheet Equation.
The equation may be expressed in three forms:
Abbreviated or Simple Version:
Property = Property Rights
Expanded Version:
Assets = Liabilities + Owner’s Equity (Capital)
Fully Expanded Version:
Assets = Liabilities + Beginning Owner’s Equity (Capital) + Additional Owner Investments + Revenues – Expenses – Draws
Transaction -Any event or condition that must be recorded in the books of a business because of its effect on the financial condition of the business, such as buying and selling. A business deal or agreement.
Double Entry -Type of accounting/bookkeeping system that requires every transaction to be
recorded in at least two places (accounts) using a debit and a credit. Every transaction is recorded in a “formal” journal as a debit entry in one account, and as a credit entry in another account. Periodically, usually monthly, the summarized balances from the journals are posted (transferred) to a formal business record called the general ledger.
Accrual Method (Basis) of Accounting -method of accounting that records income in the period earned and records expenses and capital expenditures such as buildings, land, equipment, and vehicles in the period incurred.
Debit -An entry in the financial books of a firm that increases an asset, draw or an expense or an entry that decreases a liability, owner’s equity (capital) or income. Also, an entry entered on the left side (column) of a journal or general ledger account.
Let’s combine the two above definitions into one complete definition. An entry (amount) entered on the left side (column) of a journal or general ledger account that increases an asset, draw or an expense or an entry that decreases a liability, owner’s equity (capital) or revenue.
Credit – An entry in the financial books of a firm that increases a liability, owner’s equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense. Also, an entry entered on the right side (column) of a journal or general ledger account.
Let’s combine the two above definitions into one complete definition. An entry (amount) entered on the right side (column) of a journal or general ledger account that increases a liability, owner’s equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense.
Don’t worry double entry, debits, and credits are discussed and explained in future lessons. I only wanted to introduce and make you aware of these terms because they are critical terms for understanding the double entry bookkeeping system.
