Major 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.
