Top Accounting Terms You Need to Know
Like any academic discipline, accounting has a number of terms specific to it that are required knowledge for anyone wishing to employ the discipline in their business or personal finances.
Debits and Credits
These are the basic elements of double-entry bookkeeping. Debits are subtracted from an account and credits are added to an account. For any given transaction, the debits and credits must be in balance, and for the entire ledger the total of debits and total of credits must also be in balance.
The general ledger is where all of the transactions and all of the entries from any subordinate ledgers are recorded for a business. The general ledger is the document consulted in order to produce a balance sheet and a profit and loss statement.
This is the amount of money that is collected and the amount paid out over a certain time interval. Cash flow is absolutely vital to a company because a cash shortage can sink a company even if that company is profitable.
The exit strategy for most entrepreneurs is to sell their companies. A stock swap is an excellent way to obtain an appreciating asset in return for ownership of a valuable company. It is simply the exchange of a set number of shares of stock in one company for a number of shares in another.
This is the value of a transaction over time. A mortgage is a good example of an amortized transaction. A small amount is paid each interval until the total amount paid sums up to the principle. This is an important concept in high value transactions.