Financial Terms Dictionary
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Accounting
Accounting is the language of business. Accounting is the process of capturing and communicating financial data. The goal of the accounting system is to issue financial statements. Accounting includes five types of accounts: assets, liabilities, equity, revenues, and expenses.
Accounting Equation
The accounting equation is Assets = Liabilities + Equity. This is shown on the company’s balance sheet. The balance sheet must balance always because of the accounting equation.
Accrual basis accounting
Accrual basis accounting records revenue when products and services are delivered to customers. Expenses are recorded when they are incurred. The expenses are matched with the revenues that they produce. This is called the matching principle.
Accrual accounting better shows the performance of the company than the cash basis. Accrual basis net income is less dependent on the timing of cash flows.
Assets
Assets are economic resources owned by a business. They are one of the five types of accounts. Assets are shown on the balance sheet. There are four categories of assets on the balance sheet: current assets, fixed assets, investments, and intangible assets.
Assets are shown on the accounting equation. The accounting equation is: Assets = Liabilities + Equity.
