account A record used to hold related financial activity and show the impact of increases and decreases.

account balance The current value of an account.

accounting period A period of time used to measure and report a company's financial results.

accounts payable The amount of money owed to vendors for credit purchases made in the normal course of business.

accounts receivable The amount of money owed to a business for sales that were made by extending credit to customers.

accounts receivable aging A report that groups accounts receivable balances according to how long they have been outstanding, and is used to help a company improve its collections.

accrual basis accounting A method of accounting in which revenues are recorded as soon as they are earned, and expenses are recorded as soon as they are incurred, whether any money has changed hands yet.

asset Anything that has a monetary value and is owned by a company.

balance sheet A financial statement that shows a company's financial position on a specific date. The statement details the company's assets, liabilities, and equity.

break-even analysis A formula used to figure out the amount of sales needed for a company to cover all its costs.

capital A business owner's share of his company; also referred to as equity.

cash basis accounting A method of accounting in which transactions are recorded only when money changes hands.

cash sales Sales that result in immediate payment, whether it's in the form of money, check, or credit card.

cash collections Money received as a result of credit sales made in a prior period.

chart of accounts A complete listing of the accounts used by a company for bookkeeping purposes.

corporation A formal business structure that offers the owners personal protection from business debts.

cost of goods sold The purchase price of products that are resold to customers.

credit An accounting term used to indicate a right-side entry to an account. Credits result in account decreases for assets and expenses, and account increases for liabilities, equity, and revenues.

debit An accounting term used to indicate a left-side entry to an account. Debits result in account increases for assets and expenses, and account decreases for liabilities, equity, and revenues.

depreciation An expense used to reflect the loss in value of an asset over time.

disbursement Cash paid out by a business.

equity An ownership interest in a business; also called capital.

expense The normal costs incurred by a business to produce revenues.

fixed assets Physical assets that will serve a business for longer than one year.

gross margin A measure of profitability calculated by dividing gross profits by sales.

gross profit The amount left over after subtracting the cost of goods sold from sales.

horizontal analysis A method of evaluating financial statements by looking at the change in account balances between two accounting periods.

inventory The goods a business either uses in product manufacturing or holds for resale.

journal A book in which complete business transactions are recorded by date.

ledger A book that holds each account listed in the chart of accounts, in which transactions impacting that account are recorded.

liability Debt incurred by a business.

limited liability company (LLC) An unincorporated business that may be owned by any number of people and that provides personal protection from business debts for each owner.

liquidity A company's ability to meet financial obligations as they come due.

net profit The amount left over after deducting all costs and expenses from revenues.

operating expenses Expenditures unrelated to product costs that are incurred in the normal course of business.

owner's draw Money taken out of a business by its owners (except in the case of corporations).

partnership An unincorporated business owned by at least two people.

posting The act of transferring transaction information from a journal to a ledger.

prepaid expenses Advance payments for goods or services, treated as an asset for accounting purposes.

retained earnings Profits that are held by the company rather than distributed to its owners.

sole proprietorship An unincorporated business owned by one person.

statement of cash flows An accounting report that details the movement of cash into and out of a company during a specified period.

statement of profit and loss An accounting report that shows the results of operations for a specific period.

transactions The economic events of a business.

trial balance An accounting report used to verify that a company's accounts are in balance.

vertical analysis A method of evaluating a company's financial performance over a single accounting period.