Accounting Basics

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Accounting

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The process of recording, summarizing, and analyzing financial transactions.

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Asset

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Anything of value owned by a business or individual (cash, equipment, inventory).

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Liability

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A debt or obligation that a business or individual owes (loans, accounts payable).

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Equity

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The owner’s claim to the assets of the business (assets-liabilities=equity).

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Revenue

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Income earned from selling goods or services.

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Expense

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Costs incurred to generate revenue (rent, utilities, salaries).

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Net Income

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Revenue minus expenses; also called profit.

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Net Loss

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When expenses exceed revenue.

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Balance Sheet

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A statement showing a company’s financial position (assets, liabilities, and equity) at a specific point in time.

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Income Statement

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A financial report showing revenue and expenses over a period, determining net income or loss.