Basic accounting terms - Explanations in language that everyone can understand

Why do we need to know and understand accounting terms before understanding financial statements?

Isn't it a bit like saying that a doctor has to master the entire human body before being allowed to diagnose the common flu?

Or like saying that a pilot needs to understand every part and widget inside his plane before flying it?

Not exactly. But it’s definitely a benefit to have a good, solid grasp.

While you may be able to get by on some basic accounting terms (let's say, for example, assets, liabilities and cash), there will be a time when more is needed for you to obtain a more complete picture of the business or venture that you are running, or about to buy into.

But right now, you don't need to understand all of it at once. Get started with the basic concepts and then slowly explore the rest, at your own timing.

This page will act as a dictionary for you whenever you need to get hold of a certain explanation, so use it as a reference headquarters and check back often.

This section will cover the basic accounting elements - what makes up a set of financial statements - such as assets (current and non-current), liabilities (again current and non-current)and equity. Each of these is a category all by itself, which we will explore in detail. And of course, we'll explore the financial statements as a whole too.

Check out Assets, in general, here.
Check out Property, Plant & Equipment here.
Check out Receivables here.
Check out Liabilities here.
Check out Owner's Equity here.

We'll also look at the accounting equation and the basic mechanics of bookkeeping - which is what an accountant does every day - or "keeping the books".

For more on The Accounting Equation, check this out.

To really turn it up a notch, we'll look at accounting ratios and how they can help us assess a business/venture, be it our own or something that we may want to invest in.

For more on this, go to Financial Statements Analysis.

And to REALLY micromanage our own business, we will look at cost/managerial accounting.

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