The Accounting Glossary

Accounts Payable (AP) represents short-term financial obligations owed by your business to suppliers or vendors for goods, equipment, or services purchased on credit. It is reported under Current Liabilities.

Accounts Receivable (AR) represents all funds owed to your business by customers for goods delivered or services rendered on credit terms. It is recorded as a current asset on the Balance Sheet.

Assets are everything your business owns that carries economic value and provides future economic benefit: cash in hand and bank, office equipment, computers, furniture, buildings, and accounts receivable owed by customers.

A Balance Sheet (Statement of Financial Position) is a financial report providing a snapshot of your business's financial condition at a specific point in time, reporting total owned Assets balanced against external Liabilities and Net Owner's Equity.

Capital represents the funds or assets invested by the business owner to start or expand operations. Owner Withdrawals (or draws) represent cash taken out by the owner for personal use, deducted directly from Owner's Equity without distorting business operating expenses.

A Cash Flow Statement is a financial report that tracks the actual movement of cash entering and leaving your cashbox and bank accounts over a specified period, highlighting true available liquidity.

Double-entry bookkeeping mandates that every financial transaction affects at least two accounts in balanced equal debit and credit sides. Entries involving exactly two accounts are Simple Entries, while entries involving three or more accounts are Compound Entries.

Expenses are the operational costs and expenditures incurred to run your business and generate sales, including shop rent, staff salaries, electricity bills, and administrative services.

Foreign Exchange (FX) Gain and Loss refers to the financial differences caused by currency exchange rate fluctuations between the date a multi-currency transaction is booked and the date it is settled in base currency.

An Income Statement (also known as a Profit and Loss statement or P&L) is a core financial statement that summarizes total revenues generated and expenses incurred over a specific operating period (such as a month or year) to display the final result: Net Profit or Net Loss.

Liabilities are financial debts and obligations owed by your business to external third parties, representing funds due for settlement: supplier accounts payable, bank loans, and accrued expenses.

Loans represent financing borrowed from banks, institutions, or individuals that your business is obligated to repay. They are classified as Liabilities on your Balance Sheet.

Owner's Equity (officially defined in IFRS and GAAP standards as Net Assets, or Partners'/Shareholders' Equity) represents the net residual financial claim of business owners on assets after deducting all external liabilities. Formula: Total Assets minus Total Liabilities.

Revenue is total sales generated before deducting costs. Profit is the positive net income remaining after deducting costs and expenses. If expenses exceed total revenue, the result is defined as a Net Loss.

Year-end Close is the annual accounting procedure that resets temporary revenue and expense accounts to zero at fiscal year-end, transferring the net profit or loss into cumulative Retained Earnings under Owner's Equity on the Balance Sheet.