Plain-language reference
Accounting words should help you think—not hide the idea.
Use these definitions as starting points, then test each term inside an entry, statement, schedule, or decision.
- Accounting equation
- Assets = Liabilities + Equity. Every valid transaction keeps this relationship in balance.
- Accrual accounting
- Records economic events when they are earned or incurred, not simply when cash moves.
- Adjusted trial balance
- The list of ledger balances after adjusting entries and before financial statements.
- Allowance for doubtful accounts
- A contra-asset estimate of receivables that are not expected to be collected.
- Asset
- A present economic resource controlled by an entity as a result of past events.
- Break-even point
- The activity level where total contribution margin exactly covers fixed costs.
- Capital expenditure
- A cost that creates or improves a long-term asset and is recognized over more than one period.
- Closing entry
- A period-end entry that transfers temporary-account balances to equity and resets them to zero.
- Contra account
- An account paired with another account that reduces its carrying amount, such as accumulated depreciation.
- Contribution margin
- Sales minus variable costs; the amount available to cover fixed costs and profit.
- Cost of goods sold
- The cost assigned to inventory that was sold during the period.
- Credit
- The right side of an account. Credits increase liabilities, equity, and revenue, and decrease assets and expenses.
- Current asset
- An asset expected to be realized, sold, or consumed in the normal operating cycle or within twelve months.
- Debit
- The left side of an account. Debits increase assets and expenses, and decrease liabilities, equity, and revenue.
- Deferred revenue
- Cash received before the related performance obligation has been satisfied; normally a liability.
- Depreciation
- Systematic allocation of a tangible asset’s depreciable amount over its useful life.
- Direct cost
- A cost that can be traced economically to a specific cost object.
- Equity
- The residual interest in assets after deducting liabilities.
- Expense
- A decrease in assets or increase in liabilities that reduces equity, other than owner distributions.
- FIFO
- First-in, first-out: the oldest inventory costs are assigned to cost of goods sold first.
- Flexible budget
- A budget restated for the actual activity level so performance comparisons are meaningful.
- General journal
- The chronological record where transactions and adjustments are first entered.
- General ledger
- The complete set of accounts that collects the effects of journal entries.
- Gross profit
- Net sales minus cost of goods sold.
- HST
- Harmonized Sales Tax. Registrants generally record tax collected and eligible input tax credits separately.
- Impairment
- A reduction when an asset’s carrying amount is not recoverable under the applicable accounting framework.
- Indirect cost
- A cost that cannot be traced economically to one cost object and must be allocated.
- Internal control
- Policies and procedures that support reliable reporting, efficient operations, and compliance.
- Journal entry
- A balanced record identifying the accounts and debit or credit amounts affected by an event.
- Liability
- A present obligation to transfer an economic resource because of past events.
- Materiality
- Whether information could reasonably influence the decisions of users of financial statements.
- Normal balance
- The debit or credit side on which an account ordinarily increases.
- Perpetual inventory
- A system that updates inventory and cost of goods sold with each purchase and sale.
- Periodic inventory
- A system that determines ending inventory and cost of goods sold at period end.
- Relevant cost
- A future cost that differs between decision alternatives.
- Income
- Increases in assets or decreases in liabilities that increase equity, other than owner contributions; income includes revenue and gains.
- Revenue
- Income arising from the entity’s ordinary activities, such as sales or service fees.
- Source document
- Evidence of a transaction, such as an invoice, receipt, bank memo, or credit note.
- Trial balance
- A list of ledger balances used to check whether total debits equal total credits.
- Variance
- The difference between an actual result and a budgeted or standard amount.
- Working capital
- Current assets minus current liabilities; a basic short-term liquidity measure.