What Are Some Frequently Used Accounting Terms?

What Are Some Frequently Used Accounting Terms?

Frequently used accounting terms include accounts receivable, accounts payable, assets, capital and cash flow, according to Rasmussen College. Other common terms are liabilities, profit and loss statement, return on investment, present value, and net equity.

Accounts receivable is how much money customers owe a business after it delivers its products or services, explains Rasmussen College. Conversely, accounts payable is how much money the business owes suppliers and other creditors for their goods and services.

Assets come in two types, fixed and current, according to Investopedia. A business plans to use current assets in one year; common examples are cash and intangibles such as investments. In emergencies, companies can liquidate them. Fixed assets are those such as land, buildings, furniture and equipment that offer long-term benefits.

Capital is a financial asset and its value, explains Rasmussen College. It can be cash or goods.

To determine working capital, or how much a company has for daily operations, subtract current liabilities from current assets, explains Investopedia. Working capital provides insight into whether a company has enough assets to cover its short-term debts. A ratio between 1.2 and 2 is generally satisfactory.

Cash flow is the revenues and expenses that business activities produce, explains Rasmussen College. It includes marketing and production of goods. A business needs positive cash flow to maintain long-term operations.