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What are the most important accounting terms?

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Quick Answer

The most important accounting terms include liability, asset, income statement, revenue and balance sheet. Although there are other important accounting terms, these five are the most frequently used when practicing accounting as a profession.

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Full Answer

Liability is a legal obligation that binds an individual or company to settle a particular debt. The debt may be in the form of wages, taxes, deferred revenues, account payable or accrued expenses. The term liability is further divided into two distinct types: current and long-term liabilities. Current liabilities are debts that should be paid within a year, while long-term liabilities take a longer period to be repaid.

An asset is an item of economic value owned by a company or individual. An income statement is the accounting of expenses, sales and net profit over a particular period. It explains the financial status of an individual or company on a monthly, quarterly or yearly basis.

Revenue is the total amount of money an individual or company has earned through selling a particular product or service over a certain period of time. A balance sheet is a financial document or report that lists all of the assets, liabilities and equity of a particular company or individual at a given point in time.

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