I have come to realise that most corporate financial accounting terminologies are basically our daily lives dealings in business and company activities. However, having a good comprehension of it and interpreting it in its structure and formation in accounting makes the understanding more relatable and makes more sense.
Personally, even though the faculty does not like hearing it, I have no basic accounting background and most of these words are new to me. Therefore, I devised a way to simplify some of the definitions to make them clearer and easily relatable to me.
For example, the word ASSET would have sounded so complex but if you think about it, it is just basically what a company uses to make money in running its business. Assets are economic resources that provide future benefits for a business.
Liabilities are what the business is owing. It is a debt.
Account payable: this is what a company has purchased or a service it has enjoyed the benefit of but has not yet paid for it.
An expense is anything that reduces your revenue.
Prepaid expenses: These are expenses paid by a company in advance, it provides future benefits for the company. An example is an insurance and rent.
Inventory: it is the raw materials used to produce goods as well as the goods that are available for sale.
Account receivable: These are services and products rendered but payments are yet to be received.
Note receivable: This is similar to account receivable, but the distinct feature of note receivable is that it is signed by a customer to pay on a later day. It is more binding and usually specifies an interest.
Note payable: This is the direct opposite of note receivable, it is a signed promise to pay for a product or service and it usually attracts interest.
Accrued liabilities: this is a liability for an expense you have not yet paid for like interest payable and salary payable fall under this category for most companies.
common stock: This shows the owners investment in a corporation. A company receives cash and issues common stock to the stockholders. A company’s common stock is its most basic element of equity.
TRANSACTIONS: A transaction is any event that has a financial impact on the business and can be measured reliably. Transactions provide objective information about the financial impact on a company. Business activity is all about transactions
Every transaction has two sides: giving and receiving.
For example I use the sum of $300 to purchase a human hair wig from a hair vendor company. This is a proper transaction as there is a giving and receiving for the value of money.
The above are some of the accounting terminologies that we were introduced to in corporate financial accounting and I cannot be left behind while trying to analyze the concept of the terms, simplifying it makes it easier for me to grasp.
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