Accounts Payable: A payable is an amount that is owing but has not been paid.

Accounts Receivable: A Receivable is an amount that has been earned but not received. Typically, the amount is owing by a customer.

Accumulated depreciation (accumulated amortization): this is the amount of depreciation which has been taken on an asset in its lifetime. Depreciation is calculated and expensed each year. The “other side” of that expense transaction is accumulated depreciation.

Asset – an economic resource that has been acquired in a transaction. Typical examples are cash, accounts receivable, inventory and vehicles, tools, computers and equipment.

Balance Sheet – This financial statement shows the assets, liabilities, and equity as of a specific date. That is, it shows what the business has and what it owes.

Cash Balances – the amount of money a business has in its bank account at the time the financial statement was prepared. This balance is part of the current assets.

Cash flow statement – the financial statement which shows what money has been collected and what has been spent. This is different from the income statement because we are only talking about items where cash has changed hands. The income statement shows the revenue which has been billed, the cash flow statement shows the revenue which has been collected.

Deferred Revenue – you have deferred revenue when you have collected the money but you have not yet done the work. If you get a deposit before you start a job, that deposit is deferred revenue. When you have done the work, then you have earned the revenue and the amount comes out of deferred revenue and is now recorded as revenue. Now you have made the sale. Gift cards are recorded as deferred revenue when they are first sold, the revenue is earned when they are redeemed for products or services.

Deficit – the difference between revenues and expenses when it is a negative number. If revenues are more than expenses then you have income.

Fixed assets – items such as equipment, tools, computers and buildings. The item lasts for longer than a year and it is depreciated over time rather than being expensed when it is purchased.

Income – the difference between revenues and expenses when it is a positive number. If expenses are more than revenue then it is a deficit.

Income statement – the financial statement that shows revenue and expense and the difference between them. If you have more revenue than expenses who are operating at a profit.

Inventory – the products sitting in your warehouse that you are waiting to sell. Inventory is purchased or built with the express purpose of selling the item.

Liabilities – amounts that are owing to outside parties. This amount shows up on the balance sheet; examples are bank loans and accounts payable.

Prepaid expenses – a prepaid is an amount which has been paid out but is not yet an expense. Insurance and property taxes are example of prepaid expenses, you pay for these items in advance and as time goes by the amounts get expensed. The prepaid amount is an asset because you could cancel the insurance or sell the property and get the amount refunded.

Revenue – This is the amount the business bills its customers. This is different from income, income is the amount left over after expenses have been deducted from revenue.