The first step in familiarizing yourself with basic accounting principles is to know the basic terminologies being used in that subject matter. Once you have passed the process of company incorporation, this is naturally the next step for any business. It will be difficult for you to keep up when you can’t distinguish the difference between debit and credit or assets and liabilities.

Just because you are not a CPA, you shouldn’t want to learn the basics of accounting. Learn and understand the basic accounting terms first and you’re on your way to mastering accounting and managing financial records!

Debit vs. Credit

In any accounting process, every single transaction being recorded falls into either debit or credit. Using simpler, non-technical definitions, debit refers to any transaction “adding” value to an account, while credit refers to any transaction “removing” value from an account.

Accounts and Records

An account is simply a record established for individual or business transactions. Basic examples of accounts are savings account and checking account.

All accounts are listed or recorded in a book called the general ledger. Today, however, with the modern accounting firms, the typical physical ledger books are now being replaced by accounting software that can be used on the computer for easy and quick posting of entries. Journal entries, on the other hand, refer to the financial transaction posts or entries being entered to a particular account in the ledger.

Different Types of Accounts

There are five important terms you should know about accounts that the accounting system recognizes and utilizes.

Assets are accounts that add value to your worth as an individual or business. Examples are savings and investments.

Liabilities are accounts that take away or remove value from your worth, such as monthly bills, monthly amortization, and so on.

Equity refers to any contribution of money or financial terms invested to add up to one’s worth.

Revenue refers to the account that generates income.

and

Expense refers to the account that is recorded as expenditure while generating an income.