In almost every field, there are a series of fundamental terms and concepts that describe the basic elements on which the field is based. In English, fundamental terms and concepts include vocabulary, sentence structure, and grammar that describe the basic elements of language that allow us to carry out conversations and form coherent prose. In math, fundamental terms and concepts include fractions, operators, and equations that describe the basic constructs that we use to add, subtract, multiply, divide, and perform other similar calculations. Likewise, there are accounting principles and accounting concepts which are fundamental, and which a person learns while getting a bachelor’s degree in accounting. These include terms like assets, liability, and owner’s equity that describe the basic concepts that an accountant must know to create, maintain, and review an organization’s financial documents. It is important to note, however, that knowing what the terms are is not nearly as important as knowing what the terms mean because a student must be able to understand the basic concepts on which the field is based in order to understand the field as a whole. Individuals interested in the field of accounting, as a result, may find it helpful to know some of the basic accounting concepts that he or she may encounter as a student in an accounting school:

1. Accounting Equation: The accounting equation is a mathematical formula that describes the relationship between the property that an organization owns, the money that an organization owes, and the net worth of the organization. This equation states that an organization’s assets are equal to its liabilities plus its owner’s equity, or Assets = Liabilities + Owners Equity.
2. Accounts: An account is a log of the amount that a particular individual or a particular organization owns, owes, and/or is worth or a single entry in a ledger that tracks the amount by which a single asset, liability, or other similar financial element increases or decreases after a transaction.
3. Accounts Payable: Accounts payable is an account that indicates the amount that an organization owes to other individuals and/or organizations for products and/or services that the organization purchased. Accounts payable is typically considered to be a current liability because most individuals and organizations require an organization to pay the full amount within one year of the purchase or service date.
4. Accounts Receivable: Accounts receivable is an account that indicates the amount that an organization is supposed to receive for the products and/or services that the organization has already sold to other individuals and/or organizations. Accounts receivable is typically considered to be a current asset because most organizations require their customers to pay the full amount within one year of the purchase or service date.
5. Accrual Basis Accounting: Accrual basis accounting is a type of accounting in which an organization records its assets and expenses when a transaction occurs. Accrual basis accounting is the opposite of cash basis accounting, as cash basis accounting is a type of accounting in which an organization records its assets and expenses when they are actually received or actually paid.
6. Assets: An asset is anything that a person or a business owns that the individual or business could sell or trade for something else. In other words, an asset is property that has actual value (typically a cash value, but not always). Some examples of assets include cash, equipment, land, and patents.
7. Balance Sheet: A balance sheet is a financial statement that indicates the total amount that an individual or an organization owns (assets), the total amount that an individual or organization owes (liabilities), and the net worth of an individual or organization (equity) on the day the report was issued.
8. Cash Flow: An individual or an organization’s cash flow refers to the amount of money that the individual or organization actually received during a specific period after all of the money that the individual or organization paid out during that period has been deducted. In other words, the cash flow is the amount of cash received after all of the bills for the period are paid.
9. Chart of Accounts: A chart of accounts is a list of every account name that an individual or an organization uses in their ledgers, financial statements, and other similar records. For example, a chart of accounts may indicate that an organization uses accounts such as cash, equipment, and accounts payable.
10. Credit: A credit is a ledger entry that is used in a double-entry accounting system to show that a liability has increased, an owner’s equity account has increased, or an asset has decreased. In other words, a credit is an entry on the right side of an account document that shows that an individual or an organization owes something or has used something (such as cash).
11. Debit: A debit is a ledger entry that is used in a double-entry accounting system to show that a liability has decreased, an owner’s equity account has decreased, or an asset has increased. In other words, a debit is an entry on the left side of an account document that shows that an individual or an organization has paid something or obtained something (such as cash or equipment).
12. Direct Costs: A direct cost is a cost that is directly related to producing a specific product or offering a specific service. In other words, a direct cost is anything that an individual or an organization has to pay each time a product is produced or a service is offered (raw materials, labor costs, etc.).
13. Double-Entry Accounting Double-entry accounting is an accounting system in which an individual or an organization credits a liability and debits an asset or credits an asset and debits a liability each time a transaction occurs. This system is designed to help ensure that an individual’s or an organization’s financial documents are balanced according to the accounting equation.
14. Equity: Equity, which is also known as shareholder’s equity or owner’s equity, is the total value of everything that an individual or an organization owns after that individual or organization has paid everything that the individual or organization owes. In other words, an individual’s or organization’s equity equals the individuals’ or organization’s assets minus the individual’s or organization’s liabilities.
    Important Accounting Concepts
15. Expense: An expense is any cost that an individual or an organization is required to pay to continue functioning. In other words, an expense is the amount that an individual or an organization has paid or is expected to pay for a product, service, or other resource that the individual or organization needs.
16. Financial Statements: A financial statement is a document that describes the status of an individual’s or an organization’s finances at a specific point in time or over a specific period of time. The three most common financial statements that individuals and organizations use are balance sheets, cash flow statements, and income statements.
17. General Ledger: A general ledger is the book (or, in some cases, the computer program) in which an individual or an organization records all of the debits and credits that the individual or organization needs to record to correct the balance of each account after a series of transactions have occurred.
18. Gross Profit: An individual’s or an organization’s gross profit is the total amount that the individual or organization has earned from its sales less the direct costs of those sales. In other words, an individual’s or organization’s gross profit equals the individual’s or organization’s sales minus the individual’s or organization’s direct costs.
19. Income Statement: An income statement, which is also known as a profit and loss (P&L) statement, is a financial statement that indicates the total amount that an individual or an organization earned (revenue), the total amount that an individual or an organization had to pay to continue functioning (expenses), and the total amount that an individual earned after expenses (net profit or loss) during a specific period.
20. Indirect Cost: An indirect cost is a cost that is not directly related to producing a specific product or offering a specific service. In other words, an indirect cost is anything that an individual or an organization has to pay to stay in business that is not related to a specific product or service (rent, taxes, utilities, etc.).
21. Inventory: Inventory refers to anything that an individual or an organization owns that the individual or organization intends to sell or that an individual or organization intends to use to produce something or offer a service that the individual or organization plans to sell, but has not sold yet (raw materials, finished products, etc.).
22. Journal: A journal is the book (or, in some cases, the computer program) in which an individual or an organization records all of the transactions that the individual or organization completes and the accounts that need to be adjusted as a result of each transaction whenever a transaction occurs.
23. Liabilities: A liability is anything that a person or a business owes. A liability is typically incurred because an individual or an organization purchased a service or product; because an individual or an organization sold a product or service, but has not yet delivered those services; or because an individual or organization is required to pay damages, taxes, or other similar costs as a result of their business activities.
24. Net Income: An organization’s net income, which is also known as an organization’s net profit, is the total amount that an organization has earned after the organization has paid everything that it needs to pay during a specific period. In other words, an organization’s net income is equal to its revenue minus its expenses.
25. Retained Earnings: An organization’s retained earnings is the total amount that an organization has earned after the organization has paid all of its expenses and paid out all of the dividends to which its shareholders are entitled. In other words, an organization’s retained earnings is the portion of an organization’s net income that the organization actually keeps for its own use.