Topic: English for Accounting 1

VOCABULARY REVIEW: Accounting

Need to review common terms used in accounting? We've got you covered!

Accounts receivable
Accounts receivable is the money customers owe a business for goods or services already delivered. It is considered an asset because the company expects to receive the cash later.
Example: A store sells products to a customer on credit and allows 30 days for payment. Until the customer pays, the amount is recorded as accounts receivable.

Accounts payable
Accounts payable is the money a business owes to suppliers for goods or services received but not yet paid for. It is a short-term liability.
Example: A company buys office supplies and receives an invoice with payment due in 60 days. Until payment is made, the amount is recorded as accounts payable.

Depreciation
Depreciation is the process of spreading the cost of a long-term asset over its useful life. It reflects the gradual reduction in value as the asset is used.
Example: A company buys a machine for $50,000 and expects it to last 10 years. Each year, part of the cost is recorded as depreciation expense.

Accrual accounting
Accrual accounting records income and expenses when they are earned or incurred, not when cash is received or paid. This method gives a more accurate picture of financial performance.
Example: Employees work during December but are paid in January. The wages are recorded as an expense in December under accrual accounting.

Cash flow
Cash flow refers to the movement of money into and out of a business. Positive cash flow means more cash is coming in than going out.
Example: A business may be profitable on paper, but if customers delay payments, it can still have cash flow problems.

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