Accountancy glossary

96 accounting terms explained in one or two plain sentences each. Type in the box to filter the list.

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Account: A summarised record of all transactions relating to one person, asset, liability, expense or income.
Accounting equation: Assets = Liabilities + Capital. It holds after every transaction.
Accounting period: The span of time, usually a year, for which accounts are prepared.
Accrual basis: Recording income when earned and expenses when incurred, whether or not cash has moved.
Accrued income: Income earned in the period but not yet received. An asset.
Amortisation: Writing off the cost of an intangible asset over its useful life.
Appropriation: Distribution of profit, such as transfer to reserve or payment of dividend. Made only out of profit.
Asset: A resource owned by the business that will bring future benefit.
Authorised capital: The maximum share capital a company may issue under its memorandum.
Bad debts: Amounts due from debtors that cannot be recovered. A loss.
Balance sheet: A statement of assets, liabilities and capital on a given date.
Bank overdraft: The amount by which withdrawals from a bank account exceed the balance, as allowed by the bank. A liability.
Bank reconciliation statement: A statement explaining the difference between the cash book bank balance and the bank statement balance.
Bill of exchange: A written, unconditional order by a creditor to a debtor to pay a certain sum on a certain date.
Book value: The value of an asset in the books: cost less accumulated depreciation.
Calls in arrears: Amounts called up on shares but not paid by shareholders.
Capital: The owner's investment in the business; assets minus outside liabilities.
Capital expenditure: Spending that gives benefit for more than one year, such as buying a machine.
Capital reserve: A reserve created from capital profits; not available for dividend.
Cash book: The book that records all cash and bank receipts and payments; both a journal and a ledger.
Cash discount: A reduction allowed for prompt payment. It is recorded in the books.
Cash equivalents: Short-term, highly liquid investments readily convertible into known amounts of cash.
Closing stock: The value of unsold goods at the end of the period, valued at cost or market price, whichever is lower.
Compound entry: A journal entry with more than one debit or more than one credit.
Consignment: Sending goods to an agent to sell on behalf of and at the risk of the sender.
Contingent liability: A possible liability that depends on a future event, such as a pending court case. Shown as a note, not in the balance sheet totals.
Contra entry: An entry recorded on both sides of the cash book, such as cash deposited into bank.
Cost of goods sold: Opening stock + net purchases + direct expenses − closing stock.
Credit: The right side of an account; to enter an amount on that side.
Credit note: A document sent by a seller telling the buyer that his account has been credited, usually for goods returned.
Creditor: A person to whom the business owes money.
Current assets: Assets expected to be turned into cash or used up within twelve months or the operating cycle.
Current liabilities: Obligations due within twelve months or the operating cycle.
Debenture: A written acknowledgement of a debt by a company, carrying a fixed rate of interest.
Debit: The left side of an account; to enter an amount on that side.
Debit note: A document sent by a buyer telling the seller that his account has been debited, usually for goods returned.
Debtor: A person who owes money to the business.
Depreciation: The fall in the book value of a fixed asset from use, time or obsolescence, charged as an expense each year.
Dissolution: Closing down a firm: assets are sold, liabilities paid and accounts settled.
Double entry system: The system in which every transaction is recorded with equal debits and credits.
Drawings: Cash or goods taken from the business by the owner for personal use.
Entity concept: The assumption that the business is separate from its owner.
Equity shares: Shares that carry ownership and voting rights and receive dividend after preference shares.
Expense: A cost incurred to earn revenue.
Fictitious assets: Debit balances that are not real assets, such as an accumulated loss, shown until written off.
Financing activities: In a cash flow statement, activities that change owners' capital and borrowings.
Fixed assets: Assets held for long-term use in the business, not for resale.
Forfeiture of shares: Cancellation of shares for non-payment of calls; the amount already paid is kept by the company.
Gaining ratio: The ratio in which continuing partners acquire the share of an outgoing partner.
Going concern: The assumption that the business will continue for the foreseeable future.
Goodwill: The value of a firm's reputation, which lets it earn more than a normal return.
Gross profit: Net sales minus cost of goods sold.
Imprest system: A petty cash system in which the float is restored to a fixed amount at the end of each period.
Income and Expenditure Account: The revenue account of a not-for-profit organisation, showing surplus or deficit.
Input tax credit: Under GST, credit for tax paid on purchases, set off against tax collected on sales.
Intangible assets: Assets without physical form, such as goodwill, patents and trademarks.
Investing activities: In a cash flow statement, buying and selling long-term assets and investments.
Journal: The book of original entry in which transactions are first recorded in date order.
Ledger: The principal book containing all accounts, to which journal entries are posted.
Liability: An amount the business owes to outsiders.
Liquidity: The ability to pay short-term debts as they fall due.
Matching principle: Expenses of a period are set against the revenue of the same period.
Narration: The brief explanation written below a journal entry.
Net profit: Gross profit plus other incomes minus all indirect expenses.
Nominal account: An account of an expense, loss, income or gain.
Noting charges: The fee paid to a Notary Public for recording the dishonour of a bill.
Operating activities: The main revenue-producing activities of a business.
Operating cycle: The time between buying materials and receiving cash from customers.
Outstanding expense: An expense of the period that has not yet been paid. A liability.
Partnership deed: The written agreement among partners setting out the terms of the partnership.
Personal account: An account of a person, firm, company or bank.
Petty cash: A small sum kept for minor day to day payments.
Posting: Transferring entries from the journal or subsidiary books to ledger accounts.
Preference shares: Shares with a prior right to a fixed dividend and to repayment of capital.
Prepaid expense: An expense paid in advance for a future period. An asset.
Provision: An amount set aside out of profit for a known liability or loss whose amount is uncertain.
Prudence: Providing for all likely losses but not counting profits until they are earned.
Real account: An account of an asset or property.
Realisation Account: The account prepared on dissolution to find the profit or loss on selling assets and paying liabilities.
Receipts and Payments Account: A summary of the cash book of a not-for-profit organisation.
Reserve: Profit kept back in the business to strengthen its financial position.
Revaluation Account: The account that records changes in the values of assets and liabilities on reconstitution of a firm.
Revenue: Income from the ordinary activities of the business, mainly sales.
Revenue expenditure: Spending whose benefit is used up within the year, such as rent and wages.
Sacrificing ratio: The ratio in which old partners give up part of their profit share to a new partner.
Securities premium: The amount received on issue of shares or debentures above their face value.
Solvency: The ability to meet long-term obligations.
Subsidiary books: Special journals for transactions of one kind: purchases book, sales book, returns books, cash book.
Super profit: Average profit minus normal profit on the capital employed.
Suspense Account: A temporary account holding a trial balance difference until errors are found.
Trade discount: A reduction from the list price given by a seller to a trade buyer. It is not recorded in the books.
Trading Account: The account that shows gross profit or gross loss.
Trial balance: A list of all ledger balances, debit and credit, prepared to test arithmetical accuracy.
Voucher: Documentary evidence of a transaction.
Working capital: Current assets minus current liabilities.
Written down value: The value of an asset after deducting depreciation to date.

About these definitions

Accountancy has its own vocabulary, and many of its words mean something different in everyday speech. "Credit" in daily life suggests something good; in accounts it is only the right-hand side. "Capital" sounds like an asset, but in the books of a business it is a liability to the owner. "Provision" and "reserve" are used loosely as if they were the same, yet they are opposites in an important way: one is a charge against profit and the other is a use of profit. Getting these words exactly right is half of understanding the subject, and examiners award marks for precise definitions.

The definitions here are short on purpose. They are meant for quick revision and for the moment when a word in a question stops you. For the full explanation of a term, with examples, go to the topic page: the Class 11, Class 12 and B.Com lists show every topic. When you write a definition in an examination, add one line of example after it; a definition with an example almost always earns full marks.

Words that are often confused

Debtor and creditor: a debtor owes the business; the business owes a creditor.
Trade discount and cash discount: the first reduces the list price and is not recorded; the second rewards quick payment and is recorded.
Capital expenditure and revenue expenditure: benefit over many years, or within the year.
Provision and reserve: a charge against profit, or an appropriation of profit.
Revaluation Account and Realisation Account: the firm continues, or the firm closes.
Sacrificing ratio and gaining ratio: used on admission, or on retirement and death.
Receipts and Payments Account and Income and Expenditure Account: a cash summary, or the year's revenue result.

For study, and independent. These pages explain accountancy as it is generally taught in Class 11, Class 12 and B.Com courses in India, in our own words with our own examples, reviewed in November 2026. This site is not connected with NCERT, CBSE, ICAI or any board or university. Syllabuses change: follow your own board's or university's current syllabus and textbook. Nothing here is professional accounting, tax or legal advice.