Accounting Vocabulary Quiz
12 multiple-choice questions on accounting vocabulary: assets, liabilities, ledgers, accruals, depreciation, debits and credits, the balance sheet and reconciliation. B2–C1 level.
Keep building your accounting vocabulary.
Accounting Vocabulary — FAQ
Assets are things a business owns that have value — cash, equipment, stock (inventory), property and money owed to it by customers. Liabilities are what a business owes to others — loans, unpaid supplier bills and taxes due. A simple way to remember it: assets put money into the business, while liabilities take money out. The difference between the two is the owner's equity.
A balance sheet is a financial statement that shows what a business owns and owes at a single point in time. It lists assets on one side and liabilities plus equity on the other. It is called a 'balance' sheet because the two sides must always be equal: Assets = Liabilities + Equity. This is known as the accounting equation, the foundation of double-entry bookkeeping.
In double-entry bookkeeping, every transaction is recorded twice — once as a debit and once as a credit — so the books stay balanced. A debit is an entry on the left side of an account; a credit is an entry on the right. Debits increase assets and expenses, while credits increase liabilities, income and equity. Confusingly, these technical meanings are the opposite of how 'debit' and 'credit' are used on a bank statement.
A ledger is the main accounting record where all of a business's financial transactions are organised by account — for example, a separate account for sales, wages or rent. The 'general ledger' contains all accounts, while a 'sub-ledger' holds the detail for one area, such as the sales ledger (money owed by customers) or purchase ledger (money owed to suppliers). Today most ledgers are kept in accounting software rather than physical books.
Depreciation is the gradual reduction in the value of a fixed asset over its useful life, reflecting wear and tear or becoming out of date. For example, a company van that cost £20,000 might lose value each year as it ages. Accountants spread the cost of the asset across several years rather than recording it all at once, which gives a more accurate picture of yearly profit.
The accrual concept (or accruals basis) means recording income and expenses when they are earned or incurred, not when the cash actually changes hands. For example, if a business receives a service in March but pays for it in April, the expense is recorded in March. This gives a truer picture of performance than simply tracking cash in and out, which is called the 'cash basis'.
Reconciliation is the process of comparing two sets of records to make sure they agree and to find any differences. The most common example is a 'bank reconciliation', where you check the business's own records against the bank statement to confirm every transaction matches. If there is a discrepancy, the accountant investigates and corrects it. To 'reconcile' accounts means to make them agree.
Revenue (or turnover, in British English) is the total amount of money a business earns from sales before any costs are taken away. Profit is what remains after costs and expenses are deducted from revenue. 'Gross profit' is revenue minus the direct cost of goods sold, while 'net profit' is the final figure after all expenses, including overheads and tax, have been deducted.
Accounts payable is the money a business owes to its suppliers for goods or services bought on credit — it is a liability. Accounts receivable is the money owed to the business by its customers — it is an asset. A simple memory aid: you pay accounts payable, and you receive accounts receivable. Managing both well is essential for healthy cash flow.
An audit is an independent examination of a company's financial records and statements to check that they are accurate and comply with accounting standards and the law. An 'auditor' is the qualified professional who carries out the audit and gives an opinion on whether the accounts give a 'true and fair view' of the business. Audits build trust with investors, lenders and regulators.