Accounting Vocabulary in English
20 essential accounting words with definitions and example sentences — balance sheets, ledgers, and profit for B2–C1 ESL learners.
Accounting vocabulary is the language of business finance, appearing in company reports, tax returns, job interviews, and everyday workplace conversations. Words such as assets, liabilities, and depreciation carry precise technical meanings that every finance professional must master. For B2 and C1 learners, this vocabulary opens the door to careers in business, banking, and finance.
This page covers 20 key accounting words used across financial reporting, bookkeeping, and business management. These terms appear in balance sheets, income statements, audit reports, and conversations with accountants. You will encounter them whenever you read a company's accounts or discuss its financial health in English.
Unlike our broader Finance vocabulary and Banking vocabulary pages, this list focuses specifically on the records, statements, and measurements that accountants use to track money. Mastering this vocabulary will help you understand financial documents, communicate with finance colleagues, and read business news with confidence.
Word List
| Word / Phrase | Meaning | Example Sentence |
|---|---|---|
| assets | everything a business owns that has value, such as cash, stock, equipment, and property | The company's assets included two factories and a fleet of delivery vans. |
| liabilities | the debts and obligations a business owes to others, such as loans and unpaid bills | Their liabilities grew sharply after they borrowed to fund the expansion. |
| equity | the value left for the owners once all liabilities are subtracted from the assets | After paying off its debts, the firm had £2 million of equity. |
| ledger | the main accounting record in which all financial transactions are entered and grouped | Every sale and purchase is recorded in the general ledger. |
| balance sheet | a financial statement showing a company's assets, liabilities, and equity at a single point in time | The balance sheet revealed that the company held more cash than its rivals. |
| income statement | a statement showing revenue, costs, and profit over a period; also called the profit and loss account | The income statement showed rising sales but shrinking profit margins. |
| depreciation | the gradual reduction in the value of an asset over its useful life, spread as a cost across several years | Depreciation reduced the recorded value of the machinery each year. |
| accruals | income or expenses recorded when they are earned or incurred, not when cash actually changes hands | Under the accruals concept, the December electricity bill is recorded in December even if paid in January. |
| audit | an independent examination of a company's accounts to confirm they are accurate and fair | The annual audit found no irregularities in the firm's accounts. |
| invoice | a document requesting payment, listing goods or services supplied and the amount owed | The supplier sent an invoice for £4,500, payable within 30 days. |
| receivable | money owed to a business by its customers for goods or services already supplied | The company's accounts receivable rose because several clients paid late. |
| payable | money a business owes to its suppliers for goods or services it has received | Accounts payable increased as the firm delayed paying its suppliers. |
| cash flow | the movement of money into and out of a business over a period of time | Strong sales did not help because poor cash flow left the business short of money. |
| gross profit | sales revenue minus the direct cost of the goods sold, before other expenses are deducted | Gross profit was healthy, but rent and wages ate into the final result. |
| net profit | the profit that remains after all expenses, including tax and interest, have been deducted | Once all costs were paid, the net profit for the year was just £30,000. |
| overheads | the ongoing running costs of a business that are not tied to a specific product, such as rent and utilities | High overheads in the city centre forced the shop to relocate. |
| reconciliation | the process of comparing two sets of records to make sure they agree, such as the ledger and the bank statement | The monthly bank reconciliation revealed a payment that had been entered twice. |
| fiscal year | the twelve-month period a business or government uses for accounting and tax, which need not match the calendar year | Their fiscal year runs from April to March rather than January to December. |
| write-off | the removal of an asset or debt from the accounts because it no longer has any value | The company had to write off the unpaid invoice when the customer went bankrupt. |
| solvency | a company's ability to meet its long-term debts and continue operating | Auditors questioned the firm's solvency after its liabilities exceeded its assets. |
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Frequently Asked Questions
What is the difference between assets and liabilities?
Assets are what a business owns that has value — cash, stock, equipment, property, and money owed to it. Liabilities are what a business owes to others — loans, unpaid supplier bills, and tax due. The simplest way to remember the difference is that assets put money into the business, while liabilities take money out. The two sit on opposite sides of the balance sheet, and the difference between them is the owners' equity. A healthy business generally has assets comfortably exceeding its liabilities.
What is equity in accounting?
Equity is the value that belongs to the owners of a business after all its liabilities have been paid. It is calculated by the fundamental accounting equation: assets minus liabilities equals equity. If a company owns £500,000 of assets and owes £300,000, its equity is £200,000. Equity includes the money the owners originally invested plus any profits the business has kept rather than paid out. It is sometimes called net worth, shareholders' funds, or capital, depending on the type of business.
What is the difference between a balance sheet and an income statement?
A balance sheet is a snapshot: it shows what a business owns, owes, and is worth at a single moment in time, such as the last day of the financial year. An income statement (also called the profit and loss account) covers a period of time — typically a year — and shows revenue, costs, and the resulting profit or loss. In short, the balance sheet answers "what is the business worth right now?" while the income statement answers "how well did the business perform over the year?" Both are needed for a full picture.
What is depreciation?
Depreciation is the way accountants spread the cost of a long-lasting asset across the years in which it is used, rather than recording the whole cost in the year of purchase. A delivery van bought for £20,000 and expected to last five years might be depreciated by £4,000 each year. This matches the cost of the asset to the income it helps generate over time, and it gradually reduces the asset's recorded value on the balance sheet. Depreciation is a non-cash expense — no money leaves the business when it is recorded.
What are accruals in accounting?
Accruals mean recording income and expenses when they are earned or incurred, not when the cash actually moves. Under the accruals concept, if your business uses electricity in December but does not pay the bill until January, the cost still belongs to December's accounts. This gives a truer picture of performance for each period than simply tracking cash in and out. Accruals accounting is required for most companies and contrasts with cash accounting, which records transactions only when money changes hands.
What is the difference between gross profit and net profit?
Gross profit is sales revenue minus only the direct cost of the goods or services sold — for a shop, that is sales minus the cost of buying the stock. Net profit goes further: it is what remains after all other expenses are also deducted, including rent, wages, interest, and tax. Gross profit shows how profitable the core product is; net profit shows whether the whole business is actually making money. A company can have a strong gross profit but a poor net profit if its overheads are too high.
What are receivables and payables?
These are two sides of credit trading. Receivables (accounts receivable) are amounts owed to your business by customers who have bought from you but not yet paid — they are an asset, because the money is due to come in. Payables (accounts payable) are amounts your business owes to suppliers for goods or services it has received but not yet paid for — they are a liability. Managing both well is central to healthy cash flow: you want to collect receivables promptly while paying payables on reasonable terms.
What is reconciliation in accounting?
Reconciliation is the process of comparing two sets of records to confirm they agree, and investigating any differences. The most common example is a bank reconciliation, where you check that the cash balance in your own ledger matches the balance on your bank statement. Differences often arise from timing — a cheque written but not yet cashed, for instance — or from errors such as a payment entered twice. Regular reconciliation catches mistakes and fraud early and is a basic discipline of good bookkeeping.
What does write-off mean?
To write off something in accounting is to remove it from the accounts because it no longer has any value. The most common example is a bad debt: if a customer goes bankrupt and will never pay an invoice, the business writes off that receivable, recording it as a loss. Assets can also be written off when they are scrapped or become worthless. A write-off reduces profit in the period it is recorded, but it gives a more honest picture of the business's true financial position.
What is the best way to learn accounting vocabulary?
The most effective approach is to connect each term to a simple real-world example — picture an actual invoice, a bank reconciliation, or a balance sheet rather than memorising abstract definitions. Group the words by where they appear: balance sheet terms (assets, liabilities, equity, solvency), income statement terms (gross profit, net profit, overheads), and process terms (audit, reconciliation, write-off). Use Flash Cards on LexFizz to drill the 20 words on this page, then read a real set of company accounts and spot the terms in context. Because these words recur constantly in business English, they soon become second nature.