Accounting is typically regarded as a discipline for those with keen intellects, and as such it is not uncommon for even the most skilled accountants to struggle with English accounting terms. Of course, a business English dictionary can help, but it is even more powerful to learn second-language English with an emphasis on accounting if you want to confidently communicate with fellow colleagues, academics and clients about your subject matter.
Although this may seem intimidating at first, in this article, we will show you how to improve business English and use all the accounting terms you need with confidence.
Whether you prefer in-person lessons or want to learn business English online, we have the answers. Keep reading.
Essential Accounting Terms
In an article about how to improve corporate English, it is probably helpful to define what is meant by "accountant" upfront. Some might picture an accountant as merely a number cruncher or, as TV dramas often portray, somewhat of a magician who effortlessly solves financial problems. In truth, an accountant systematically records and documents financial transactions in various formats and must communicate this information clearly to clients. It is this reason that drives many to want to know how to improve business English.
Being an accountant involves a high level of trust and responsibility and demands meticulous attention to detail especially when it comes to accurate reporting and delivering precise facts.
Accounting Terms: Assets, Liabilities, and Equity
If you have been relying on a business English dictionary to help you navigate the workplace, this summary of key accounting terms will no doubt help.
An accountant's work primarily focuses on two key financial elements: assets and liabilities. In both corporate and personal finance, assets refer to the items, properties, or services owned by the client that contribute to increasing equity. On the other hand, liabilities represent the obligations or debts owed to others, which diminish equity.
Equity signifies the value of a company's shares or an individual's financial standing. For an individual, it can be thought of as owning a share in their personal "company," often referred to as their net worth.
Here is a short business English dictionary specifically for accounting terms:
Differences Between Assets, Liabilities, and Equity
Assets:
- Definition: Resources owned with value
- Examples: Cash, investments, real estate
- Impact: Increase net worth
- Ownership: Owned by individual or entity
- Role in Finances: Contributes to wealth accumulation
Liabilities:
- Definition: Obligations or debts owed to others
- Examples: Loans, mortgages, credit card debt
- Impact: Decrease net worth
- Ownership: Owed by individual or entity
- Role in Finances: Requires repayment or settlement
Equity:
- Definition: The residual interest in the assets of the entity after deducting liabilities.
- Examples: Owner's investment in the business, retained earnings.
- Impact: Can increase or decrease depending on changes in assets and liabilities.
- Ownership: Owner's or shareholders' claim on the assets.
- Role in Finances: Represents the net value of assets once liabilities are settled.
How to Improve Business English for Revenue and Expenses Terminology
Revenue:
- Total income from selling goods or services.
- Different from profit or net income, as expenses are not deducted yet.
Expenses:
- Costs incurred to generate revenue.
Net Income:
- Calculated by subtracting expenses from revenue within the same period.
Debits and Credits
If you want to know how to improve corporate English for financial terms like debits and credits, these can be challenging concepts to grasp. Essentially, they represent the flow of economic benefits in a transaction, from its source to its destination. Debits represent the inflow of economic benefits to an account, which means that they are the positive side of a transaction. They represent an increase in assets and a decrease in liabilities. This can be counterintuitive because, outside accounting, we often view transactions as simply ‘money in and money out’. However, in accounting, a purchase (money out) is a debit because a liability is exchanged for an asset. Credits, on the other hand, represent the outflow of economic benefits from an account, placing them on the negative side of a balance sheet. Think of using a credit card: money is credited to the user's account, which creates a liability since it is money owed. If you're still confused, check out this helpful video that breaks down debits and credits in simple terms.
Accounting Terms for Three Main Rules
If you learn business English online for accounting, you will discover that three fundamental rules govern the recording of all financial transactions:
- The Accounting Equation: This principle states that assets equal liabilities plus equity. In simpler terms, everything a business owns (assets) is financed either by borrowing money (liabilities) or by the owner's investments (equity).
- The Revenue Recognition Principle: Revenue should be recorded when it is earned, and not necessarily when cash is received. This means revenue is recognised when goods are delivered or services are provided, regardless of when the payment is actually made.
- The Matching Principle: Expenses should be recorded in the same period as the revenues they help generate. This means matching expenses with the related revenues to ensure financial statements accurately reflect the costs incurred to earn those revenues, irrespective of when the payment is made.
The Business English Dictionary for Financial Reports
Next, let's explore some essential accounting terms used by professionals to convey their work and present information to clients and colleagues.
Balance Sheet: A balance sheet is a document that shows the financial status of an individual or company at a specific point in time. The reason it is called a balance sheet is because it balances assets with liabilities and equity. This document provides a snapshot of an organisation's financial health and focuses on current and pending transactions as well as the assets or liabilities held. However, it does not account for future opportunities and threats.
Income Statement: An income statement measures the financial performance of an individual or company over a specific period. Unlike a balance sheet, which shows total equity at a given moment, an income statement tracks revenue, expenses, and net income over time. It records the amount of money earned or lost during that period, highlighting cash flow rather than static financial status.
Profit and Loss Statement
Knowing how to improve business English for accounting jobs, means knowing how to clearly present a profit and loss statement.
Firstly, note that the term "profit and loss statement" is often used interchangeably with "income statement." Either way, this financial report reveals a business's earnings over a specific period. It details all revenue from sales of goods or services and subtracts associated costs and expenses, such as rent, salaries, and supplies. The result is either a profit (when revenues exceed expenses) or a loss (when expenses surpass revenues).
New accountants should be aware that different terms might be used for the same concept across various employers or clients. Therefore, it's crucial to familiarise oneself with these terms to avoid confusion and ensure clear communication in the workplace.
Ledger
The concept of a 'ledger' has evolved with modern technology. Traditionally, it referred to a physical document or collection used for recording transactions manually. Today, a ledger typically means accounting software like Xero, QuickBooks, or Sage.
Digital ledgers offer several advantages over traditional methods which include real-time updates, remote accessibility, analytical tools, task automation, and enhanced communication among accountants and stakeholders.
Inventory
In accounting, an inventory represents a list of assets that fall into three categories of material objects. These inventoried assets are physical properties owned by individuals or companies which have the capability of generating economic benefits.
Raw Materials:
- Goods extracted from primary economic activities like logging, mining, and farming.
- Examples include metals, oil, and organic produce.
- These materials lack inherent value to consumers until processed into products.
- Raw materials are important to track in inventory for accounting purposes.
Work in Progress:
- Goods in an intermediate stage of production.
- They carry the risks associated with manufacturing.
- They represent an investment but they are worth less than raw materials until finished.
- Crucial to monitor in inventory management.
Finished Goods:
- Products ready for distribution to customers.
- No longer carry manufacturing risks.
- Represent a financial risk if unsold.
- Key for achieving a profitable 'inventory turnover.'
Grasping the process of a business’s life cycle is essential for gaining a thorough understanding of how it functions and becomes profitable through its investments and resources.
Has This Business English Dictionary of Accounting Terms Helped?
Finally, we hope you have valuable insights on how to improve corporate English or accounting. Check out our accompanying articles on
- How to improve business English communication skills in general
- How to communicate effectively in management roles
- Business English tips for the HR practitioner and
- Business English for marketing.
Furthermore, all of these topics are taught by qualified ESOL tutors on Superprof, a platform that verifies tutor credentials for your peace of mind and encourages free introductory sessions to help you find the right tutor for you.
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