Glossary of Accounting Terms
When it comes to financial wellness, it's important to understand the common terms you'll hear when you open a checking or savings account or you start using a credit card. Understanding financial terminology is a necessary part of being money-smart so you always have an idea of what's happening to your budget and the money you're making. Study some basic accounting terms to increase your financial literacy knowledge.
APR: The annual percentage rate, which dictates the amount of interest paid for the use of someone else's money
APY: The annual percentage yield, or the amount of interest gained from keeping your money in an account for a predetermined period of time that your bank chooses
Budget: A written plan for how you will use your money effectively
Checking Account: A bank account that a customer can withdraw money from by using a check or a debit card
Credit: Credit allows you to buy something without paying for it right away. When you buy something using credit, you'll have to pay for it when the bill comes, either all at once or in a series of payments. If you don't pay it off all at once, you'll be charged interest. Using credit and paying it off responsibly can be great for your credit score.
Credit Score: A numerical "grade" based on your bill-paying history, unpaid debt, loan accounts, available credit, credit applications, and other factors. This score is used to predict how likely you are to pay money back on time.
Currency: An accepted form of money, such as coins or paper money, that the government circulates and that can be exchanged for goods and services
Debit Card: A plastic card with a magnetic strip and microchip that can be used to deduct money directly from a checking account. Debit cards don't put you into debt like credit cards can because they draw money from the balance you already have in the bank.
Debt: Money that you owe a person or the bank. If you take out a loan from the bank or borrow money from a friend or family, you are in debt to the person or bank that you borrowed the money from.
Deferred: An arrangement where the borrower doesn't have to pay back their loans right away but can wait until a specified time in the future decided by the lender
Depreciation: An accounting method that divides the cost of an asset by its life span to reflect the current value of an asset
Direct Deposit: A direct money transfer from the payer's account to the recipient's account. Direct deposit eliminates the need for a paper check and a trip to the bank to cash it.
Economy: The sum total of wealth and resources in a local, regional, or national community. The economy includes everyone, from individuals to corporations, and is ever-evolving, since it is swayed by culture, laws, history, and geography.
Fee: A payment made to a professional person or business in exchange for services
Income: Cash or other compensation received from work, investments, dividends, or interest. Most forms of income can be taxed by the government.
Interest: Extra money owed to the lender after a set period of time when you borrow money from a person or bank
Investment: An object or service you pay for that you believe will increase in value over time and eventually earn you more money than you initially paid
Loan: Money that you borrow that must be paid back, usually with interest
Mobile Banking: Using your bank through their website or phone app in order to pay your bills, move money between accounts, or check your balance
Mobile Deposit: A way to deposit a paper check into your account by taking a picture of the check and sending it to the bank using their mobile banking app
Revenue: The money a company receives for goods sold. It is calculated by multiplying the price that goods and services are sold for by the number of items sold.
Routing Number: A nine-digit number usually listed at the bottom of your personal checks that identifies the bank you use
Saving: Putting aside money you've earned or received for later instead of using it right away
Wire Transfer: Electronically transferring money to another person
Additional Accounting Resources