It All Adds Up

To choose the right accounting software for your business, you should understand these basic accounting terms:

Asset-A tangible or intangible object of value to its owner.

Liability-An obligation to another party.

Income-Money received for goods or services produced or as a return on investment.

Expense-Money spent for goods or services.

General Ledger-The main records of the assets, liabilities, income and expenses of an organization.

Accounts Payable-A company liability; amounts due to suppliers of goods or services.

Accounts Receivable-A company asset; amounts owed for goods or services that have been supplied.

Capital-The net worth of the company; the assets less the liabilities.

Double-entry accounting-A system in which the total of all left-side entries is offset by an equal total of right-side entries. Left-side entries are known as debits, and right-side entries are known as credits. A debit or a credit can be applied to any general ledger account, whether it's an asset, a liability, capital, income or an expense.

This article was originally published in the August 1997 print edition of Entrepreneur with the headline: It All Adds Up.