Basic Accounting Terms with Practical Example
Account:
A category used to track money in your business.
Example: “Rent”, “Sales”, or “Electricity” are accounts used to record where money is going or coming from.
Debit (Dr)
An entry that increases assets or expenses.
Example: Buying office supplies increases expenses — so you debit the “Office Supplies” account
Credit (Cr)
An entry that increases income or liabilities.
Example: When a customer pays you ₹5000, you credit the “Sales” account.
Chart of Accounts
A complete list of all accounts (Assets, Liabilities, Income, Expenses) in your system.
Example: Think of it as your business’s financial directory.
Journal Entry
A manual record of a transaction showing which accounts are debited and credited.
Example: Paying rent: Debit “Rent Expense”, Credit “Bank”.
Invoice
A bill you send to a customer after selling a product or service.
Example: After delivering a project, you send an invoice of ₹10,000 to the client.
Bills
A bill is what you receive from a vendor for something you purchased.
Example: You buy raw materials, and the supplier gives you a bill of ₹8,000.
Payment
When money is exchanged — either received or paid.
Example: You receive ₹10,000 for an invoice or pay ₹5,000 for a vendor bill.
Customer / Accounts Receivable
A customer is someone who buys from you. If they haven’t paid yet, it’s recorded as Accounts Receivable.
Example: You issue an invoice to a client — that ₹2,000 becomes receivable.
Vendor / Accounts Payable
A vendor is someone you buy from. If you haven’t paid them yet, it’s an Account Payable.
Example: You get a bill of ₹3,000 from a supplier — until paid, it’s payable
Asset
Anything the business owns with value.
Example: Cash, laptop, office furniture — all are business assets.
Liability
Money the business owes to others.
Example: A loan or unpaid vendor bill is a liability.
Equity
The owner’s share in the business after subtracting all debts.
Example: If your business has ₹5 lakhs in assets and ₹2 lakhs in liabilities, equity is ₹3 lakhs.
Profit and loss Statement (p&l)
A report showing income minus expenses over a period.
Example: If you earned ₹50,000 and spent ₹30,000 this month, your profit is ₹20,000.
Balance Sheet
A financial snapshot showing Assets = Liabilities + Equity at a point in time.
Example: As of March 31st, your assets are ₹1,00,000, liabilities ₹40,000, and equity ₹60,000
Cash Flow
Tracks actual money moving in and out.
Example: You made ₹10,000 in sales, paid ₹4,000 in bills — cash flow = ₹6,000.
Reconciliation
Matching your Odoo records with actual bank statements.
Example: Your bank says ₹20,000, but Odoo shows ₹18,000 — find and fix the ₹2,000 gap.
Fiscal Year
A 12-month period used for accounting and taxes.
Example: April 1 to March 31 in India is a common fiscal year.
GST / VAT (Tax)
Tax added on sales and purchases.
Example: You sell a product for ₹1,000 with 18% GST — total invoice = ₹1,180.
Journal
A group of similar transactions.
Example: Sales Journal = all customer invoices; Bank Journal = all bank payments.
