Accounting Terms

Learn Basic Accounting Terms

Accounting - process of identifying, measuring, and reporting financial
information of an entity
Accounting Equation - assets = liabilities + equity
Accounts Payable - money owed to creditors, vendors, etc.
Accounts Receivable - money owed to a business, i.e. credit sales
Accrual Accounting - a method in which income is recorded when it is earned and
expenses are recorded when they are incurred, all independent of cash flow
Accruals - a list of expenses that have been incurred and expensed, but not paid or
a list of sales that have been completed, but not yet billed
Amortization gradual reduction of amounts in an account over time, either assets
or liabilities
Asset - property with a cash value that is owned by a business or individual
Audit Trail a record of every transaction, when it was done, by whom and
where, used by auditors when validating the financial statement
Auditors third party accountants who review an entitys financial statements for
accuracy and provide a statement to that effect
Balance Sheet - summary of a company's financial status, including assets,
liabilities, and equity
Bookkeeping - recording financial information
Budgeting the process of assigning forecasted income and expenses to accounts,
which amounts will be compared to actual income and expense for analysis of
variances
Capital Stock found in the equity portion of the balance sheet describing the
number of shares sold to shareholders at a predetermined value per share, also
called common stock or preferred stock
Capital Surplus found in the equity portion of the balance sheet accounting for
the amount shareholders paid that is greater or lesser than the capital stock
amount
Capitalized Expense expenses that are accumulated, not expensed as incurred, to
be amortized over a period of time; i.e. the development cost of a new product
Chart of Accounts - a listing of a company's accounts and their corresponding
numbers
Cash-Basis Accounting - a method in which income and expenses are recorded
when they are paid.
Cash Flow - a summary of cash received and disbursed showing the beginning and
ending amounts
Closing the Books/Year End Closing the process of reversing the income and
expense for a fiscal or calendar year and netting the amount into retained
earnings
Cost Accounting - a type of accounting that focuses on recording, defining, and
reporting costs associated with specific operating functions
Credit - an account entry with a negative value for assets, and positive value for
liabilities and equity.
Debit - an account entry with a positive value for assets, and negative value for
liabilities and equity.
Departmental Accounting separating operating divisions into their own sub
entities on the income statement, showing individual income, expenses, and net
profit by entity
Depreciation - recognizing the decrease in the value of an asset due to age and use
Dividends amounts paid to shareholders out of current or retained earnings
Double-Entry Bookkeeping - system of accounting in which every transaction has
a corresponding positive and negative entry (debits and credits)
Equity - money owed to the owner or owners of a company, also known as
"owner's equity"
Financial Accounting - accounting focused on reporting an entity's activities to an
external party; ie: shareholders
Financial Statement - a record containing the balance sheet and the income
statement
Fixed Asset - long-term tangible property; building, land, computers, etc.
General Ledger - a record of all financial transactions within an entity
Goodwill an intangible asset reflecting the value of an entity in excess of its
tangible assets
Income Statement - a summary of income and expenses
Inventory merchandise purchased for resale at a profit
Inventory Valuation the method to set the book value of unsold inventory: i.e.
LIFO, last in, first out; FIFO, first in, first out; average, an average cost over
a given period, last cost, the cost based on the last purchase; standard, a
deemed amount related to but not tied to a specific purchase, serialized, based
on a uniquely identifiable serial number or character of each inventory item
Invoice the original billing from the seller to the buyer, outlining what was
purchased and the terms of sale, payment, etc.
Job Costing - system of tracking costs associated with a job or project (labor,
equipment, etc) and comparing with forecasted costs
Journal - a record where transactions are recorded, also known as an "account"
Liability - money owed to creditors, vendors, etc
Liquid Asset - cash or other property that can be easily converted to cash
Loan - money borrowed from a lender and usually repaid with interest
Master Account an account on the general ledger that subtotals the subsidiary
accounts assigned to it; i.e. Cash might be the master account for a list of
depository accounts at banks
Net Income - money remaining after all expenses and taxes have been paid
Non Cash Expense - recognizing the decrease in the value of an asset; i.e.
depreciation and amortization
Non-operating Income - income generated from non-recurring transactions; ie:
sale of an old building
Note - a written agreement to repay borrowed money; sometimes used in place of
"loan"
Operating Income - income generated from regular business operations
Other Income - income generated from other than regular business operations, i.e.
interest, rents, etc.
Payroll - a list of employees and their wages
Posting the process of entering then permanently saving or archiving
accounting data
Profit - see "net income"
Profit/Loss Statement - see "income statement"
Reconciliation the process of matching one set of data to another; i.e. the bank
statement to the check register, the accounts payable journal to the general ledger,
etc.
Retained Earnings the amount of net profit retained and not paid out to
shareholders over the life of the business
Revenue - total income before expenses.
Shareholder Equity - the capital and retained earnings in an entity attributed to the
shareholders
Single-Entry Bookkeeping - system of accounting in which transactions are
entered into one account
Statement of Account - a summary of amounts owed to a vendor, lender, etc.
Subsidiary Accounts the subaccounts that are totaled on the financial statement
under master accounts; i.e. Cash-ABC Bank might be one of several subsidiary
accounts that are subtotaled under Cash
Supplies assets purchased to be consumed by the entity
Treasury Stock shares purchased by the entity from shareholders, reducing
shareholder equity
Write-down/Write-off an accounting entry that reduces the value of an asset due
to an impairment of that asset; i.e. the account receivable from the bankrupt
customer