Common Accounting Terms

[A][B][C ][D][E][F][G][H][I][J][L][M][N][O][P][Q][R][S][T][U][V][W]

A
accelerateddepreciationmethod
methodthatchargeslargerdepreciationchargesintheearlyyearsofanasset'slifeandsmallerchargesinlateryears.

account
aseparaterecordforeachtypeofasset,liability,equity,revenue,andexpenseusedtoshowthebeginningbalanceandtorecordtheincreasesanddecreasesforaperiodand
theresultingendingbalanceattheendofaperiod.

accountbalance
beginningaccount'sbalanceplustheincreaseslessthedecreasespostedtotheaccountwithdebitsandcredits.

accountant
apersonformallytrainedtoprepare,maintain,andanalyzefinancialinformation.

accounting
istheartofanalyzing,recording,summarizing,reporting,reviewing,andinterpretingfinancialinformation.

accountingcycle
recurringprocedures(steps)performedeachaccountingperiod.

accountingequation
mathematicalexpressionoftherelationshipofpropertyandpropertyrights.AlsocalledtheBalanceSheetEquation.

,,,,,,,,,,,,,,,,,
TheequationAssets=Liabilities+Equity,whichdemonstratesthetwo-sidednatureofaccountingandisusefulforexplainingtheconceptofdouble-entryaccounting(or
double-entrybookkeeping).

accountingperiod
lengthoftimecoveredbyfinancialstatements-months,quarters,andyears.

accountingprinciples
therulesandguidelinesthatcompaniesmustfollowwhenreportingfinancialdata.Thecommonsetofaccountingprinciplesiscalledgenerallyacceptedaccountingprinciples
(GAAP).

accountspayable
creditor'sclaimsagainstthebusiness'spropertyarisingfromthebusiness'spurchaseofgoodsand/orservicesonaccount.

accountsreceivable
businessclaimsagainstthepropertyofacustomerarisingfromthesaleofgoodsand/orservicesonaccount.

accrualmethod(basis)ofaccounting
methodofaccountingthatrecordsincomeintheperiodearnedandrecordsexpensesandcapitalexpendituressuchasbuildings,land,equipment,andvehiclesintheperiod
incurred.

accruedexpenses
expensesincurredbutnotyetrecorded

accruedrevenues
revenuesearnedbutnotyetrecorded

accumulateddepreciation
cumulativesumofalldepreciationexpensesrecordedforassets.

adjustingentry
journalentrymadeattheendofaperiodtoupdateanassetorliabilityaccount'sbalancetoitsactualamountandupdatetherelatedexpenseandrevenueaccountbalances.

advertising
expenseaccountusedtorecordpromotionalexpenditures,suchasnewspapers,handbills,television,radioandmail.
 aging
preparingreportsthatsortamountsdueorowedintocategoriesbyageofwhentheyareduetobepaidorreceived.

allowanceforuncollectibleaccounts
contraassetaccountwhosebalancecontainsamountsthatmatchbaddebtexpenseswithsalesforaperiod.

asset
propertiesusedintheoperationorinvestmentactivitiesofabusiness.

,,,,,,,,,,,,,,,,,
allthegoodstuffabusinessowns(anythingwithvalue).Thegoodies.

audit
anindependentreviewoffinancialrecordstoverifytheiraccuracy.

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B
baddebts
amountsowedabusinessthatareunlikelytobecollected.

balancesheet
thefinancialstatementwhichshowstheamountandnatureofbusinessassets,liabilities,andowner'sequity(capital)asofaspecificpointintime.Itisalsoknownasa
StatementOfFinancialPositionoraStatementOfFinancialCondition.

balancesheetaccount
atypeofaccountthatisincludedintheBalanceSheetnamelytheAssets,Liabilities,andpermanentEquityAccounts.

balancesheet-accountform
horizontalbalancesheetformthatlistsassetsontheleftsideandliabilitiesandequityontherightside.

balancesheet-reportform
Thereportformofthebalancesheetprovidesinformationinaverticalformat--essentiallyonecolumnthatgoesthefullwidthofthepage.Thereportformstartswithassets,
providingatotalvalueattheendoftheassetssection.Itthenlistsliabilitiesandfinisheswithequity,withthefinallineofthereportprovidingthetotalcombinedvalueof
liabilitiesandequity.

bankreconciliation
theprocessofbringingthecheckbookandbankstatementbalancesintoagreement.

bankstatement
acopyofthebank'srecordofthebusiness'saccountshowingthebalanceoftheaccountatthebeginningofthemonth,thedepositsandwithdrawals(mostlychecks)made
duringthemonth,servicecharges,andthebalancesattheendofthemonth.

bookvalue
Originalcostofadepreciableassetlessaccumulateddepreciation.

bookkeeper
apersonwhorecordsandclassifiesthefinancialtransactionsofabusiness

bookkeeping
istheprocessofrecordingandclassifyingbusinessfinancialtransactions(activities).Maintainingtherecordsofthefinancialactivitiesofabusinessorindividual.

breakevenpoint
thesaleslevelatwhichabusinessgeneratesexactlyzeroprofits,givenacertainamountoffixedcostsincurredinaperiod.

budgeting
preparingareportthatforecasts(estimates)plannedresultsforthefuture.

buildingrental
expeneaccountusedtorecordexpenditurespaidtoanownerofproperty(building)foruseoftheproperty.Arentalagreementcalledaleasecontainstheterms.

buildings
assetaccountusedtorecordexpendituresforstructureserectedonlandandusedfortheconductofbusiness.

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C
cancelledcheck
checksthathavebeenprocessed(paid)bythebankanddeductedfromthebank'scustomer'saccount.

capital
capitalisalsocalledequity-seethetermsowner'sequityandequity.
capitalstatement
thefinancialreportthatsummarizesallthechangesinowner'sequity(capital)thatoccurredduringaspecificperiod.

cash
assetaccountsthatrecordmonetaryitemsthatareavailabletomeetcurrentobligationsofthebusiness.Itincludesbankdeposits,currency,coins,checks,moneyorders,and
traveler'schecks.

cashbasis
accountingmethodthatrecordsrevenueswhencashisreceivedandexpenseswhencashispaid.

cashdisburements(payments)journal
aspecialjournalusedtorecordonlycashpaymenttransactions.

cashdiscount
deductionfromtheinvoiceamountallowedforearlypayment.

cashforecast
estimateofthetimingandamountsofcashinflowsandoutflowsoveraspecificperiod(usuallyoneyear).

cashmethod(basis)ofaccounting
methodofaccountingthatrecognizesrevenues(earnings)intheperiodthecashisreceivedandexpensesintheperiodwhenthecashpaymentsaremade.

cashreceiptsjournal
aspecialjournalusedtorecordonlycashreceipttransactions.

cashsale
asaleinwhichcashisreceivedforthetotalamountofthesaleatthetimeofthetransaction.

chartofaccounts
acodedlistingofalltheaccountsinthegeneralledger.

check
awrittenorderdirectingabanktopaycashfromtheaccountofthewriter(drawer)ofthecheck.

checkbook
formalrecordofallcheckswritten,deposits,bankcharges,andmiscellaneouschargesandcredits.

closingthebooks
processoftransferringthebalancesfromthetemporaryincomestatementaccounts(revenuesandexpenses)tothepermanentbalancesheetequityaccount(s).

commonstock
acorporation'sbasicownershipshare-alsocalledcapitalstock.

compoundjournalentry
ajournalentrythataffectsatleastthreeaccounts.

contingentliabilities
liabilitiesnotrecordedinfinancialreportsduetotheuncertaintyoffutureevents.

contraaccount
anaccountwhichoffsetsandreducesoroffsetsthebalanceofanotheraccount.

contra-assetaccount
hasacreditbalanceandoffsetsanddecreasesthedebitbalanceoftherelatedassetaccount.AnexampleaccountisAccumulatedDepreciationwhichreducestheequipment
accounttoarriveattheequipment'snetvalue.

contra-liabilityaccount
hasadebitbalanceandoffsetsanddecreasesthecreditbalanceoftherelatedliabilityaccount.Anexampleaccountsisthebonddiscountaccountthatreducesthebonds
payableaccounttoarriveatthebond'snetvalue.

contributionmargin
amountdeterminedbysubtractingvariablecostsfromnetsales.

controlaccount
ageneralledgeraccountthathasasubsidiaryledgerthatcontainsthedetailbalancesthattotaltotheamountcontainedinthesummarycontrolaccount.

corporation
anorganizationmadeupofmanyowners(stockholders)whonormallyarenotactiveintheoperationsofthebusiness.

correctingentry
ajournalentrymadetocorrectanerrorpreviouslyrecordedinthegeneralledger.

costofgoodsavailableforsale
beginninginventoryplusnetpurchasesforaperiod.

costofgoodssold
 expenseaccountthatrecordsthecostofinventorysoldtocustomersduringaperiod-alsocalledcostofsales.

credit
anentry(amount)enteredontherightside(column)ofajournalorgeneralledgeraccountthatincreasesaliability,owner'sequity(capital)orrevenue,oranentrythat
decreasesanasset,draw,oranexpense.

creditsales
salesmadeonaccount.Saleswherethecustomerisallowedtopayatalaterdate.Noncashsales

creditor
apersonororganizationthatabusinessowesmoney.

currentasset
cashandotherassetsnormallyexpectedtobeconvertedtocashorusedupusuallywithinayear.

currentliability
amountsowed(liabilities)thatneedtobepaidorsettledusuallywithinayear.

currentratio
ratiousedtodetermineabusiness'sabilitytopayitsshorttermobligations.

,,,,,
calculatedbydividingcurrentassetsbycurrentliabilities.

customer
apersonororganizationthatbuysgoodsorservicesfromabusiness.

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D
debit
anentry(amount)enteredontheleftside(column)ofajournalorgeneralledgeraccountthatincreasesanasset,draworanexpenseoranentrythatdecreasesaliability,
owner'sequity(capital)orrevenue.

debtor
customersthatoweabusinessmoney.

depositsintransit
depositsrecordedbythebusinessbutnotyetrecordedbythebank.

depreciation
expenseaccountthatrecordsexpensesrelatedtotheusageofplantandequipmentallocatedtoperiodsinwhichtheyareused.

directlabor
wagesofemployeeswhomakeproducts.

directmaterials
materialsofsignificantvaluethatareanintegralcomponentofproducts.

directwrite-offmethod
methodthatrecordsbadexpenseswhenspecificaccountsaredeterminedtobeuncollectible.

dividends
acompany?sdistribution(payments)ofprofitstoshareholders.

doubleentry
typeofaccounting/bookkeepingsystemthatrequireseverytransactiontoberecordedinatleasttwoplaces(accounts)usingadebitandacredit.Everytransactionis
recordedinaformaljournalasadebitentryinoneaccount,andasacreditentryinanotheraccount.Periodically,usuallymonthly,thesummarizedbalancesfromthejournals
areposted(transferred)toaformalbusinessrecordcalledthegeneralledger.

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E
electronicfundstransfer(EFT)
useofelectroniccommunicationtotransfercashfromoneparttoanother.

equipment
assetaccountusedtorecordexpendituresforphysicalgoodsusedinabusiness,suchasmachineryorfurniture.Equipmentisusedinabusinessduringtheproductionof
income.

equity
owner'sclaimtotheassetsofabusiness-alsocallednetassetsand

,,,,,,,,,,,
 capital-seerelatedtermscapitalandowner'sequity

expense
decreaseinowner'sequity(capital)resultingfromthecostofgoods,fixedassets,andservicesandsuppliesconsumedintheoperationsofabusiness.

,,,,,,,,,,,,,,,,,,,
thecostsofdoingbusiness.Thestuffweusedandhadtopayfororchargetorunourbusiness.

externalusers
usersofaccountinginformationwhoarenotdirectlyinvolvedwithabusinesssuchasgovernmentalagencies,creditors,customers,andinvestors.

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F
factoryoverhead
costsincurredduringthemanufacturingprocess,notincludingthecostsofdirectlaborandmaterials.Factoryoverheadisnormallyaggregatedintocostpoolsandallocatedto
unitsproducedduringtheperiod.

FIFO-firstinfirstout
costflowassumptionthatassumestheoldestproductsarethefirstsold.

FinancialAccountingStandardsBoard
independentgroupoffulltimemembersresponsibleforsettingaccountingrules.

financialstatements
accountingreportspreparedperiodicallytoinformtheowner,creditors,andotherinterestedpartiesastothefinancialconditionandoperatingresultsofthebusiness.

finishedgoods
manufacturedproductsthatarefullycompletedandavailableforsale.

fixedassets
anothernameforproperty,plant,andequipment.

fixedcosts
arecoststhatdonotchangewhenthequantityofoutputchanges.

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G
generaljournal
ajournalusedtorecordtransctionsnotrecordedinspecialjournals.

generalledger
arecordcontainingtheaccountsandbalancesforallofabusiness'sassets,liabilities,equity,revenue,andexpenseaccounts.

GenerallyAcceptedAccountingPrinciples
rulesthatspecifyacceptableaccountingpractices.

grosspay
amountearnedbyemployeespriortoanydeductions.

grossprofit
amountdeterminedbydeductingcostofgoodssoldfromnetsales.

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H
historicalcost
originalcostofanasset.

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I
incomestatement
thefinancialstatementthatsummarizesrevenuesandexpensesforaspecificperiodoftime,usuallyamonthorayear.ThisstatementisalsocalledaProfitandLoss
StatementoranOperatingStatement.

incomestatementaccount
atypeofaccountthatisincludedintheIncomeStatementnamelytheRevenueandExpenseAccounts.

intangibleassets
 assetsofanon-physicalnaturethathaveavalue-patents-copyrights-tradenames

interestexpense
expenseaccountthatrecordsmoneypaidregularlyataparticularratefortheuseofmoney.

interestincome
amountsearnedfrominvestments.

internalcontrols
methodsputinplacebyacompanytoensuretheintegrityoffinancialandaccountinginformation,meetoperationalandprofitabilitytargetsandtransmitmanagementpolicies
throughouttheorganization.

internalusers
usersdirectlyinvolvedwithabusinesssuchasmanagers,owners,andemployeeswhoworkforthebusiness.

inventory
assetaccountthatrecordsexpendituresforitemsheldforresaleinthenormalcourseofabusiness'soperations.

invoice
abusinessdocumentshowingthenamesandaddressesofthebuyerandthesellerthedateandtermsofthesalethedescription,quantity,unitprice,andtotalpriceof
goodspurchasedorsoldandthemethodofdelivery.

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SellingbusinessreferstothisdocumentasaSalesInvoice.

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BuyingbusinessreferstothisdocumentasaSupplierInvoice.

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J
jobcosting
anorder-specificcostingtechnique,usedinsituationswhereeachjobisdifferentandisperformedtothecustomer'sspecification.

,,,,,,,
alsocalledjobordercosting

journals
apreliminaryrecordwherebusinesstransactionsarefirstenteredintotheaccountingsystem.Thejournaliscommonlyreferredtoasthebookoforiginalentry.

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L
land
assetaccountthatrecordsexpendituresforparcelsoftheearthsuchasbuildingsites,yards,andparkingareas.

liability
Claimsbycreditorstotheproperty(assets)ofabusiness.

,,,,,,,,,,,,,,,,,,,
Other'sclaimstoabusiness'sgoodstuff.Amountsthebusinessowestoothers.

LIFO-lastinfirstout
costflowassumptionthatassumesthenewestproductsarethefirstsold.

limitedliabilitycompany(LLC)
relativelynewtypeofbusinessstructurethatcombinesthebenefitsofapartnershipandcorporation.

loss
amountabusiness'sexpensesexceed(greaterthan)revenues.Inotherwords,weearnedlessthanwespent.

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M
maintenance&repairs
expenseaccountthatrecordsexpenditurespaidtorepairandormaintainbuildingsand/orequipment.

markup
amountaddedtothecostofproductstodeterminesellingprices.

merchandisingbusiness
abusinessthatbuysandsellsproductstoconsumers.
 mortgagepayable
notespayablewhicharesecuredbyalienonland,buildings,equipment,orotherpropertyoftheborrower(yourcompany)

multiplestepincomestatement
incomestatementformatthathassubtotalsbetweensalesandnetincomeandcategorizesexpenses.

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N
netincome
amountearnedaftersubtractingallexpensesfromrevenue(sales)foraperiod-alsocallednetprofit.

netloss
excessofexpensesoverrevenuesforaperiod-expensesaregreaterthanrevenues.

netpay
employee'searningsafteralldeductions.

netsales
saleslessdiscountsandreturnandallowances.

normalbalanceofaccount
adebitorcreditbalancedeterminedbythesideofanaccountthatrepresentsanincrease.

notespayable
formalwrittenpromisestopaydefinitesumsofmoneyowedatspecifiedtimes.

notesreceivable
formalwrittenpromisesgivenbycustomersorotherstopaydefinitesumsofmoneytothebusinessatspecifiedtimes.

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O
officesupplies
assetorexpenseaccountthatrecordsexpendituresformaintainingasupplyofonhandsuppliessuchastypewriter,copier,andcomputerpaper,pens,pencils,andspecial
forms.

organizationcosts
expendituresincurredinordertostartabusiness.

outstandingchecks
checkswrittenbutnotyetpaidbythebankatthebankstatementdate.

ownerdrawings(withdrawals)
assetstakenoutofabusinessfortheowner?spersonaluse.

owner'sequity
owner'srightsandclaimstotheproperty(assets)ofabusiness-alsocalledproprietorshipandnetworth.

,,,,,,,,,,,
,,,,,whatthebusinessowestheowner(s).Thegoodstuffleftfortheownerafterallliabilities(amountsowed)arepaid.

owner'sinvestments
increaseinowner'sequity(capital)resultingfromadditionalinvestmentsofcashand/orotherpropertymadebytheowner.

,,,,,,,,,,,,,,,,,,,
amounts,eithercashorotherproperty,thattheownerputsinhisbusiness.

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P
partnership
twoormorepeoplewhosharetheownershipofasinglebusiness.

payrolltaxes
expendituresfortaxesbasedonwagespaidtoemployees.

periodicinventorymethod
inventorydeterminedbyperformingaphysicalinventory-counting,weighing,andmeasuringproductsonhand.

permanentorrealaccount
 anothertermusedtorefertothebalancesheetaccounts.

perpetualinventory
abookinventorydeterminedbymaintainingdetailedrecordsofincreasesanddecreases.

pettycash
smallamountsofcashinafundusedtopayminorexpenses.

posting
processoftransferringbalancesfrombookkeepingrecordscalledjournalstoafinalbookkeepingrecordcalledthegeneralledger.

prepaidexpenses
anassetrepresentingitemspaidforinadvanceofreceivingtheirbenefits.

processcosting
costingprocedureusedtoassigncostswhenthereismassproductionofsimilarproducts,wherethecostsassociatedwithindividualunitsofoutputcannotbedifferentiated
fromeachother.

profit
amountabusiness'srevenuesexceed(greaterthan)expenses.Inotherwords,theamountsweearnedweregreaterthanourexpenses.

property
anothertermforassets.

purchaseorder
adocumentoriginatedbythepurchaser(buyer)requestingthesuppliertoshipgoodsorperformservices.

purchases
goodsboughtoncreditandcashtoberesold.

purchasesjournal
aspecialjournalusedtorecordtransactionsthatinvolvepurchasesoncredit.

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Q
quickassets
cashandotherassetsthatcanquicklybeconvertedintocash.

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R
realproperty
landandanythingattachedtotheland.

receivingreport
adocumentoriginatedbythebuyingbusinesslistingthequantitiesandconditionofthegoodsand/orservicesreceivedfromasupplier.

rentalincome
revenueaccountthatrecordsamountsearnedfromrentingproperties.

reportformbalancesheet
abalancesheetthatliststheaccountsverticallyintheorderofassets,liabilities,andequity(capital).

retainedearnings
totalprofitorlossfromthestartofthebusinesstothepresentnotpaidouttoowners.

revenue
thegrossincreaseinowner'sequity(capital)resultingfromtheoperationsandotheractivitiesofthebusiness.

,,,,,,,,,,,,,,,,,,,
amountsabusinessearnsbysellingservicesandproducts.Amountsbilledtocustomersforservicesand/orproducts

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S
salaries
expenseaccountsthatrecordexpendituresforworkperformedbyemployees.

saleofproducts
amountsearnedfromthesaleofmerchandise.
saleofservices
amountsearnedfromperformingservices.

saleonaccount
salewherethecustomerisallowedtopayatafuturedate.

salesjournal
aspecialjournalusedtorecordallofthecompanysalesoncredit.

salesorder
adocumentedoriginatedbythesellerlistingthegoodsand/orservicesorderedbyacustomerandotherinformationsuchaspricesanddeliverydates.

salesreturn
amountowedtocustomersforthereturnofmerchandsepreviouslysold.

salestax
taxcollectedforgovernmentalagenciesbasedonsales.

sellingexpenses
expensesrelatedtopromoting(increasing)salessuchassalescommissions,catalogues,advertising,andcustomersupport.

semi-fixedcost
seesemi-variablecosts

semi-variablecost
acostcomposedofamixtureoffixedandvariablecomponents.Costsarefixedforasetlevelofproductionorconsumption,becomingvariableafterthelevelisexceeded.

servicebusiness
abusinessthatsellsservicesandrelatedmaterials.

singlestepincomestatement
incomestatementformatthatincludescostofgoodssoldandhasonlyonesubtotalfortotalexpenses.

soleproprietorship
businessownedbyonepersonwhoisnormallyactiveinrunningandmanagingthebusiness.

sourcedocuments
documentsthatevidenceabusinesstransactionhasoccurredsuchasinvoicesandchecks.

specializedjournals
journalsusedtoinitiallyrecordspecialtypesoftransactionssuchassales,cashdisbursements,andcashreceiptsintheirownjournal.

statementchangesinfinancialposition
thefinancialstatementthatreportsthesourcesandusesofcashorworkingcapitalforaspecificperiodoftime,normallyayear.

statementofcashflows
seestatementofchangesinfinancialposition

stockholder'sequity
valueoftheowner'sequity(capital)inacorporation.

subsidiaryledgers
aseparaterecordsetuptorecordtheindividualitemsrelatingtoasinglegeneralledgeraccount(controlaccount).Examplesincludeanaccountsreceivableandaccounts
payableledger.

supplies
assetorexpenseaccountthatrecordsexpendituresforincidentalmaterialsneededintheconductofbusiness.

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T
T-Account
askeletonoutlineofanaccountwhichprovidesthesamebasicdataasaformalledgeraccount.Usedasateachingaid.

temporaryaccount
anothertermusedtorefertotheincomestatementaccounts.Theaccountsarecalledtemporaryduetothefactthattheirbalancesaresettozerowhenthebooksareclosed.

transaction
anyeventorconditionthatmustberecordedinthebooksofabusinessbecauseofitseffectonthefinancialconditionofthebusiness,suchasbuyingandselling.Abusiness
dealoragreement.

trialbalance
aworksheetlistingofalltheaccountsappearinginthegeneralledgerwiththedollaramountofthedebitorcreditbalanceofeachaccount.Usedtomakesurethebooksarein
balance-totaldebitsandcreditsareequal.
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U
unearnedrevenue
aliabilitycreatedwhencustomerspayinadvanceforproductsorservicesthathavenotbeendeliveredorrendered.

utilities
expendituresforbasicservicesneededtofunctioninthemodernworld,suchaswater,sewer,gas,electricityandtelephone.Mostbusinessestracktheamountspentforeach
typeofutilityservice.

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V
variablecosts
arecoststhatvariesinrelationtochangesinthevolumeofactivity.

vendor
sellerofgoodsand/orservices-alsocalledsupplier.

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W
wholesaler
abusinessthatbuysandsellslargequantiesofproductstoothersforresale.

workinprocess
unfinishedproductsbeingmanufactured.

workingcapital
netdifferencebetweencurrentassetsandcurrentliabilities.

,,,,,,,,,,,,,,,,,,,
WorkingCapital=CurrentAssets-CurrentLiabilities

worksheets
formswhichareusedtosummarizealltheinformationnecessarytocompletetheend-of-periodfinancialreportsandprepareotherfinancialanalysis.

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