Accounting – Process of identifying, measuring and reporting financial information of an entity
Accounts Payable – The amount owed by a business to its suppliers or vendors for goods and services purchased on credit
Accounts Receivable – The amounts owed to a business from its customers or clients for goods or services provided on credit
Accrual Accounting – A method of accounting where income and expenses are recorded in the periods in which they occur, not necessarily the periods in which cash is exchanged
Accrued Liabilities – Also known as Accrued Expenses, these are payment obligations that you will pay in the future for merchandise or services already provided to your company
Accrued Revenue – Is money your company has earned but hasn’t yet billed the customer for
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 entity’s financial statements for accuracy and provide a statement to that effect
Adjusting Entries – Entries made at the end of an accounting period to bring all accounts up to date on an accrual basis, so that the company can prepare correct financial statements
Bad debts – The estimated amount of credit sales that have become questionable as to collectibility in the current period.
Balance Sheet – summary of a company’s financial status, including assets, liabilities, and equity
Bank reconciliation – The process of comparing and reporting differences between the bank balance on the bank statement and the bank balance in the ledger
Bookkeeping – recording financial information
Book value – The value of assets, liabilities, and equity recorded on the balance sheet of a business. Book value may differ from replacement cost or market value.
Break-even Point – The point in a business’s operations where revenue is sufficient to cover expenses
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 Assets – The tangible operating assets of a business. These assets generally provide the business with operating capacity as opposed to being held for resale. They have a relatively long life
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 – The set of accounts used by a business that make up its general ledger. These accounts are standard to that organization, and all transactions must be recorded using these standard accounts unless a change is granted by management
Cash-Basis Accounting – A method in which income and expenses are recorded when they are paid
Cash-flow – The inflows to and outflows from an entity, regardless of the sources
Cash-flow statement – Shows why there is an increase or decrease in cash during the year. These increases and decreases are summarized into operating, financial, and investing activities
Cooking the books – A term for the process of making the financial results look good. “cooking the books” generally involves fraudulent methods of recording nonexistent transactions or transactions with values different from what is being recorded
Cost Accounting – A type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions
Cost of Goods Sold – The purchase of manufacturing costs of the goods that were sold during a particular period. The costs related to the goods not yet sold are accounted for in inventory on the balance sheet
Credit – An account entry with a negative value for assets, and positive value for liabilities and equity
Current Assets – Are easily converted into cash and are considered short term (under 12 months). Things like cash, bank accounts, short term investments, and debtors are considered current assets
Current liabilities – A category of liabilities on the balance sheet that represents financial obligations that are expected to be settled (paid) within one year
Current Ratio – A solvency ratio that measures whether a business has enough resources to pay its bills in the next 12 months. It is calculated by dividing current assets by current liabilities
Closing Entries – The formal process by which the enterprise reduces all nominal accounts to zero and determines and transfers the net income or net loss to an owners’ equity account. Also known as “closing the ledger,” “closing the books,” or merely “closing”
Debit – An account entry with a positive value for assets, and negative value for liabilities and equity
Debt – The amounts owed by a business to outside persons or businesses
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)
Deferred Revenue – Deferred revenue reflects cash receipts in connection with goods and services that have not yet been delivered or rendered. Deferred revenue is located in the liabilities section of a balance sheet
Equity – Money owed to the owner or owners of a company, also known as “owner’s equity”
Expenses – An expense is anything directly paid for by the business that is needed to run the business including wages and supplies
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.
Gross Income – Another term for revenue
Gross Margin – Represents revenue minus the cost of goods sold in the period
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
Gross and Net Profit (or Loss) – Gross is the difference between the sales and the cost of sales, while net is what is left after taking the expenses out of the gross profit and adding any other income
Income Statement – A summary of income and expenses
Insolvent – A term used to describe a business that does not have enough assets to meet its debt obligations in the short term. Insolvency must be corrected quickly or it could lead to bankruptcy
Inventory – Merchandise purchased for resale at a profit
Inventory Valuation – The method to set the book value of unsold inventory
Invoice – The original billing from the seller to the buyer, outlining what was purchased and the terms of sale, payment, etc.
Income – Income can be defined two ways: sales and other income. Sales is the money generated from the sale of goods or services before taking anything out for costs or discounts. Other income is any money received into the business by way of interest, discounts, or anything not directly related to the product or service of the business.
Income Statement – Summary of the effect of revenues and expenses over a period of time
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.
Loan – Money borrowed from a lender and usually repaid with interest
Liquidity – The ability of an asset to convert into cash or its ability to be easily sold. Assets are shown on the balance sheet in the order of their liquidity, the most liquid (cash) being listed first
Long-term Liability – An obligation that is not expected to be settled within one year
Liabilities – Debts and money owed to people or businesses. Liabilities can be long term, such as loans or bonds that will be paid off over a period longer than 12 months, or current such as anything that needs to be paid off within 12 months
Ledger – The book (or computer printouts) containing the accounts. A general ledger is a collection of all the asset, liability, owners’ equity, revenue, and expense accounts. A subsidiary ledger contains the details related to a given general ledger account.
Management Accounting – The accounting done internally to assist managers in their decision-making role. Management accounting generally encompasses budgeting, forecasting, unit costing, and ratio analysis.
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
Net Book Value – The difference between the original cost of a capital asset and its accumulated depreciation.
Net Loss – The deficit for an accounting period that occurs when the expenses for that period exceed the revenue.
Operating Income – Income generated from regular business operations
Other Income – Income generated from other than regular business operations, i.e. interest, rents, etc.
Owners’ Equity – The amounts owed by a business to its owners rather than outside parties
Payroll – A list of employees and their wages
Posting – The process of entering then permanently saving or “archiving” accounting data
Periodic Inventory – A method of accounting for inventory by which all purchases throughout the operating cycle are posted to cost of goods sold. Inventory is physically counted at the end of the period, and the adjustment for goods sold is made at that point. With this method, inventory is correct only at the end of the period.
Perpetual Inventory – A method of accounting for inventory by which goods are recorded as being removed from inventory as they are sold. With this method, inventory is always theoretically correct and is checked against a physical count at the end of the period.
Posting – The process of summarizing general journal entries and recording them in the general ledger.
Profit and Loss Statement – Another name for an income statement
Posting – The process of transferring the essential facts and figures from the book of original entry to the ledger accounts.
Prepaid Expense – Expense paid in advance that applies to a future accounting period.
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.
Retained Earnings – The amount of cumulative net income that remains in the business that has not been paid out to the owners.
Shareholder Equity – Shareholder Equity
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 totalled on the financial statement under “master accounts;” i.e. “Cash-ABC Bank” might be one of several subsidiary accounts that are subtotalled under “Cash”
Supplies – Assets purchased to be consumed by the entity
Solvency – The ability of a company to settle its liabilities with its assets.
Statement of Retained Earnings – Statement of retained earnings reconciles the balance of the retained earnings account from the beginning to the end of the period.
Taxable Income – The amount of the net income that is subject to income tax.
Total Debt Ratio – A measure of the long-term solvency of your company. It is calculated by dividing total debt by total assets.
Transaction – A financial business event that is recorded in a business’s books.
Trial Balance – The list of all open accounts in the ledger and their balances.
Write-down – An accounting entry to reduce the carrying value of an asset, such as inventory, to its market value.
Write off – A slang term for expensing a cost in the books of a business.
