Accounting Terms

Accounting Terms Accounting Equation - The Accounting Equation is Assets = Liabilities + Equity. With accurate financial records, the equation balances.

Accounting - Accounting keeps track of the financial records of a business. In addition to recording financial transactions, it involves reporting, analyzing and summarizing information.

Accounts Payable - Accounts Payable are liabilities of a business and represent money owed to others.

Accounts Receivable - Assets of a business and represent money owed to a business by others.

Accrual Accounting - Records financial transactions when they occur rather than when cash changes hands. For example, when goods are received without payment, an Accounts Payable is recorded.

Accruals - Accruals acknowledge revenue when it is earned and expenses when they are incurred even though a cash transaction may not be involved.

Amortization - Reduces debts through equal payments that include interest.

Asset - Items of value that are owned.

Audit Trail - Allow financial transactions to be traced to their source.

Auditors - Examine financial accounts and records to evaluate their accuracy and the financial condition of the entity.

Balance Sheet - Provides a snapshot of a business` assets, liabilities, and equity on a given date.

Bookkeeping - Recording of financial transactions in an accounting system.

Budgeting - Budgeting involves maintaining a financial plan to control cash flow.

Capital Stock - Total amount of common and preferred stock issued by a company.

Capital Surplus - The amount in excess of par value for shares of common stock.

Capitalized Expense - Accumulated expenses that are expensed over time.

Cash Flow - The difference in money flowing in and out. A negative flow indicates more money going out than coming in. A positive flow shows more money coming in than going out.

Cash-Basis Accounting - Records when cash is received through revenues and disbursed for expenses.

Chart of Accounts - An organization`s list of accounts used to record financial transactions.

Closing the Books/Year End Closing - Closing the Books occurs at the end of the annual period and allows for a start with a clean book at the beginning of the next year.

Cost Accounting - Used internally to determine the cost of operations and to establish a budget to increase profitability.

Credit - Entered in the right column of accounts. Liability, equity and revenue increase on the credit side.

Debit - Entered in the left column of accounts. Assets and expenses increase on the debit side.

Departmental Accounting - Shows individual departments` income, expenses and net profit.

Depreciation - The decrease in an asset`s value over time.

Dividends - Profits returned to the shareholders of a corporation.

Double-Entry Bookkeeping - Requires entries of debits and credits for each financial transaction.

Equity - Represents the value of company ownership.

Financial Accounting - The accounting branch that prepares financial reporting primarily for external users.

Financial Statement - Financial Statements detail the financial activities of a business.

Fixed Asset - Used for a long period of time, e.g. - equipment or buildings.

General Ledger - Where debit and credit transactions are recorded.

Goodwill - Intangible asset a business enjoys like its reputation or brand popularity.

Income Statement - A Financial Statement documents the difference in revenue and expenses resulting in income.

Inventory Valuation - A valuation method modified for use in real estate and business appraisals.

Inventory - Inventory consists of raw materials, work in progress, and finished goods.

Invoice - An Invoice shows the amount of money owed for goods or services received.

In The Black - Makes reference to a profit on the books; opposite of "in the red." Black Friday sales are known for the profit retailers are adding to their books.

In The Red - Makes reference to a loss on the books; opposite of "in the black." In the days of handwritten accounting, ledger entries written in black meant there was a profit, but those in red meant there was a loss.

Job Costing - Job Costing tracks costs of a particular job against its revenues.

Journal - The first place financial transactions are entered. They are entered chronologically.

Liability - Liabilities are the obligations of an entity, usually financial in nature.

Liquid Asset - Consist of cash and other assets that can be easily converted to cash.

Loan - A monetary advance from a lender to a borrower.

Master Account - A Master Account has subsidiary accounts. Accounts Receivable could be a master account for various individual receivable accounts.

Net Income - Net Income equals revenue minus expenses, taxes, depreciation and interest.

Non-Cash Expense - Does not require cash outlay, e.g. - depreciation.

Non-operating Income - Income not generated from the business. An example might be the sale of unused equipment.

Note - A Note is a document promising to repay a debt.

Operating Income - Determined by subtracting operating expenses from operating revenue. Interest and income tax expenses are not included.

Other Income - Non-recurring income, e.g. - interest.

Payroll - An account listing employees and any wages and salaries due them.

Posting - Refers to the recording of ledger entries.

Profit - Profit is revenue minus expenses. Reductions for taxes, interest, and depreciation are included.

Profit/Loss Statement - A financial report issued by a company on a regular basis that discloses earnings, expenses and net profit for a given time period.

Reconciliation - The act of proving an account balances; debits and credits equal. An example of reconciling an account is to verify that the bank statement matches the checkbook balance, making allowances for outstanding checks and deposits.

Retained Earnings - Money left after all the bills have been paid and all the shareholder dividends have been distributed; often reinvested in the business.

Revenue - The actual amount of money a company brings in during a particular time period; gross income.