Account: a summary record of changes to items on the balance sheet (assets, liabilities, and equity) or income statement

Download 20.77 Kb. Date 04.07.2021 Size 20.77 Kb. #57019

Account: A summary record of changes to items on the balance sheet (assets, liabilities, and equity) or income statement (revenues and expenses.) Accounting: A system used to measure and record the day-to-day economic activities of a business and to generate reports about its financial health and performance. Account payable: The amount owed by the entity to suppliers for credit purchases (a liability.) Account receivable: Amount owed to the entity by customers from credit sales (an asset.) Accounting entity: The organization for which accounts, financial statements, and financial records are kept and maintained as distinct from the people who own, operate, or invest in that business. Accounting equation: Assets = Liabilities + Owners' Equity. (Also known as the basic accounting equation or the fundamental accounting equation or the balance sheet equation.) Accounting period: The period of time covered by an entity's financial statements. Accrual accounting: Recording revenues in the period when earned and expenses when incurred regardless of the timing of collection or payment. Accruals: Revenues and expenses that have been recorded by the end of an accounting period but that will be collected or paid in a future accounting period. Accrued expenses: Expenses that have been incurred and recorded, but have not been paid by the end of the accounting period. (A liability account, not an expense account.) Accrued liabilities: See Accrued expenses. Accumulated depreciation: The account indicating how much of the cost of long-term assets, such as computers or office equipment, has been used (charged to expense) since the assets were acquired (a contra-asset account.) Adjusting entries: Entries to the accounting records that do not involve current period transactions with external parties (such as recording the current period depreciation expense related to a depreciable asset acquired in a prior period.) Adjustments: End-of-period journal entries that assign revenues to the periods earned and expenses to the periods incurred, while updating the related asset and liability balances. Amortization: The allocation of the cost of intangible assets over the period of time during which a company benefits from their use. Amortization expense: The cost of a company's intangible assets allocated to an accounting period. Asset: A probable future economic benefit, obtained or controlled by the entity at a measurable cost, as a result of a past transaction or event. (For example, a company's property and equipment are assets, as are its cash and accounts receivable.) Balance: The difference between the left-side (debit) sum and the right-side (credit) sum of an account at any given time. Balance sheet: A statement of a company's financial position, measured using accounting principles, at a particular point in time. (Also known as Statement of financial position.) Balance sheet equation: See Basic accounting equation. Bank loan: Amount borrowed from a bank, with a contractual interest rate and payment schedule (a liability.) Basic accounting equation: Assets equal the sum of liabilities plus owners' equity. (Also known as the accounting equation or the fundamental accounting equation or the balance sheet equation.) Book value: The net amount at which items are reported on financial statements. Calendar year: January 1 through December 31. Capital: The debt borrowed by and equity funds contributed to a business. Cash: Currency and coin and checks in possession of the company or deposited in banks (an asset). Cash basis accounting: Accounting that records revenues when cash is received and expenses when cash is paid. Cash flow from financing activities: The amount of cash generated or used up by financing activities during an accounting period. (If positive, financing activities have generated cash or there has been a cash inflow, and if negative, financing activities have used cash or there has been a cash outflow.) Cash flow from investing activities: The amount of cash generated or used up by investing activities during an accounting period. (If positive, investing activities have generated cash or there has been a cash inflow, and if negative, investing activities have used cash or there has been a cash outflow.) Cash flow from operating activities: The amount of cash generated or used up by operations during an accounting period. (If positive, operations have generated cash or there has been a cash inflow, and if negative, operations have used cash or there has been a cash outflow.) Cash flow from operations: See Cash flow from operating activities. Cash flow statement: See Statement of cash flows. Claim: An amount due to creditors who have supplied resources to a company. Closing entries: End-of-period entries to zero out revenue and expense accounts by transferring their balances to retained earnings. Common stock: Certificates that provide evidence of stockholders' investment in, and ownership of, a company (an owners' equity account.) Comparative balance sheet: A financial statement containing an entity's balance sheets for two or more accounting periods. Conservatism concept: A basic accounting concept recommending prudence be exercised in recording revenues and expenses. It says that revenues should be recognized only when reasonably certain, but expenses should be recognized as soon as reasonably possible. The conservatism concept also applies to the balance sheet. It suggests prudence in the recording of assets (record when reasonably certain) and in the recording of liabilities (record as soon as reasonably possible). (This concept acts as a safeguard against overstating an entity's net assets.) Consistency concept: A basic accounting concept stating that an entity should use the same accounting methods and procedures from period to period unless it has a sound reason to change methods. Contra-asset account: An account whose balance is subtracted from its related asset account to obtain book value. Cost concept: See Historical cost concept. Cost of goods sold: The cost of goods and services sold during an accounting period (an expense account). Credit entry: A right-side entry in a T-account. (The entry increases liability, owners' equity and revenue accounts and decreases asset and expense accounts.) Creditor: A person or entity to whom money is owed. Current assets: Cash and other assets expected to be converted to cash or to be used up within one year. Current liabilities: Liabilities that are due within the coming year. Current ratio: Current assets divided by current liabilities. De-accruals: Calculations to reverse the effect of accruals and arrive at the cash effect of each transaction. Debit entry: A left-side entry in a T-account. (The entry increases asset and expense accounts and decreases liability, owners' equity and revenue accounts.) Debt to equity ratio: See Total debt to equity ratio. Debtor: A person or entity that owes money. Depreciation: The systematic allocation of the cost of a long-term asset over its useful life (an expense.) Direct method statement of cash flows: A statement summarizing the transactions that have been posted to the cash account during the period. (Organized into cash flow from operating, investing and financing activities, each line item in this type of statement is, in fact, a cash payment to or from the entity.) Dividends: Cash payments distributed to shareholders as a return on their investment in a company (a reduction of retained earnings.) Double-entry accounting: See Double-entry bookkeeping. Double-entry bookkeeping: A recording system in accounting that requires that all financial transactions affect at least two accounts. Dual-aspect concept: A basic accounting concept stating that there are two sides to every accounting transaction. (Recording both sides of each transaction is known as 'double-entry bookkeeping' or 'double-entry accounting'.) Earnings: Another name for net income. Entity: An organization that is separate from other organizations or individuals and for which a set of accounts is kept. Entity concept: A basic accounting concept stating that accounts, financial statements, and financial records are kept and maintained for the entity, as distinct from the people who own, operate, or invest in that entity. Equity: See Owners' equity. Equity capital: Capital supplied directly by owners and profits retained in the business. Expense: Decreases in owners' equity resulting from the delivery of goods, rendering of services, or other activities constituting the entity's central operations. FASB: See Financial Accounting Standards Board. Financial accounting: A financial information system that tracks and records an organization's business transactions and aggregates them into reports for decision makers both inside and outside the business. Financial Accounting Standards Board: A group consisting of seven voting members and a permanent staff that determines Generally Accepted Accounting Principles (GAAP). Financial statement: A report communicating financial information about an entity. (There are three main financial statements: the balance sheet, the income statement, and the statement of cash flows.) Financial statement analysis: Analysis using ratios based on financial statement data to better understand a company's operating, investing and financing activities. Financing activities: Business activities related to the raising or retiring of debt, new issues or repurchases of equity, and the payment of cash dividends. Financing cash flows: See Cash flow from financing activities. Fiscal year: The 12-month period used by an entity for accounting purposes. Fixed asset: See Non-current asset or Long-term asset. Franchise: Authorization granted to someone to sell or distribute a company's goods or services in a certain area. Franchise agreement: Contract between franchisor and franchisee. Franchise fee: Fee paid by franchisee for the right to sell or distribute the franchisor's goods or services in a certain area (an asset.) Franchisee: Person or business that is granted a franchise to market a company's goods or services in a certain area. Franchisor: One granting a franchise. (Also known as franchiser.) Fundamental accounting equation: See Basic accounting equation. GAAP: See Generally Accepted Accounting Principles. Generally Accepted Accounting Principles: The accounting standards issued by the Financial Accounting Standards Board. Going-concern concept: A basic accounting concept that states accounting assumes an entity will continue to operate indefinitely, absent strong evidence to the contrary. Gross margin: The difference between the period's sales and cost of goods sold or services rendered. Gross margin percentage: Gross margin of the accounting period, divided by net sales of the period, expressed as a percentage. Gross sales: The total invoice price of the goods delivered or the services provided during the period. (Customers may later return goods, receive allowances for defective goods or inadequate services, and discounts for prompt payment these adjustments are not included in the gross sales amount. See net sales.) Historical cost concept: A basic accounting concept requiring that transactions be initially recorded in terms of their actual price or cost at the time the transaction occurred. (It is also known as the cost concept.) Income: See Net income. Income before income taxes: Operating income minus interest expense but before income tax expense. (This is the taxable income on which the entity must estimate the period's income tax expense.) Income statement: A report detailing the revenues and expenses of a business during the accounting period. (By subtracting expenses from revenues, a companys net income is determined.) Income tax: Amounts that must be paid to governments based on an entity's taxable income. Income tax expense: The estimated amount owed to the government as taxes on the period's taxable income. (Not necessarily the same amount as income tax paid during an accounting period.) Income tax paid: The cash amount paid to the government. (Not necessarily the same as the income tax expense of the period.) Income taxes payable: See Taxes payable. Indirect method statement of cash flows: A statement of cash flows that reconciles an entity's accrual accounting-based net income for a period with the actual cash collections and disbursements related to those revenues and expenses, to arrive at cash flows from operations. (The investing and financing cash flows are prepared as in the direct statement of cash flows.) Intangible asset: An asset that has no physical substance. (For example, a license or franchise agreement.) International Accounting Standards: Accounting standards issued by the International Accounting Standards Committee, the predecessor to the International Accounting Standards Board. International Accounting Standards Board: A private body located in London, England, dedicated to developing a single set of high-quality, global accounting standards. International Financial Reporting Standards: Accounting standards issued by the International Accounting Standards Board. Interest expense: The cost of borrowed money. Interest income: The return from lending money. Interest rate: The cost of borrowing money, expressed as a percentage of the amount borrowed. Inventory: Goods held by a company with the intent of selling them to customers. (It also refers to materials and partially finished products that will later be incorporated in finished goods.) Investing activities: Business activities that relate to the purchase and sale of long-lived assets. Investing cash flows: See Cash flow from investing activities. Issued stock: Shares of common stock issued to the owners of a business. Journal: Chronological accounting record of the entity's financial transactions as they occur. Journal entry: Record of the impact of a single business transaction on a firm's accounts. (The journal entry indicates the date of the event, the accounts affected and by how much the accounts were either increased or decreased.) Ledger: A grouping of related financial information by account. (All of the entries from the journal are posted or recorded in the ledger. Accounts in the ledger are classified as balance sheet accounts (for example, the cash account) or income statement accounts (for example, the sales account).) Liability: An obligation arising from a claim by creditors against an entity's assets. (A liability must meet three specific conditions before it is recognized for accounting purposes: it must involve a probable future sacrifice of economic resources by the entity, it must be a present obligation that arose as a result of a past transaction and it must involve a future transfer of resources to another entity.) License: Official or legal permission to do or own a specified thing or to conduct a specific activity. Liquidity: A measure of an entity's ability to meet its current financial obligations. Liquid asset: An asset that can be easily converted to cash to meet current financial obligations. Long-term asset: An asset that is expected to be useful to an entity for more than one year after it is acquired. (Also known as non-current or fixed asset. Examples of long-term assets are land, buildings, and equipment.) Long-term liability: See Non-current liability. Market value: The amount an entity or product is worth (not necessarily its cost.) Matching concept: A basic accounting concept stating that all expenses incurred in the generation of revenues should be recognized in the same period as the revenues are realized. Materiality concept: A basic accounting concept stating that an entity need only apply proper accounting to items that are 'material' i.e., significant to potential users of the financial statements. (An item is 'significant' if its disclosure would impact the decisions of the users of the accounts.) Measurable cost: A cost that can be reasonably measured. Merchandise inventory: Goods held by a company with the intent of selling them to customers. Money-measurement concept: A basic accounting concept stating that financial accounting deals only with things that can be represented in monetary terms. Mortgage: A pledge of property to a creditor as security for performance of an obligation or repayment of a debt. Mortgage payable: The amount owed by an entity to a creditor who holds a mortgage on the entity's property (a liability). Net assets: The amount by which an entity's total assets exceed its total liabilities. (Also known as net worth or owners' equity.) Net income: The residual remaining when the period's expenses are subtracted from sales. Net loss: The amount by which the period's expenses are greater than revenues. Net sales: The gross sales amount for a period adjusted for items such as returns, allowances and discounts. Net worth: See Net assets. Non-cash expenses: Any expenses that do not involve an outlay of cash. (Examples are depreciation and amortization expenses.) Non-current asset: An asset that is expected to be useful to an entity for more than one year after the date of the balance sheet. (Also known as a fixed or long-term asset.) Non-current liability: An obligation that is due more than one year after the date of the balance sheet. Note payable: An amount due to creditors, such as a bank, evidenced by a promissory note (a liability). Operating activities: Business activities directly related to the delivery of goods and services that generate revenues and expenses in the income statement. Operating cash flows: See Cash flow from operating activities. Operating expenses: Expenses that relate to the operating of the business and cannot be reasonably traced to the goods sold or services rendered during the period, or to future period revenues. (Include marketing, selling and administrative expenses and also known as Selling, general and administrative expenses or SG&A.) Operating income: Gross margin minus operating expenses. (Also known as operating profit, it is a measure of the profit generated from the day-to-day running of the business.) Outstanding stock: Common stock owned by investors. Owners' equity: The excess of the entity's total assets over its total liabilities. (Also known as equity, stockholders' equity or shareholders' equity.) Permanent account: Accounts listed on the balance sheet. (They are not closed at the end of an accounting period.) Posting: Transferring transaction data from the journal to the ledger. Prepaid expenses: Future expenses that have already been paid for, like prepaid rent (an asset.) Prepaid rent: Rent paid in advance for the use of a facility in future periods (an asset.) Principal: The amount of a loan that must be paid back. Profit: Revenue in excess of a company's total expenses. (Also known as income.) Profit before taxes: See Income before income taxes. Realization concept: A basic accounting concept that states revenue is recognized when it is earned (i.e., goods or services are delivered) and realized or realizable (when the seller has been paid or it is reasonable to assume that any amounts owed by the buyer will be collected.) Reasonable: Not excessive or extreme, fair, based on reason and sound judgment. Reasonably certain: A minimal probability assessment for recognizing many accounting items, particularly assets and increases to owners' equity. (Something more than reasonably possible, but less than certain). Reasonably possible: A probability assessment above which some accounting items must be recognized, particularly liabilities and decreases to owners' equity (something more than remote). Recognition: Recording a transaction in the journal. Relevance: The timeliness and usefulness of accounting information to its users. Reliability: The objectivity and verifiability of accounting information. Rent expense: The cost of renting an asset during the accounting period. Residual claim: Equity investors' claim on an entity's assets. Retained earnings: Net income retained by the company instead of being distributed as dividends (an owners' equity account.) Return on sales: See Return on sales percentage. Return on sales percentage: Net income of the period, divided by sales, expressed as a percentage. Revenue: See Sales. Salary expense: Salaries earned by employees during the accounting period. Sales: Increases in assets or decreases in liabilities during a period resulting from delivering goods, rendering services or other activities constituting the entity's central operations. (An income statement account, also known as Revenue or Sales Revenue.) Sales revenue: See Sales. Shareholders' equity: The claims owners have on the assets of the corporation. (It comprises the amount directly invested by the stockholders for the shares of capital stock and retained earnings. Also known as equity or owners' equity.) Shareholders: Owners of an entity. Short-term bank loan: A loan that is payable to the bank within one year (a liability account). Short-term debt: A loan that is payable within one year (a liability account). Statement of cash flows: A financial statement reporting changes in the cash account arising from a company's operating, investing, and financing activities during the accounting period. (It can be used to identify a company's problems with liquidity, ability to manage cash flow, and potential difficulties in generating cash flow.) Statement of financial position: See Balance Sheet. T-account: An aid to double-entry bookkeeping. Each balance sheet and income statement account is represented by a capital T and this is used as a framework to record the impact of an economic event. (Debits to an account are made on the left-side of the T-account, credits are made on the right.) Tangible assets: Assets that have physical substance (like inventories, and plant and equipment.) Taxes payable: The amount owed to the tax authorities (a liability account.) Temporary account: A revenue or expense account that gets closed, through an adjusting entry, to the retained earnings account at the end of an accounting period, in the preparation of financial statements. Total debt to equity ratio: Total debt divided by owners' equity. Transaction: Transactions occur when two parties exchange value. (If the value is reliably measurable, changes are recorded in at least two accounts.) Taxable income: The amount of an period's income on which taxes will be assessed. Useful life: The economic life of an asset, during which it will help earn revenues. Utilities expense: The expense associated with the use of utilities, such as electricity, gas, and phone, for the accounting period. Working capital: Current assets minus current liabilities. Zero out: To reduce an account balance to zero using an adjusting entry. (To an account that has a debit (credit) balance, apply a credit (debit) of an equal amount so that the account is left with a zero balance.) Download 20.77 Kb. Share with your friends: