Accounting Terms
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accounting: planning, recording, analyzing, interpreting financial information.
accounting system: a planned process for providing financial information which is useful to management.
accounting records: organized summaries of business' financial activities.
accountant: a person who plans, summarizes, analyzes, and interprets accounting information.
public accounting firm: a business selling accounting services to the general public.
private accountant: an accountant employed by a single business.
bookkeeper: a person who does general accounting work plus some summarizing and analyzing of accounting information.
accounting clerk: a person who records, sorts and files accounting informaton.
general office clerk: a person who does general kinds of office tasks, including some accounting tasks.
ethics: the principles of right and wrong that guide on individual in making decisions.
business ethics: use of personal ethics in making business decisions.
service business: a business that performs an activity for a fee.
proprietorship: a business owned by one person.
asset: anything of value that is owned.
equitites: financial rights to the assets of a business.
liability: an amount owned by a business.
owner's equity: the amount remaining after the value of all liabilities is substracted from the value of all assets.
accounting equation: an equation showing the relationship among assets, liabilities and owner's equity.
transaction: a business activity that changes assets, liabilities, or owner's equity.
account: a record summarizing all information pertaining to a single item in the accounting equation.
account title: name given to an account.
account balance: amount in an account.
capital: account used to summarize the owner's equity in business.
balance sheet: a financial statement that reports assets, liabilities, and owner's equity on a specific date.
revenue: increase in owner's equity resulting from the operation of business.
expense: decrease in owner's equity resulting from the operation of business.
withdrawals: assets taken out of a business for owner's personal use.
T account: an accounting device used to analyze transactions.
debit: an amount recorded on the left side of T account.
credit: an amount recorded on the right side of T account.
contra account: an account that reduces a related account on a financial statement.
journal: a form for recording transaction in chronological order.
journalizing: recording transactions in a journal.
special amount column: a journal amount column headed with an account title.
general amount column: a journal amount column that is not headed with an account title.
entry: information for each transaction recorded in a journal.
double-entry accounting: recording of debit and credit parts of a transaction.
source decument: a business paper from which information is obtained for a journal entry.
check: a business form ordering a bacnk to pay cash from a bank account
receipt: a business form giving written acknowledgement for cash received.
memorandum: a form on which a brief message is written describing a transaction.
proving cash: determining that the amount of cash agrees with the accounting records.
ledger: a group of accounts
general ledger: a ledger that contains all accounts needed to prepare financial statements.
account number: the number assigned to an account.
file maintenance: the procedure for arranging accounts in a general ledger, assigning account numbers and keeping records current.
opening an account: writing an account title and number on the heading of an account.
posting: transferring information from a journal entry to a ledger account.
checking account: a bank account from which payments can be ordered by a depositor.
endorsement: a signature or stamp on the back of a check transferring ownership.
blank endorsement: an endorsement consisting only of the endorser's signature.
special endorsement: an endorsement indicating a new owner of a check.
restrictive endorsement: an endorsement restricting further transfer of a check's ownership.
postdated check: a check with a future date on it.
bank statement: a report of deposits, withdrawals, and bank balance sent to a depositor by a bank.
dishonored check: a check that a bank refuses to pay
(1)altered check
(2)unmatching signature
(3)amounts in figures and words do not agree
(4)postdated check
(5)stop payment from depositor
(6)insufficient funds
electronic funds transfer: a computerized cash payments system that uses electronic impulses to transfer funds.
petty cash: an amount of cash kept on hand and used for making small payments.
petty cash slip: a form showing proof of a petty cash payment.
fiscal period: that length of time for which a business summarizes and reports financial information.
worksheet: a columnar accounting form used to summarize the general ledger informtion neede to prepare financial statements.
trial balance: a proff of the equality of debits and credits in a general ledger.
adjustments: changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period.
income statement: a financial statement showing the revenue and expenses for a fiscal period.
net income: the difference between total revenue and total expenses when total revenue is greater.
net loss: the difference between total revenue and total expenses when total expense is greater.
component percentage: the percentage relationship between one financial statement item and the total that inclues that item.
adjusting entries: journal entries recorded to update general ledger accounts at the end of a fiscal period.
permanent accounts: accounts used to accumulate information form one fiscal period to the next.
temporary accounts: accounts used to accumulate information until it is transferrred to teh owner's capital account.
closing entries: journal entries used to prepare temporary accounts for a few fiscal period.
post-closing trial balance: a trial balance prepared after the closing entries are posted.
accounting cycle: the series of accounting activities included in recording financail information for a fiscal period.
partnership: a business in which two or more persons combine their assets and skills.
partner: each member of a partnership.
merchandising business: a business that purchases and sells goods.
merchandise: goods that a merchandising business purchases to sell.
cost of merchandise: the price of a business pays for goods it purchases to sell.
markup: the amount added to the cost of merchandise to establish the selling price.
vendor:a business from which merchandise is purchased or supplies or other assets are bought.
purchase on account: a transaction in which the merchandise purchased is to be paid for later.
invoice: a form describing the goods sold the quantity and the price.
purchase invoice: an invoice used as a source document for recording a purchase on account transaction.
terms of sale: an agreement between a buyer and a seller about payment for merchandise.
correcting entry: a journal entry made to correction error in the ledger.
customer: a person or business to whom merchandise or services are sold.
sales tax: a tax on a sale of merchandise or services.
cash sale: a sale in which cash is received for the total amount of the sale at the time of the transaction.
credit card sale: a sale in which a credit card is used for the total amount of the sale at the time of the transaction.
sale on account: a sale for which cash will be received at a later date.
sales invoice: an invoice used as a source decument for recording a sale an account.
subsidiary ledger: a ledger that is summarized in a single general ledger account.
accounts payable ledger: a subsidiary ledger containing only accounts for vendors form whom items are purchased or bought on account.
accounts receivable ledger: a subsidiary ledger containing only accounts for charge customers.
controlling account: an account in a general ledger that summarizes all accounts in a subsidiary ledger.
schedule of accounts payable: a listing of vendor accounts, account balances and total amount due all vendors.
schedule of accounts receivable: a listing of customer accounts, account balances and total amount due from all customers.
salary: money paid for employee services.
pay period: period coverd by a salary payment.
payroll: total amount earned by all employees for a pay period.
total earnings: total pay due for a pay period before deductions.
payroll taxes: taxes based on the payroll of a business.
withholding allowances: a deduction from total earnings for each person legally supported by a taxpayer.
Medicare: federal health insurance program for people who have reached retirement age.
FICA tax: a federal tax paid by employees and employers for old-age, survivors, disability and hospitalization insurance. (Federal Insurance Contributions Act)
federal unemployment tax: a federal tax used for state and federal administrative expenses of the unemployment program.
state unemployment tax: a state tax used to pay benefits to unemployed workers.
payroll register: a business form used to record payroll information.
tax base: maximum amount of earnings on which a tax is calculated.
net pay: total earnings paid to an employee after payroll taxes and other deductions.
automatic check deposit: depositing payroll checks directly to an employee's checking or savings account in an specific bank.
employee earnings record: a business form used to record details affecting payments made to an employee.
pegboard: a special device used to write the same information at one time on several forms.
inventory: amount of goods on hand.
merchandise inventory: amounts of goods on hand for sale to customers.
cost of merchandise sold: total original price of all merchandise sold during a fiscal period.
gross profit on sales: revenue remaining after cost of merchandise sold has been deducted.
distribution of net income statement: a partnership financial statement showing net income or loss distribution to partners.
owner's equity statement: a financial statement that summaries the changes in owner's equity during a fiscal period.
supporting schedule: a report prepared to give details about an item on a principal financial statement.
corporation: an organization with the legal rights of a person and which may be owned by many persons.
share of stock: each unit of ownership in a corporation.
capital stock: total shares of ownership in a corporation.
special journal: a journal used to record only one kind of transaction.
purchases journal: a special journal used to record only purchases on account transactions.
cash payments journal: a special journal used to record only cash payment transactions.
list price: a business' printed or catalog price.
trade discount: reduction in the list price granted to customers.
cash discount: deduction that a vendor allows on the invoice amount (list price - trade discount) to encourage prompt payment.
purchases discount: cash discount on purchases taken by a customer.
cash short: a petty cash on hand amount that is less than a recorded amount.
cash over: a petty cash on hand amount that is more than a recorded amount.
general journal: a journal with two amount columns in which all kinds of entries can be recorded.
purchases return: credit allowed for the purchase price of returned merchandise, resulting in a decrease in the customer's accounts payable.
purchase allowance: credit allowed for part of the purchase price of merchandise that is not returned, resulting in a decrease in the customer's accounts payable.
debit memorandum: a form prepared by the customer showing the price deduction taken by the customer for returns and allowances.
sales journal: a special journal used to record only sales on account transactions.
cash receipts journal: a special journal used to record only cahs receipt transaction.
sales discounts: a cash discount on sales.
sales return: credit allowed a customer for the sales price of returned merchandise, resulting in a decrease in the vendor's accounts receivable.
sales allowance: credit allowed a customer for part of the sales price of merchandise that is not returned, resulting in a decrease in the vendor's accounts receivable.
credit memorandum: a form prepared by the vendor showing the amount deducted for returns and allowances.
exports: goods for services shipped out of a seller's home country to a foreign country.
imports: goods or services bought form a foreign country and brought into a buyer's home country.
contract of sale: a document that details all the terms agreed to by seller and buyer for a sales transaction.
letter of credit: a letter issued by a bank guaranteeing that a named individual or business will be paid a specific amount provided stated conditions are met.
bill of lading: a receipt signed by the authorized agent of a transportation company for merchandise received that also serves as a contract for the delivery of the merchandise.
commercial invoice: a statement prepared by the seller of merchandise addressed to the buyer showing a detailed listing and description of merchandise sold, including prices and terms.
draft: a written signed and dated order from one party ordering another party, usually a bank, to pay money to a third party.
sight draft: a draft payable on sight, when the holder presents it for payment.
time draft: a draft that is payable at a fixed or determinable future time after it is accepted.
trade acceptance: a form signed by a buyer at the time of a sale of merchandise in which the buyer promises to apy the seller a specfied sum of money usually at a stated time in the future.
uncollectible accounts: accounts receivable that cannot be collected. (bad debts)
allowance method of recording losses from uncollectible accounts: crediting the estimated value of uncollectible accounts to a contra account.
book value of accounts receivable: the difference between the balance of accounts receivable and its contra account, allowance for uncollectible accounts.
writting off an account: canceling the balance of a customer account because the customer does not pay.
current assets: cash and other assets expected to be exchanged for cash or consumed within a year.
plant assets: assets which will be used for a number of years in the operation of a business.
depreciation expense: the portion of a plant asset's cost that is transferred to an expense account in each fiscal period during a plant assets's useful life.
estimated salvage value: the amount an owner expects to receive when a plant asset is removed from use.
straight-line method of depreciation: charging an equal amount of depreciation expense for a plant asset in each year of useful life.
plant asset record: an accounting form on which a business records information about each plant asset.
accumulated depreciation: the total amount of depreciation expense that has been recorded since the purchase of a plant asset.
book value of a plant asset: original cost of a plant asset minus accumulated depreciation.
gain on plant assets: revenue that results when a plant asset is sold for more than book value.
loss on plant assets: loss that results when a plant asset is sold for less than book value.
declining balance method for depreciation: multiplying the book value at the end of each fiscal period by a constant depreciation rate.
real property: land and anything attached to the land. (real estate)
personal property: all property not classified as real property. (business/individual).
assessed value: the value of an asset determined by tax authorities for the purpose of calculating taxes.
periodic inventory: a merchandise inventory determined by counting, weighing, or measuring items of merchandise on hand. (physical inventory)
perpetual inventory: a merchandise inventory determined by keeping a continuous record of increases, decreases and balance on hand. (book inventory)
inventory record: a form used during a periodic inventory to record information about each item of merchandise on hand.
stock record: a form used to show the kind of merchandise, quantity received, guantity sold and balance on hand.
stock ledger: a file of stock records for all merchandise on hand.
first-in-first-out inventory costing method: using the price of merchandise purchased first to calculate the cost of merchandise sold first. (FIFO)
last-in-first-out inventory costing method: using the price of merchandise purchased last to calculate the cost of merchandise sold. (LIFO)
weighted-average inventory costing method: using the average cost of beginning inventory plus merchandise purchases during a fiscal period to calculate the cost of merchandise sold.
gross profit method of estimating inventory: estimating inventory by using the previous year's percentage of gross profit on operations.
promissory note: a written and signed promise to pay a sum of money at a specified time.
date of a note: the day a note is issued.
time of a note: the days, months, or years from the date of issue unitl a note is to be paid.
payee of a note: the person or business to whom the amount of a note is payable.
principal of a note: the original amount of a note. sometimes referred to a face amount of a note.
interest rate of a note: the percentage of the principal that is paid for use of money.
maturity date of a note: the date a note is due.
maker of a note: the person or business who signs a note and thus promises to make payment.
number of a note: the number assigned by the maker to identify a specific note.
interest: an amont paid for the use of money for a period of time.
interest-bearing note: a promissory note that requires the payment of principal plus interest when the note is due.
non-interest-bearing note: a promissory note that requires only the payment of the principal when the note is due.
maturity value: the amount that is due on the maturity date of a note.
creditor: a person or organization to whom a liability is owed.
note payable: a promissory note that a business issues to creditors.
current liabilities: liabilities due within a short time, usually within a year.
interest expense: the interest accrued on money borrowed.
bank discount: interest collected in advance on a note.
discounted note: a note on which interest is paid in advance.
proceeds: amount received for a note after the bank discount has been deducted.
notes receivable: promissory notes that a business accepts from customers.
interest income: the interest earned on money loaned.
dishonored note: a note that is not paid when due.
Accounting Concepts / Generally Accepted Accounting Principles(GAAP)
1 accounting period cycle
changes in financial information are reported for a specific period of time in the form of financial statements.
2 adequate disclosure
financial statements contain all information necessary to understand a business financial condition.
3 business entity
financial information is recorded and reported separately form the owner's personal financial information.
4 consistent reporting
the same accounting procedures are followed in the same way in each accounting period.
5 going concern
financial statements are prepared with the expectation that a business will remain in operation indefinitely.
6 historical cost
the actual amount paid for merchandise or other items bought is recorded.
7 matching expenses with revenue
revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period.
8 objective evidence
a source document is prepared for each transaction.
9 realization of revenue
revenue is recorded at the time goods or service are sold
10 unit of measurement
business transactions are stated in numbers that have common values, that is, using a common unit of measurement.
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