Account

a separate record for each type of asset, liability, equity, revenue, and expense used to show the beginning balance and to record the increases and decreases for a period and the resulting ending balance at the end of a period

Account balance

beginning account’s balance plus the increases less the decreases posted to the account with debits and credits

Accountant

a person formally trained to prepare, maintain, and analyze financial information

Accounting

is the art of analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information

Accounting equation

Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping)

Accounting period

length of time covered by financial statements-months, quarters, and years

Accounting principles

the rules and guidelines that companies must follow when reporting financial data. The common set of accounting principles is called generally accepted accounting principles (GAAP)

Accounts payable

creditor’s claims against the business’s property arising from the business’s purchase of goods and/or services on account

Accounts receivable

business claims against the property of a customer arising from the sale of goods and/or services on account.

Accrued expenses

expenses incurred but not yet recorded

Accrued revenues

revenues earned but not yet recorded

Accumulated depreciation

cumulative sum of all depreciation expenses recorded for assets

Adjusting entry

journal entry made at the end of a period to update an asset or liability account’s balance to its actual amount and update the related expense and revenue account balances

Allowance for uncollectible accounts

contra asset account whose balance contains amounts that match bad debt expenses with sales for a period

Asset

properties used in the operation or investment activities of a business

Audit

an independent review of financial records to verify their accuracy

Balance sheet

the financial statement which shows the amount and nature of business assets, liabilities, and owner’s equity (capital) as of a specific point in time

Bank reconciliation

the process of bringing the checkbook and bank statement balances into agreement

Bank statement

a copy of the bank’s record of the business’s account showing the balance of the account at the beginning of the month, the deposits and withdrawals (mostly checks) made during the month, service charges, and the balances at the end of the month

Book value

Original cost of a depreciable asset less accumulated depreciation

Bookkeeper

a person who records and classifies the financial transactions of a business

Bookkeeping

is the process of recording and classifying business financial transactions (activities). Maintaining the records of the financial activities of a business or individual

Capital

capital is also called equity-see the terms owner’s equity and equity

Chart of accounts

a coded listing of all the accounts in the general ledger

Closing the books

process of transferring the balances from the temporary income statement accounts (revenues and expenses) to the permanent balance sheet equity account(s)

Common stock

a corporation’s basic ownership share -also called capital stock.

Contra account

an account which offsets and reduces or offsets the balance of another account.

Cost of goods sold

expense account that records the cost of inventory sold to customers during a period – also called cost of sales

Credit

an entry (amount) entered on the right side (column) of a journal or general ledger account that increases a liability, owner’s equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense

Creditor

a person or organization that a business owes money

Current asset

cash and other assets normally expected to be converted to cash or used up usually within a year

Current asset

cash and other assets normally expected to be converted to cash or used up usually within a year

Debit

an entry (amount) entered on the left side (column) of a journal or general ledger account that increases an asset, draw or an expense or an entry that decreases a liability, owner’s equity (capital) or revenue

Debtor

customers that owe a business money

Depreciation

expense account that records expenses related to the usage of plant and equipment allocated to periods in which they are used

Direct labor

wages of employees who make products

Direct materials

materials of significant value that are an integral component of products

Dividends

a company’s distribution of profits to shareholders

Double entry

type of accounting/bookkeeping system that requires every transaction to be recorded in at least two places (accounts) using a debit and a credit. Every transaction is recorded in a formal journal as a debit entry in one account, and as a credit entry in another account. Periodically, usually monthly, the summarized balances from the journals are posted (transferred) to a formal business record called the general ledger

Equity

owner’s claim to the assets of a business – also called net assets

Expense

decrease in owner’s equity (capital) resulting from the cost of goods, fixed assets, and services and supplies consumed in the operations of a business

Financial statements

accounting reports prepared periodically to inform the owner, creditors, and other interested parties as to the financial condition and operating results of the business

General journal

a journal used to record transactions not recorded in special journals.

General ledger

a record containing the accounts and balances for all of a business’s assets, liabilities, equity, revenue, and expense accounts

Gross profit

amount determined by deducting cost of goods sold from net sales

Historical cost

original cost of an asset

Income statement

the financial statement that summarizes revenues and expenses for a specific period of time, usually a month or a year. This statement is also called a Profit and Loss Statement or an Operating Statement

Internal controls

methods put in place by a company to ensure the integrity of financial and accounting information, meet operational and profitability targets and transmit management policies throughout the organization

Inventory

asset account that records expenditures for items held for resale in the normal course of a business’s operations

Invoice

a business document showing the names and addresses of the buyer and the seller; the date and terms of the sale; the description, quantity, unit price, and total price of goods purchased or sold and the method of delivery

Journals

a preliminary record where business transactions are first entered into the accounting system. The journal is commonly referred to as the book of original entry

Liability

claims by creditors to the property (assets) of a business

Limited liability company (LLC)

a type of business structure that combines the benefits of a partnership and corporation

Net income

amount earned after subtracting all expenses from revenue (sales) for a period – also called net profit

Normal balance of account

a debit or credit balance determined by the side of an account that represents an increase

Organization costs

expenditures incurred in order to start a business

Owner’s equity

owner’s rights and claims to the property (assets) of a business-also called proprietorship and net worth

Partnership

two or more people who share the ownership of a single business

Posting

process of transferring balances from bookkeeping records called journals to a final bookkeeping record called the general ledger

Prepaid expenses

an asset representing items paid for in advance of receiving their benefits

Real property

land and anything attached to the land

Rental income

revenue account that records amounts earned from renting properties

Retained earnings

total profit or loss from the start of the business to the present not paid out to owners

Sales tax

tax collected for governmental agencies based on sales

Sole proprietorship

business owned by one person who is normally active in running and managing the business

Trial balance

a worksheet listing of all the accounts appearing in the general ledger with the dollar amount of the debit or credit balance of each account. Used to make sure the books are in balance -total debits and credits are equal

Unearned revenue

a liability created when customers pay in advance for products or services that have not been delivered or rendered

Variable costs

are costs that varies in relation to changes in the volume of activity

Work in process

unfinished products being manufactured

Working capital

net difference between current assets and current liabilities

Worksheets

forms which are used to summarize all the information necessary to complete the end-of-period financial reports and prepare other financial analysis.