Glossary
A
Account Payable – Amount owed to a CREDITOR for goods supplied or services done.
Account Receivable – A claim made against a DEBTOR for an uncollected sum, usually arising from a completed transaction of sales or services delivered.
Accountant – Person proficient in financial transaction recording and reporting
Accounting – Financial transaction recording and reporting, including transaction initiation, recognition, processing, and summary in FINANCIAL STATEMENTS.
Accounting Cycle – The steps taken in the accounting process to measure business transactions and convert the measures into financial statements for a certain time.
Accrual Basis – ACCOUNTING METHOD that acknowledges REVENUE when it is earned rather than when it is collected. Expenses are recorded when they are incurred rather than when they are paid.
Amortization – Gradual and periodic reduction of any sum, such as the periodic write-down of a BOND premium, the cost of an intangible ASSET, or the payment of MORTGAGES or other DEBT on a regular basis.
Asset – An economic resource that is predicted to be useful in the future. Probable future economic advantages derived from previous transactions or events. Anything of value over which the company has a legal claim. Any owned tangible or intangible thing with monetary value that is useful to the owner.
Audit – A professional examination of a company’s financial statements by a professional accountant or group to ensure that they are presented fairly and prepared in accordance with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).
B
Bank Reconciliation – A method by which an accountant evaluates whether and why there is a discrepancy between the amount indicated on the bank statement and the balance of the cash account in the firm’s GENERAL LEDGER.
Bank Statement – A monthly statement that a bank delivers to the holder of a checking account that shows the balance in the account at the beginning, middle, and end of the month.
Bookkeeping – The recording of financial transactions and the maintaining of financial records.
Budget – A financial plan that estimates future costs, revenues, or both.
C
Capital Expenditure – Outlay of funds towards the acquisition or improvement of capital assets such as buildings and machines.
Cash – On a balance sheet, the asset account represents paper money and coins, negotiable money orders and checks, bank balances, and some short-term government securities.
Cash Basis – Method of accounting in which REVENUES and EXPENDITURES are recorded as soon as they are received and paid.
Credit – Entry on the right side of a DOUBLE-ENTRY BOOKKEEPING system that shows a decrease in an ASSET or expenditure or an increase in a liability or revenue.
D
Debit – A DOUBLE-ENTRY BOOKKEEPING system entry on the left side that signifies the addition of an ASSET or expenditure or the reduction of a LIABILITY or REVENUE.
Deferral – The delay of a previously paid or incurred cost, or of a previously earned REVENUE.
The information received is recorded in the LEDGER.
Deficit – Financial shortage that happens when there are more LIABILITIES than ASSETS.
Depreciation – Allowance for wear & tear on an ASSET during its expected useful life.
E
Equity – Remaining INTEREST in an entity’s ASSETS after deducting its LIABILITIES. Also, the difference between a company’s total assets and its liabilities. It is also a BALANCE SHEET’s third section, the other two being assets and liabilities.
Expense – Something spent on a particular item or for a specific purpose.
F
Fair Market Value – The price at which property would be exchanged hands between a buyer and a seller who are not under any obligation to buy or sell and have reasonable awareness of the relevant circumstances.
Finance – The science of managing money and other financial ASSETS.
Financial Statements – Financial data presentation, including BALANCE SHEETS, INCOME STATEMENTS, and CASH FLOW STATEMENTS, or any accompanying statement designed to explain an entity’s financial condition at a point in time and its results of operations for the period then ended.
Fiscal Year – An entity’s ACCOUNTING period is a period of 12 consecutive months that may or may not be a calendar year. Fixed Asset – Any physical ASSET with a life of more than one year that is used in the activities of a business.
Fixed Asset – Long-term tangible assets employed in the ongoing functioning of a business and unlikely to change for a long time.
Forecast – Prospective FINANCIAL STATEMENTS are the predicted financial position, results of operations, and cash flows of a business.
Fund Accounting – ACCOUNTING and presentation method in which ASSETS and LIABILITIES are classified according to the purpose for which they are to be employed. Typically used by government and non-profit organizations.
G
General Ledger – Compilation of all ASSET, LIABILITY, EQUITY, REVENUE, and EXPENSE accounts.
Generally Accepted Accounting Principles (GAAP) – Conventions, norms, and procedures that are required to define acceptable accounting practice at a specific moment. The FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) establishes the highest degree of such concepts.
Going Concern – Assumption that a company can continue to operate long enough to complete all of its current plans.
Goodwill – The premium paid in the acquisition of an entity above the fair value of its identified tangible and intangible ASSETS minus the LIABILITIES absorbed.
I
Inflation – Price increases for products and services that occur when expenditure exceeds supply on the market.
Intangible Assets – Assets with no physical existence, such as trademarks and patents.
Inventory – Tangible property held for sale, or materials utilized in the manufacture of a product.
J
Journal Entry – A GENERAL JOURNAL indication that records a single transaction.
L
Ledger – Any book of accounts comprising debit and credit entry summaries.
Liability – DEBTS or OBLIGATIONS due in money, products, or services owing by one entity (DEBTOR) to another entity (CREDITOR).
Liquidity – Available funds to pay bills when they are due and to meet unanticipated CASH needs.
M
Matching Principle – A fundamental accounting principle. In every particular accounting period, you should try to match the income you are reporting with the expenses it required to generate that revenue at the same period of time, or during the time period in which you would receive benefits from that expenditure. Depreciation is a simple example. When you buy a structure that will last for many years, you do not deduct the entire cost of the building at once. Instead, you take depreciation deductions throughout the life of the building’s estimated usable life. As a result, you’ve “matched” the expense, or cost, of the facility with the benefits it provides throughout the years it will be in operation.
Material Weakness – A substantial flaw or combination of significant deficiencies that increases the possibility of a material misrepresentation of the annual or interim financial statements occurring.
Materiality – The magnitude of an omission or misstatement of ACCOUNTING information that, in light of surrounding circumstances, makes a reasonable person relying on the information’s judgment change or be affected.
N
Net Assets – The excess of the value of the company’s SECURITIES, cash, receivables, and other ASSETS over its LIABILITIES.
Net Income – The excess of the value of the company’s SECURITIES, cash, receivables, and other ASSETS over its LIABILITIES.
O
Outstanding Checks – A CHECK that has been written by the drawer and deducted on his or her records but has not reached the bank for payment and is not deducted from the bank BALANCE by the time the bank issues its statement.
P
Petty Cash – a little sum of CASH that a business keeps on hand to cover minor office costs.
Prepaid Expenses – Costs incurred to purchase items or services that are expected to be used in the operational cycle’s revenue-earning process and are economically useful.
Profit – Positive difference that comes from charging more for goods and services than it costs to provide them these items
R
Receivables – Amounts that are owed by clients or other DEBTORS.
Reconciliation – Two numbers are compared in order to show what caused their differences.
Restricted Fund – Fund created to keep track of assets whose income is required to be spent for goals decided upon by donors or grantors of such ASSETS.
Revenues – Sales of goods, services, and products; income from INTEREST, DIVIDEND, and rentals.
S
Significant Deficiency – A control flaw or set of flaws that adversely affects the company’s capacity to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP, increasing the risk that a material misstatement of the company’s annual or interim financial statements won’t be stopped or caught.
T
Trial Balance – A comparison of the LEDGER’s entire DEBIT and CREDIT balances to make sure they are equivalent.
V
Variance – Deviation from the estimated value or disparity between the estimated and actual values.