Accounting Flashcards
Accounting Period
An Accounting Period is designated in all Financial Statements (Income Statement, Balance Sheet, and Statement of Cash Flows). The period communicates the span of time that is reported in the statements. IE Accounting period could be Q1
Accounts Payable (AP)
Accounts Payable include all of the expenses that a business has incurred but has not yet paid. This account is recorded as a liability on the Balance Sheet as it is a debt owed by the company. For our customers, AP should be associated with purchasing - bills they have to pay.
Accounts Receivable (AR)
Accounts Receivable include all of the revenue (sales) that a company has provided but has not yet collected payment on. This account is on the Balance Sheet, recorded as an asset that will likely convert to cash in the short-term. For our customers, AR should be associated with statements in ST
Accrued Expense
An expense that been incurred but hasn’t been paid is described by the term Accrued Expense.
Allocation
The term Allocation describes the procedure of assigning funds to various accounts or periods. For example, a cost can be Allocated over multiple months (like in the case of insurance) or Allocated over multiple departments (as is often done with administrative costs for companies with multiple divisions).
Asset (A)
Anything the company owns that has monetary value. These are listed in order of liquidity, from cash (the most liquid) to land (least liquid).
Balance Sheet (BS)
A financial statement that reports on all of a company’s assets, liabilities, and equity. As suggested by its name, a balance sheet abides by the equation <Assets = Liabilities + Equity>.
Book Value (BV)
As an asset is depreciated, it loses value. The Book Value shows the original value of an Asset, less any accumulated Depreciation.
Business (or Legal) Entity
This is the legal structure, or type, of a business. Common company formations include Sole Proprietor, Partnership, Limited Liability Corp (LLC), S-Corp and C-Corp. Each entity has a unique set of requirements, laws, and tax implications.
Cash Flow (CF)
Cash Flow is the term that describes the inflow and outflow of cash in a business. The Net Cash Flow for a period of time is found by taking the Beginning Cash Balance and subtracting the Ending Cash Balance. A positive number indicates that more cash flowed into the business than out, where a negative number indicates the opposite.
Certified Public Accountant (CPA)
CPA is a professional designation that an accountant can earn by passing the CPA exam and fulfilling the requirements for both education and work experience, which vary by state.
Chart of Accounts
A chart of accounts (COA) is an index of all the financial accounts in the general ledger of a company.
Cost
The amount of money a company spends to run its operation. This includes labor costs (e.g. techs’ salaries) and material costs (e.g. a machine that was needed for a job). A company may also take into account the time spent completing a job as a cost ; this allows managers to gauge how effective their techs are doing a certain job (e.g. install may typically take 2 hours. A tech taking 6 hours may need more training).
Cost of Goods Sold (COGS)
Cost of Goods Sold are the expenses that directly relate to the creation of a product or service. Not included in this category are those costs that are needed to run the business. An example of COGS would be the cost of Materials, or the Direct Labor to provide a service.
Credit
A credit is an increase in a liability or equity account, or a decrease in an asset or expense account.
Debit
A debit is an increase in an asset or expense account, or a decrease in a liability or equity account.
Deferred Revenue (deferred income)
Refers to advance payments or unearned revenue, recorded on the recipient’s balance sheet as a liability, until the services have been rendered or products have been delivered. Deferred revenue is a liability because it refers to revenue that has not yet been earned, but represents products or services that are owed to the customer. As the product or service is delivered over time, it is recognized as revenue on the income statement.
In ST, this is usually related to how a membership can be paid by the customer and tracked in QuickBooks our client. Clients using deferred income add membership revenue collected from the customer to the deferred income in QB. Once the services are actually provided to the customer (e.g. annual plumbing checkup), clients move the money from the QB deferred income account to the QB realized income account. Is it after this step that the client can then say “I own this money.”
Draw
Draw against commission allows the employee to receive a regular paycheck based on their future commissions. The amount of the payroll draw and the pay period or sales period are pre-determined. The employee’s commission at the end of the agreed-upon period then goes toward paying back the draw. When the draw from that pay period is paid off, then usually the employee keeps their remaining commission. The draw against commission is a way of providing a steady income for the salesperson until scheduled commission checks are received.
Drawdown
In banking, this is the transfer of funds from one account to another on the instructions of an account holder. It commonly refers to the gradual accessing of part or all of a line of credit. Not to be confused with the draw that happens in payroll.
EBITDA
A company’s earnings before interest, taxes, depreciation, and amortization is an accounting measure calculated using a company’s earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company’s current operating profitability.
