Accounting Glossary Flashcards
Accounting
Can be called the language of business, it is the interpretation and presentation of financial data to business owners and investors. Typically consists of generating: - financial statements and reports - budgets - tax returns - business performance analysis
Accounting Software
Software that does various accounting and bookkeeping tasks, stores business’ financial data, and can also be used to perform business transactions.
Accounts Payable
The amount of money a business owes creditors (suppliers, etc.) in return for goods and/or services received by the business.
Accounts Receivable
The amount of money owed to the business by customers or clients after delivery/use of goods/services. Also known as receivables, trade debtors, or AR.
Adjusted Trial Balance
An internal document that lists the general ledger account titles and their balances after any adjustments have been made. The total amount of the debit balances must be equal to the total amount of credit balances.
Assets
“The stuff the business owns.”
Something owned by the entity which will be used in the business and used to generate revenue.
Balance Day Adjustments
Adjustments that need to be made on some accounts at the end of the financial year, so that they accurately reflect the position of the business.
Balance Sheet
A financial report that summarises a business’ assets (what it owns), liabilities (what it owes), and owner or shareholder equity at a given time.
Also known as a statement of financial position.
Bookkeeping
Term used to describe the recording and organisation of financial data. Typically consists of: - payroll - invoicing - receipts and bills - recording business transactions
Business Accounting
The systematic recording, analysisng, interpreting and presentation of financial information.
Capital
“The stuff the business owes to the owners.”
Includes cash and other assets introduced by the owners into a business which is normally as separate components, and then as a total capital figure or opening capital it represents the ownership in a company.
Chart of Accounts
A listing of all accounts available to be used to record accounting entries, typically in numerical order (binary code) and grouped into the five accounting elements: assets, liabilities, equity, revenue and expenses.
Cash flow and cash flow management
The revenue or expense expected to be generated through business activities. The process for tracking how much money is coming into and out of the business
Cash flow statement
A financial report that shows where money has come from and where it is going to. Also known as statement of cash flow, or CFS. Unlike a income statement, a cash flow statement only includes spendable money.
Credit
An accounting entry that may either decrease assets or increase liabilities and equity on the balance sheet.
Current assets
Assets that will be converted to cash within one year, such as:
- cash
- inventory
- accounts receivable
Debit
An accounting entry where there is either an increase in assets or a decrease in liabilities on a balance sheet.
Double-entry accounting
In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. This makes it easier to prepare accurate financial statements and detect errors.
Equity (Owner’s equity)
Generally equity is assets minus liabilities. An owner’s equity is explained in terms of the percentage of stock a person has ownership interest in the business.
Executive summary
A simplified, condensed version of a longer document. It should contain the purpose and goals of the business.
Expenses
The fixed, variable, accrued, or day-to-day costs that a business incurs in its operation to sell goods or services. Types of expenses include:
- Fixed expenses - such as rent that happens regularly.
- Variable expenses - such as labour cost; may change in a given time period.
- Accrued expenses - an incurred expense that has not yet been paid.
- Operational expenses - such as advertising, insurances, wages, etc.
Financial accounting
Information that appears in financial statements primarily for external use e.g. investors, creditors, although management can use the information for certain internal decisions. The information is used by external parties when making decisions about increasing/decreasing investment or to extend credit.
Financial reporting
A formal process to track, analyse and report a business’ income for the purpose of:
- providing information to investors
- tracking cash flow
- analysing assets, liabilities, and owner’s equity
Financial statement
A report that shows the financial information of a business. There are four main types:
- balance sheet
- profit and loss statement
- cash flow statement
- statement of movements in equity
Fixed assets
Any asset that cannot be easily converted to cash. Typically tangible, physical things that have an economic life of longer than a year, such as:
- buildings
- vehicles
- furniture
- office equipment.
GAAP
Generally Accepted Accounting Principles
A set of rules and guidelines developed by the accounting industry for compaines to follow when reporting financial data.
Gross profit
The amount of money a business makes from sales after deducting the cost of making and selling their product and before operating costs, payroll, tax, and overheads are paid.
Income
Revenue earned by the business by selling goods or services
Income statement
This term is interchangeable with profit and loss statement. Please see the glossary entry for Profit and loss statement.
Liabilities
“The stuff the business owes to third parties.”
A business’ debts or financial obligations incurred during business operations.
- Current liabilities - debts that are payable within a year.
- Long-term liabilities - debts that are typically paid over a period of time, greater that one year.
LLC
Limited Liability Company
A corporate structure where members cannot be held accountable for business debts or liabilities.
Managerial accounting
This information is used by internal managers for a range of activities, including long-range planning to detailed explanations of why actual costs varied from estimated costs. Management in a business prepare the financial statements, so must be knowledgeable concerning financial accounting and reporting.
Net income
The total amount of profit a business makes after deducting expenses such as:
- cost of sales (cost of goods sold)
- overheads
- tax
Net profit margin
Net income ÷ total sales = net profit margin
Shows what percentage of sales is actual profit.
Profit and loss statement
Shows how much a business has spent and earned over a specified time, and whether there has been a profit or loss over the same time period. Also know as income statement, statement of operations, statement of earnings, or P&L.
Separation of duties
Separation of duties (also known as Segregation of Duties) is the concept of having more than one person required to complete a task. In business the separation by sharing of more than one individual in one single task is an internal control intended to prevent fraud and error.
Source: Separation of duties (September 8, 2020). In Wikipedia. https://en.wikipedia.org/wiki/Separation_of_duties. Text is available under the Creative Commons Attribution-ShareAlike License.
Statement of movements in equity
Along with the profit and loss statement and the balance sheet, this is one of the financial statements prepared in accrual accounting.
This statement explains the changes in an organisation’s capital, accumulated reserves and retained earnings over the reporting period.
Also known as the statement of changes in equity or statement of retained earnings.
Tax accounting
Accounting methods that focus on taxes rather than the appearance of public financial statements. Tax accounting is governed by the IRD, which dictates the specific rules that companies and individuals must follow when preparing their tax returns.
Trial balance
A business document in which all ledgers are compiled into debit and credit columns in order to ensure the bookkeeping system is mathematically correct (i.e. it balances).
Unadjusted trial balance
Is the listing of the general ledger account balances at the end of a reporting period, before any balance day adjustments are made to the balances when creating financial statements. Used as the starting point for analysing account balances and making adjusted entries.
Working capital
The amount of cash a business has after factoring in short term debts. Working capital is current assets less current liabilities.
Economic Benefit
Is the potential for an asset to contribute either directly or indirectly to the flow of an entity’s cash.
Account (Ledger)
A place where we can record, sort and store financial transactions.
T-Account
A graphical representation of an account.
General Ledger
A place where a business stores a complete record of all its financial transactions and accounts.
