Accounting - Glossary Flashcards
a device for recording the changes (increase or decreases) in the fundamental accounting elements
account
one who is concerned with the design of the system of records, the preparation of reports based upon the recorded data, and the interpretation of the reports
accountant
the difference between the total debits and the total credits in an account
account balance
a language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial data
accounting
the process involved in journalizing, posting to the ledger, taking a trial balance, preparing statements, making adjusting and closing entries, and preparing a post - closing trial balance
accounting cycle
assets equal liabilities plus owner’s equity
accounting equation
an unwritten promise to pay creditors for property, such as merchandise, supplies, or equipment, purchased on credit, or for services received on credit
accounts payable
an unwritten promise by a customer to pay, at a later date, for goods sold or services rendered
accounts receivable
measures how many times per year receivables are collected
calculation: net credit sales divided by average accounts receivable
accounts receivable turnover
(beginning accounts receivable + ending accounts receivable) divided by 2
average accounts receivable
recording in each fiscal period applicable expenses, whether paid or not, and income earned, whether collected or not
accrual accounting
an expense incurred in operating a business during an accounting period, but not yet paid
accused expense
income actually earned during an accounting period but which will not be received until a future period
accrued income
test ratio (quick ratio) - quick assets dived by current liabilities
acid
measures how efficiently a firm is utilizing its assets
activity analysis
a trial balance taken after adjusting entries have been recorded
adjusted trial balance
entires made at the conclusion of a fiscal period to bring accounts up to date
adjusting entries
measures the average time required to collect receivables
calculation: 365 days divided by accounts receivable turnover
age of accounts receivable
measures the average time required to sell inventory
calculation: 365 days divided by inventory turnover
age of inventory
a contra-asset account utilized to accumulate totals against accounts receivable
allowance for bad debts (allowance for doubtful accounts)
property of monetary value owned by a business
assets
accounts receivable that are uncollectible
bad debts expense (uncollectible accounts expense; loss of uncollectible accounts)
a formal financial statement illustrating the assets, liabilities, and owner’s equity of a business as of a specific date
balance sheet (statement of financial position; statement of financial condition)
express the major items in the balance sheet as a percent of the total assets and compare with previous fiscal periods
balance sheet common - size statements/percentage method
record the balance sheet data for two or more comparable periods on the same form so that the information can be readily compared
balance sheet comparative forms
a method of computing interest based on the assumption that there are 360 days in a year
banker’s method / 360 day method
an itemized listing prepared by the bank of additions to the subtractions from a depositor’s account
bank statement
the process by which the depositor attempts to reconcile the bank statement balance with the checkbook balance
bank statement reconciliation
one who is involved in the process of recording financial information in a prescribed manner
bookkeeper (information processor)
the recording of financial information in a prescribed manner
bookkeeping
the cost of a fixed asset less its accumulated depreciation
book value (undepreciated cost)
the first record of a business transaction, such as check stubs, receipts, sales invoices, purchase invoices, cash register tapes, etc.
business papers (source documents)
a twelve-month period beginning January 1st and concluding on December 31st
calendar year
a check which has been paid by the bank and returned to the drawer for recordkeeping
cancelled check
the amount by which the total assets exceed the total liabilities of a business; an owner’s financial interest in a business
capital (net worth; owner’s equity; proprietorship)
coins, currency (paper money), checks, credit card receipts and money orders received from others, as well as money deposited in the bank
cash
an accounting practice in which revenue is not recognized in the accounting records until received and in which expenses are not recognized until paid
cash basis accounting
discounts from quoted prices as an inducement for prompt payment of invoices
cash discounts
money and money substitutes paid
cash disbursements (cash payments)
a special ledger account that is used to keep track of unexplained shortages or overages of cash
cash short and over
an individual possessing a college education, having practical experience in accounting, and who has passed a comprehensive state examination in order to be certified to practice public accounting in that state
Certified Public Accountant / CPA
a list of all the account titles and the account numbers assigned to them
chart of accounts
a piece of commercial paper drawn on funds in a bank account and payable on demand
checks
a form on which information is recorded by the drawer of a check concerning the check drawn; a source document
check stub
in accounting, to record in order of time
chronological
the sorting of the many business transactions in an orderly and systemic manner
classifying
entries made at the end of each reporting period to transfer the balances of the temporary owner’s equity accounts to the permanent owner’s equity account and to reduce the balance in the temporary owner’s equity accounts to zero in preparation for the next accounting period
closing entries
an accounting entry that involves more than two accounts
compound journal entry
an account designed to accumulate to accumulate totals to offset a related account
contra account
the abbreviation for credit
cr.
the right side of a standard account
credit
a condition that occurs when the total of the credits in an account is larger than the total of the debits in that account
credit balance
a source document that grants credit to a buyer for purchase return or purchase allowance; items the bank adds to the account balance
credit memorandum
a business or individual to whom a debt is owed
creditor
current assets divided by current liabilities
current ratio
cash of other assets that will be converted into cash or consumed within one year
current assets
debts of a business that are generally paid within one year
current liabilities
the committing of a business transaction and the events surrounding such into writing
data entry (recording)
the left side of a standard account
debit
a condition that occurs when the total of the debits in an account is larger than the total of the credits in that account
debit balance
items the bank deducts from the account balance
debit memorandum
the business or individual who owes a debt
debtor
deposits that have been made and added to depositor’s checkbook, but have not yet been listed on the bank statement
deposits in transit
a bank form that lists those cash items (currency and coin) and individual checks to be deposited
deposit slip (deposit ticket)
the loss in value of a fixed asset due to wear and tear and the passage of time; or, a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life
depreciation
that portion of the original cost of a fixed asset that is assigned as an expense to the reporting period expected to benefit from its use
depreciation expense
a payment
disbursement
a specific number of days during which a discount is available if the account if paid
discount period
a check not paid by the bank when properly presented
dishonored check
the process of recording equal debits and credits for a single business transaction
double entry accounting (double entry bookkeeping)
the abbreviation for debit
dr.
a separate owner’s equity account in which withdrawals of cash or other assets by the owner for personal use are recorded
drawing account (owner withdrawals)
one who is under the control and direction of an employer with regard to the performance of employment
employee
end of month abbreviation
E.O.M.
a decrease in assets, other than withdrawals by the owner, which results from efforts to produce revenues
expenses
the principal sum the maker of a note promises to pay
face of note
the amount that an employer must withhold from an employee’s pay for income tax purposes
federal income tax withholding
a federal act that requires most employers and employees to pay taxes to support the federal social security program
federal insurance contributions act (FICA)
a federal act imposed upon each employer for financing the administration costs of the federal and state unemployment compensation programs
federal unemployment tax act / FUTA
a period of time covered by an income statement
fiscal period
property of a relatively permanent nature used in the operation of a business and not intended for resale
fixed assets (long-term assets)
liabilities that are not due and payable within one year
fixed liabilities (long-term liabilities)
a book of original entry in which any business transaction is recorded in chronological order
general journal
the book of accounts
general ledger
income before any deductions have been made
gross earnings (gross pay)
net sales minus the cost of goods sold
gross margin (gross profit)
gross profit divided by net sales
gross profit percentage
a condition in which the total of the debits and the total of the credits are equal in an account
in balance
an inflow of assets as a result of selling a product or providing a service
income (revenue)
a formal financial statement which presents the income, expenses, and resulting net profit or net loss for a given period
income statement (profit and loss statement; statement of operations; operating statement)
express the major items in the income statement as a percent of net sales and compare with previous fiscal periods
income statement common - size statements/percentage method
record the income statement data for two or more comparable periods of the same form so that the information can be readily compared
income statement comparative forms
a tax levied on the earnings of individuals and businesses by federal, state, and local governments
income tax
any person who agrees to perform a service for a fee and who is not subject to the control of those for whom the service is performed
independent contractor
those assets that cannot be touched or grasped (examples include patents, copyrights, and goodwill)
intangible assets
money paid for the use of money
interest
explaining the significant events of developments that occur, usually taking the form of analysis and comparisons
interpreting
goods purchased for resale at a profit
inventory (merchandise)
the number of times the average in inventory has been sold or use up (turned over) during a period
calculation: cost of goods sold for period divided by average inventory
inventory turnover
(beginning inventory + ending inventory) divided by 2
average inventory
a source document showing quantity, description, prices of items, total amount of purchase and the terms of payment
invoice
any book of original entry
journal
the process of recording business transactions in a book of original entry
journalizing
a book of accounts in which data from transactions recorded in journals are posted and thereby summarized
ledger
any debts that a business owes
liabilities
measures the ability of a firm to meet its current obligations
liquidity analysis
the date on which payment is due on a promissory note
maturity date
a long-term liability; a written promise that pledges real property as security for payment of a debt
mortgage payable
gross pay less payroll deductions; an employee’s take home pay
net earnings (net pay; take home pay)
the difference between gross profit and expense when gross profit is larger
net income (net profit)
the difference between gross profit and expenses when expenses are larger
net loss
purchases minus purchases returned and allowances minus purchase discounts
net purchases
sales minus sales returns and allowances minus sales discounts
net sales
a written promise to pay a creditor a certain amount in the future
notes payable
a written promise of a customer to pay the business a sum of money at a future date
notes receivable
expenses incurred in the normal operation of a business
operating expenses (overhead)
the amount originally paid for a depreciable asset
original cost basis
expenses incurred that are not the direct result of regular trading activities of a business
other expenses
income received that is not the direct result of regular trading activities of a business
other income
checks that have been drawn and subtracted from the depositor’s checkbook, but which have not yet been presented to the bank for payment
outstanding checks
the issuance of a check without sufficient funds in the account when it is presented for payment
overdraft
accounts that accumulate information across accounting periods; all accounts reported on the balance sheet
permanent accounts
a fund of currency and coin established for the payment of small amounts of money
petty cash fund
a form used to reflect payments from the petty cash fund
petty cash voucher
a work paper prepared after all temporary owner’s equity accounts have been closed and all permanent accounts have been balanced and ruled, proving the equality of the debits and credits
post-closing trial balance
a check dated subsequent to )following) its date of issuance
postdated check
the transferal of data from the journal to the ledger
posting
items which are considered to be assets when acquired, but which will become expenses when consumed or expired
prepaid expenses
the face value of a promissory note upon which interest is computed
principal
provides evidence concerning the earnings potential of a company and how effectively the firm is being managed
profitability analysis
net income divided by net sales
profit margin
a written promise made by a person or business to pay a certain sum of money to another person or business at a specified time in the future
promissory note
the process of determining whether the amount of cash, both on hand and in the bank, is the same as that which is indicated in the accounting records
proving cash
a source document prepared by the seller listing the items shipped, their cost and the method of shipment (from the buyer’s viewpoint)
purchase invoice
a written order by a buyer for merchandise or other property specified in the purchase requisition
purchase order
a form used to request the responsible person or department to purchase merchandise or other property
purchase requisition
a temporary owner’s equity account used to record the buying of merchandise for resale
purchases
a temporary owner’s equity contra purchases account used to record discounts taken on inventory purchases; the amount of any discounts granted by suppliers to encourage prompt payment of their invoices
purchases discounts
a temporary owner’s equity contra purchases account utilized to record the return of merchandise to the manufacturer or supplier as the result of material defects in workmanship and/or inferior product quality
purchases returns and allowances
a three-month period
quarterly
cash, marketable securities, accounts, and notes receivable
quick assets
the annual percentage rate used to compute interest
rate
a tax imposed on tangible personal property sold at retail
retail sales tax
generally considered to be compensation for managerial or administrative services, expressed in terms of a month or year
salary
a temporary owner’s equity account used to record the earnings of revenue
sales
a temporary owner’s equity contra sales account used to record discounts given to customers as an incentive for prompt payment
sales discounts
a source document prepared by the seller that lists the items shipped, their cost and the method of shipment (from the seller’s viewpoint)
sales invoice
a temporary owner’s equity contra sales account used to record credit given to a customer for shortages or damaged goods
sales returns and allowances
the estimated value of a fixed asset at the end of its useful life
salvage value
a report sent to each customer, usually at the end of the month, which indicates the status of his or her account
statement of account
a formal financial statement which summarizes all of the changes in owner’s equity during a specified period of time
statement of net worth (statement of owner’s equity)
an order by a depositor requesting a bank not to pay on a check previously issued
stop payment order
a method in which the depreciable cost basis (original cost basis less salvage value) of an asset is apportioned equally over its estimated useful life expressed in terms of month or years
straight-line depreciation
bringing accounting data together in a way that will further enhance its usefulness, usually by means of reports and statements
summarizing
a type of asset that will be consumed as it is used (ex: embalming supplies and office supplies)
supplies
a skeleton form of an account used for instructional purposes
T account
those assets that can be appraised by value or seen or touched
tangible assets
accounts utilized to accumulated income, expenses, and owner’s withdrawals for one accounting period only
temporary owner’s equity accounts
the period of time from the date of the note to the maturity date
term of note (time)
any activity of a business enterprise that involves the exchange of values
transaction
the effect of business activities on the accounting elements
transaction analysis
an amount written within the digits in incorrect order
transposition error
a work paper proving the equality of the debit and credit balances in the ledger
trial balance
the estimated determinable life of a fixed asset
useful life
wage and tax statement; a report furnished by the employer for each employee indicating gross earnings and deductions
W-2 form
employee’s withholding allowance certificate
W-4 form
a form of compensation usually for skilled and unskilled labor, expressed in terms of hours, weeks, or pieces completed
wage
