Accounting Terminology Flashcards
account
a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period
accounting
the information system that measures business activities, processes the information into reports, and communicates the results to decision-makers
accounting equation
the basic tool of accounting, measuring the resources of the business (what the business owns or has control of) and the claims to those resources (what the business owes to creditors and to the owners).
assets = liabities + equity
accounting cycle
the process by which companies produce their financial statements for a specific period
accounting light, accounting on a cash basis
an accounting method that records revenues only when cash is received and expenses only when cash is paid
accounting record
the written transaction record of the accounts and amounts that will be booked into the accounting system
accounting system
the software used in a company for doing the bookkeeping, the programs used - for example, SAP, BMD, easy, Schweighofer, etc.
accounts payable
A short-term liability that will be paid in the future. Also called trade payables. An account payable is a
liability backed by the general reputation and credit standing of the debtor, results from a purchase of goods
or services on open account.
Accounts Payable Subsidiary
Ledger
A subsidiary ledger that includes an accounts payable account for each vendor that contains detailed
information such as the amount purchased, paid, and owed.
Accounts Receivable
Subsidiary Ledger
A subsidiary ledger that includes an accounts receivable account for each customer that contains detailed
information such as the amount sold, received, and owed.
Accounts Receivable
The right to receive cash in the future from customers for goods sold or for services performed.
Accrual Basis Accounting
Accounting method that records revenues when earned and expenses when incurred.
Accrued Expense
An expense that the business has incurred but has not yet paid.
Accrued Liability
A liability for which the business knows the amount owed but the bill has not been paid.
Accrued Revenue
A revenue that has been earned but for which the cash has not yet been collected.
Accumulated Depreciation
The sum of all the depreciation expense recorded to date for a depreciable asset.
Adjusted Trial Balance
A list of all the accounts with their adjusted balances. These balances are directly taken into the financial
statements
Adjusting Entry
An entry made at the end of the accounting period that is used to record revenues to the period in which they
are earned and expenses to the period in which they occur
Amortization
The process by which businesses spread the allocation of an intangible asset’s cost over its useful life.
Annual Report
Provides information about a company’s financial condition.
Asset Exchange
The exchange of one asset against another one - for example a purchase of a long term asset paid via Bank
transfer, thus increasing one asset and decreasing another one.
Assets
Economic resources that are expected to benefit the business in the future. Something the business owns or
has control of.
Audit
An examination of a company’s financial statements and records
Balance Sheet
Report on the assets, liabilities, and stockholders’ equity of the business as of a specific date.
Bank Statement
A document from the bank that reports the activity in the customer’s account. It shows the bank account’s
beginning and ending balances and lists the month’s cash transactions conducted through the bank account.
Bookkeeping
The recording of all business transactions that take place in a company into a bookkeeping system
(accounting system).
Breakeven Point
The sales level at which operating income is zero. Total revenues equal total costs.
Business Transaction
An event that affects the financial position of the business and can be measured with faithful representation
Cash Basis Accounting
Accounting method that records revenues only when cash is received and expenses only when cash is paid.
Cash Equivalent
A highly liquid investment that can be converted into cash in three months or less.
Cash Flows
Cash receipts and cash payments of a business
Cash Flow Statement
The financial report analyzing the changes in one asset - the cash - of a company. It shows in a special
format the cash flow from operating activities, financing activities and investing activities.
Chart of Accounts
A list of a company’s accounts with their account numbers and names.
Compound Journal Entry
A journal entry that is characterized by having multiple debits and/or multiple credits.
Consolidated Statements
Financial statements that combine the balance sheets, income statements, and statements of cash flow of
the parent company with those of its controlling interest affiliates.
Consolidation Accounting
The way to combine the financial statements of two or more companies that have the same owners.
Contra Account
An account that is paired with, and is listed immediately after, its related account in the chart of accounts
and associated financial statement and whose normal balance is the opposite of the normal balance of the
related account.
Cost of Goods Sold (COGS)
The cost of the merchandise inventory that the business has sold to customers. It can include more than just
the material expenses for these items, for example also personnel expenses or warehousing.
Cost Principle
A principle that states that acquired assets and services should be recorded at their actual cost.
Credit
The right side of a T-account.
Creditor
Any person or business to whom a business owes money.
Credit Terms
The payment terms of purchase or sale as stated on the invoice
Current Asset
An asset that is expected to be converted to cash, sold, or used up during the next 12 months or within the
business’s normal operating cycle if the cycle is longer than a year
Current Liability
A liability that must be paid with cash or with goods and services within one year or within the entity’s
operating cycle if the cycle is longer than a year.
Customer
The party to a business transaction who receives (buys) goods or services from the seller
Debit
The left side of a T-account.
Debtor
The party to a credit transaction who takes on an obligation/payable
Deferred Expense
An asset created when a business makes advance payments of future expenses
Depletion
The process by which businesses spread the allocation of a natural resource’s cost over its usage.
Depreciation
The process by which businesses spread the allocation of a plant asset’s cost over its useful life
Discount
A discount is granted by a seller to customers according to the payment terms: the right to deduct a certain
amount from a bill if payment is made earlier than when the payment is due, for example: payment 30 days
net, 7 days 2% (discount)
Dividend
A distribution of a corporation’s earnings to stockholders.
Double-Entry Accounting
A system of accounting in which every transaction affects at least two accounts.
Entrepreneurial Code
The law that covers all topics concerning entrepreneurs, as far as accounting is concerned, the third book of
this law has to be obeyed if accountability is given (§ 189 to § 283 - for corporations and companies having
more than 700.000 Euros of revenues.
Equity
The owners’ claims to the assets of the business.
Expenses
The costs of selling goods or services. An expense reduces the result of a business year as the purchased
good or service is used up right away in the business period.
External Auditor
An outside accountant, completely independent of the business, who evaluates the controls to ensure that
the financial statements are presented fairly in accordance with GAAP.
Financial Accounting
The field of accounting that focuses on providing information for external decision makers
Financial Position
The financial position of a company refers to the status of a company’s assets and liabilities at a certain
date. The report of financial position is the balance sheet.
Financial Statements
Business documents that are used to communicate information needed to make business decisions
Financing Activities
Activities that increase or decrease long-term liabilities and equity; a section of the statement of cash flows.
Fixed Asset
synonym for long-term asset.
Fixed Cost
A cost that remains the same in total, regardless of changes over wide ranges of volume of activity
Going Concern Assumption
Assumes that the entity will remain in operation for the foreseeable future.
Goodwill
Excess of the cost of an acquired company over the sum of the market values of its net assets (assets
minus liabilities).
Gross Pay
The total amount of salary, wages, commissions, and any other employee compensation before taxes and
other deductions.
Gross Profit
Excess of Net Sales Revenue over Cost of Goods Sold
Gross Revenue
The gross revenue includes the Value Added Tax, it is the amount paid by the customer to the supplier.
Income
The result of operation - can be a net income or a net loss (see there). Net means in this context after tax.
Income before tax is the income of the year before deducting income tax.
Income Statement
Reports the net income or net loss of the business for a specific period.
Intangible Asset
An asset with no physical form that is valuable because of the special rights it carries.
Interest
The revenue to the payee for loaning money—the expense to the debtor.
Inventory Current assets of a company in the warehouse on stock to be sold as mer
Investing Activities
Activities that increase or decrease long-term assets; a section of the statement of cash flows.
Investor
The owner of a bond or stock of a corporation
Invoice
A seller’s request for payment from the purchaser.
Journal
A record of transactions in date order.
Ledger
The record holding all the accounts of a business, the changes in those accounts, and their balances.
Liabilities
Debts that are owed to creditors.
Long-term Asset
An asset that will not be converted to cash or used up within the business’s operating cycle or one year,
whichever is greater.
Loss
A loss occurs if net result is negative: total expenses are higher than all revenues
Managerial Accounting
The field of accounting that focuses on providing information for internal decision makers.
Matching Principle
Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the
period, and matches those expenses against the revenues of the period.
Merchandise Inventory
The merchandise that a business sells to customers.
Net Income
The result of operations that occurs when total revenues are greater than total expenses.
Net Loss
Net revenues are the revenues without the sales tax, without the discounts and other deductions from the
gross revenue.
Notes Payable
A written promise made by the business to pay a debt, usually involving interest, in the future.
Notes Receivable
A written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the
future.
on open account
a sale or a purchase where the payment is made later and not in exchange of the goods or service. The
open account shows the amount due in the future.
Operating Activities
Activities that create revenue or expense in the entity’s business; a section of the statement of cash flows.
Operating Cycle
The time span during which cash is paid for goods and services, which are then sold to customers from
whom the business collects cash.
Operating Expenses
Expenses, other than Cost of Goods Sold, that are incurred in the entity’s major ongoing operations.
Operating Income
Measures the results of the entity’s major ongoing activities. Gross profit minus operating expenses.
Other Income and Expenses
Revenues or expenses that are outside the normal, day-to-day operations of a business, such as a gain or
loss on the sale of plant assets or interest expense.
Outstanding Stock
Issued stock in the hands of stockholders.
Paid-In Capital
Represents amounts received from the stockholders of a corporation in exchange for stock.
Paid-In Capital in Excess of
Par
Represents amounts received from stockholders in excess of par value.
Parent Company
A company that owns a controlling interest in another company.
Partnership A business with two or more owners and not organized as a corpo
Partnership
A business with two or more owners and not organized as a corporation.
Par Value
An amount assigned by a company to a share of its stock.
Permanent Account
An account that is not closed at the end of the period—the asset, liability, Common Stock, and Retained
Earnings accounts.
Preferred Stock
Stock that gives its owners certain advantages over common stockholders, such as the right to receive
dividends before the common stockholders and the right to receive assets before the common stockholders
if the corporation liquidates.
Posting
Transferring data from the journal to the ledger.
Premium
The amount above par at which a stock is issued.
Prepaid Expense
A payment of an expense in advance.
Profit
Excess of revenues over total expenses.
Property, Plant, and
Equipment
Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business
Purchase
A purchase is the acqusition of something by the payment of money or its equivalent.
Purchase Discount
A discount that businesses offer to purchasers as an incentive for early payment.
Purchases Journal
Special journal used to record all purchases of merchandise inventory, office supplies, and other assets on
account.
Purchase Return
A situation in which sellers allow purchasers to return merchandise that is defective, damaged, or otherwise
unsuitable.
Raw Materials Inventory (RM)
Materials converted through the manufacturing process into a finished product
Receivable
A monetary claim against a business or an individual.
Reconciliation of income
Adding or deducting positions from commercial income in order to reach taxable income.
Retailer
A type of merchandiser who buys merchandise either from a manufacturer or a wholesaler and then sells
those goods to consumers
Retained Earnings
Equity earned by profitable operations of a corporation that is not distributed to stockholders
Revenues
Amounts earned from delivering goods or services to customers.
Reversing Entry
A special journal entry that eases the burden of accounting for transactions in the next period. Such entries
are the exact opposite of a prior adjusting entry.
Sales Discounts
Reduction in the amount of revenue earned on sales for early payment.
Sales Journal
Special journal used to record credit sales.
Sales Returns and Allowances
Customer’s return of merchandise or an allowance granted to the customer.
Sales Revenue
The amount that a merchandiser earns from selling its inventory
Security
A share or interest representing financial value.
Selling Expenses
Expenses related to marketing and selling the company’s goods and services
Sole Proprietorship
A business with a single owner
Source Document
Provides the evidence and data for accounting transactions.
Statement of Cash Flows
Reports on a business’s cash receipts and cash payments for a specific period.
Statement of Retained
Earnings
Reports how the company’s retained earnings balance changed from the beginning to the end of the period
Stockholder
A person who owns stock in a corporation.
Stockholders’ Equity
A corporation’s equity that includes paid-in capital and retained earnings
Straight-Line Method
A depreciation method that allocates an equal amount of depreciation each year. (Cost / Useful life).
Subsidiary Company
A company that is controlled by another corporation
Subsidiary Ledger
Record of accounts that provides supporting details on individual balances, the total of which appears in a
general ledger account.
Supplier
The individual or business from whom a company buys goods & services. The vendor.
Tangible Asset
An asset with physical form, for example buildings, land or cars.
T-Account
A summary device that is shaped like a capital T with debits posted on the left side of the vertical line and
credits on the right side of the vertical line.
Temporary Account
An account that relates to a particular accounting period and is closed at the end of that period—the
revenues, expenses, Income Summary, and Dividends accounts.
Trade Payable
A payable resulting from a purchase on open account. Also called accounts payable
Trade Receivable
A receivable - a monetary claim against someone - resulting from the sale of a product or service on open
account.
Transaction
An event that affects the financial position of the business and can be measured with faithful representation.
Trial Balance
A list of all ledger accounts with their balances at a point in time.
Unearned Revenue
A liability created when a business collects cash from customers in advance of providing services or
delivering goods
Useful Life
Length of the service period expected from an asset. May be expressed in time or usage
Value Chain
Includes all activities that add value to a company’s products and services.
Variable Cost
A cost that increases or decreases in total in direct proportion to increases or decreases in the volume of
activity
Wholesaler
A type of merchandiser who buys goods from manufacturers and then sells them to retailers.
Working Capital
A measure of a business’s ability to meet its short-term obligations with its current assets.
