Accounting Terminology Glossary

Question 1

Accelerated depreciation

Answer 1

A decline in the useful value of an asset which is more rapid in the beginning than at the end

Question 2

Accounting

Answer 2

Often called the language of business and is used to record analyse and summarise financial ongoings within a business

Question 3

Accounting equation

Answer 3

Assets = liabilities + owners equity

Accounting is based on the logic of this equation

Question 4

Accounts payable

Answer 4

Money that you owe to regular business creditors

Question 5

Accounts receivable

Answer 5

Money that is owed to you from your customers

Question 6

Accrual

Answer 6

In accrual accounting, net profit is measured by the difference between revenues and expenses, not increases or decreases in cash

Question 7

ACRS

Answer 7

Accelerated cost recovery system

Question 8

Amortisation

Answer 8

The process of gradually paying off a liability over a period of time

Question 9

Assets

Answer 9

Something of value that provides future economic benefit

Question 10

Balance sheet

Answer 10

Shows the assets, liabilities and owners equity at a single point in time

Question 11

Beginning inventory

Answer 11

The inventory that you have on hand at the beginning of an accounting period

Question 12

Capitalization

Answer 12

Costs that increase fixed assets and will not be consumed within one year

Question 13

Cash

Answer 13

Money in the till or in the bank

Question 14

Cash flow

Answer 14

The actual movement of cash within a business

Question 15

Cost of goods sold (cogs)

Answer 15

Beginning inventory plus purchases plus labour minus inventory at the end of the accounting period

Question 16

Current assets

Answer 16

Cash or other assets that can be converted into cash within one year

Question 17

Current liabilities

Answer 17

Debt obligations that must be settled within one year

Question 18

Depreciation

Answer 18

Reduction in the cost basis of the fixed assets due to wear and tear, obsolescence and passage of time

Question 19

Earnings year to date

Answer 19

Profit made this year but not yet distributed

Question 20

Ending inventory

Answer 20

Inventory on hand at the end of the accounting period

Question 21

Equities

Answer 21

Claims against assets

Claims of lenders/creditors = liabilities

Claims of owner = owners equity

Question 22

Expenditures

Answer 22

Same as capitalization

Question 23

Expenses

Answer 23

Costs of doing business

Question 24

FIFO

Answer 24

First in first out

Question 25

Fixed assets

Answer 25

Property, plant and equipment owned by a business entity Normally not intended for sale and are used continuously

Question 26

Fixed costs

Answer 26

Operating costs that remain consistent regardless of sales

Question 27

Gross profit

Answer 27

Sales minus cost of goods sold

Question 28

Income statement

Answer 28

Summarises the revenue and expenses of a company over a period of time

Question 29

Intangible assets

Answer 29

Patents, good will, logos, trademarks & franchises

Question 30

Inventory

Answer 30

This is accounted for as raw materials, goods in process and finished products

Question 31

Investment tax credit

Answer 31

An incentive offered by the government to encourage capital expenditures

Question 32

Lease

Answer 32

A rental contract

Question 33

Liabilities

Answer 33

Debts and accounts that are payable

Question 34

LIFO

Answer 34

Last in first out

Question 35

Liquidity

Answer 35

Ease with which assets can be converted into cash

Question 36

Long term liabilities

Answer 36

Debt obligations that don’t need to be settled within one year

Question 37

Net profit

Answer 37

Same as net income, gross profit minus expenses

Question 38

On account

Answer 38

If you’re buying on credit, it’s an account payable If you sell on credit, it’s an account receivable

Question 39

Original investment

Answer 39

Your own money that was used to start the company

Question 40

Owners equity

Answer 40

This is the part of the assets that the owner has claims to after all liabilities are paid

Question 41

P&L statement

Answer 41

Profit & loss statement AKA Income statement

Question 42

Prepaid expenses

Answer 42

Payments made in advance for which the company has not yet received the benefits

Question 43

Profit

Answer 43

What is left after paying all expenses including taxes

Question 44

Retained earnings

Answer 44

The total cumulative net profit that a business owns over its life, and has not yet been distributed

Question 45

Straight line depreciation

Answer 45

A method of allocating the net cost of a fixed asset in equal amounts over a set period of time

Question 46

Tax liabilities

Answer 46

Money owed to the government for taxes

Question 47

Variable costs

Answer 47

Expenses which are directly related to the volume of sales E.g. manufacturing labor, raw materials, cost of sales (cogs)

Question 48

Estimated liabilities (example)

Answer 48

Warranties

Question 49

Known liabilities (example)

Answer 49

Loans, bonds

Question 50

Bond

Answer 50

A company borrowing money A company getting a note payable