Accounting Terminology Glossary Flashcards
Accelerated depreciation
A decline in the useful value of an asset which is more rapid in the beginning than at the end
Accounting
Often called the language of business and is used to record analyse and summarise financial ongoings within a business
Accounting equation
Assets = liabilities + owners equity
Accounting is based on the logic of this equation
Accounts payable
Money that you owe to regular business creditors
Accounts receivable
Money that is owed to you from your customers
Accrual
In accrual accounting, net profit is measured by the difference between revenues and expenses, not increases or decreases in cash
ACRS
Accelerated cost recovery system
Amortisation
The process of gradually paying off a liability over a period of time
Assets
Something of value that provides future economic benefit
Balance sheet
Shows the assets, liabilities and owners equity at a single point in time
Beginning inventory
The inventory that you have on hand at the beginning of an accounting period
Capitalization
Costs that increase fixed assets and will not be consumed within one year
Cash
Money in the till or in the bank
Cash flow
The actual movement of cash within a business
Cost of goods sold (cogs)
Beginning inventory plus purchases plus labour minus inventory at the end of the accounting period
Current assets
Cash or other assets that can be converted into cash within one year
Current liabilities
Debt obligations that must be settled within one year
Depreciation
Reduction in the cost basis of the fixed assets due to wear and tear, obsolescence and passage of time
Earnings year to date
Profit made this year but not yet distributed
Ending inventory
Inventory on hand at the end of the accounting period
Equities
Claims against assets
Claims of lenders/creditors = liabilities
Claims of owner = owners equity
Expenditures
Same as capitalization
Expenses
Costs of doing business
FIFO
First in first out
Fixed assets
Property, plant and equipment owned by a business entity
Normally not intended for sale and are used continuously
Fixed costs
Operating costs that remain consistent regardless of sales
Gross profit
Sales minus cost of goods sold
Income statement
Summarises the revenue and expenses of a company over a period of time
Intangible assets
Patents, good will, logos, trademarks & franchises
Inventory
This is accounted for as raw materials, goods in process and finished products
Investment tax credit
An incentive offered by the government to encourage capital expenditures
Lease
A rental contract
Liabilities
Debts and accounts that are payable
LIFO
Last in first out
Liquidity
Ease with which assets can be converted into cash
Long term liabilities
Debt obligations that don’t need to be settled within one year
Net profit
Same as net income, gross profit minus expenses
On account
If you’re buying on credit, it’s an account payable
If you sell on credit, it’s an account receivable
Original investment
Your own money that was used to start the company
Owners equity
This is the part of the assets that the owner has claims to after all liabilities are paid
P&L statement
Profit & loss statement AKA Income statement
Prepaid expenses
Payments made in advance for which the company has not yet received the benefits
Profit
What is left after paying all expenses including taxes
Retained earnings
The total cumulative net profit that a business owns over its life, and has not yet been distributed
Straight line depreciation
A method of allocating the net cost of a fixed asset in equal amounts over a set period of time
Tax liabilities
Money owed to the government for taxes
Variable costs
Expenses which are directly related to the volume of sales
E.g. manufacturing labor, raw materials, cost of sales (cogs)
Estimated liabilities (example)
Warranties
Known liabilities (example)
Loans, bonds
Bond
A company borrowing money
A company getting a note payable
