process of identifying, measuring, and reporting financial information of an entity

Accounting Equation
assets = liabilities + equity

Accounts Payable
money owed to creditors, vendors, etc.

Accounts Receivable
money owed to a business, i.e. credit sales

Accrual Accounting
a method in which income is recorded when it is earned and expenses are recorded when they are incurred, all independent of cash flow

a list of expenses that have been incurred and expensed, but not paid or a list of sales that have been completed, but not yet billed

gradual reduction of amounts in an account over time, either assets or liabilities

property with a cash value that is owned by a business or individual

Audit Trail
a record of every transaction, when it was done, by whom and where, used by auditors when validating the financial statement

third party accountants who review an entity’s financial statements for accuracy and provide a statement to that effect

Balance Sheet
summary of a company’s financial status, including assets, liabilities, and equity

recording financial information

the process of assigning forecasted income and expenses to accounts, which amounts will be compared to actual income and expense for analysis of variances

Capital Stock
found in the equity portion of the balance sheet describing the number of shares sold to shareholders at a predetermined value per share, also called “common stock” or “preferred stock”

Capital Surplus
found in the equity portion of the balance sheet accounting for the amount shareholders paid that is greater or lesser than the “capital stock” amount

Capitalized Expense
expenses that are accumulated, not expensed as incurred, to be amortized over a period of time; i.e. the development cost of a new product

Chart of Accounts
a listing of a company’s accounts and their corresponding numbers

Cash-Basis Accounting
a method in which income and expenses are recorded when they are paid.

Cash Flow
a summary of cash received and disbursed showing the beginning and ending amounts

Closing the Books/Year End Closing
the process of reversing the income and expense for a fiscal or calendar year and netting the amount into “retained earnings”

Cost Accounting
a type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions

an account entry with a negative value for assets, and positive value for liabilities and equity.

an account entry with a positive value for assets, and negative value for liabilities and equity.

Departmental Accounting
separating operating divisions into their own sub entities on the income statement, showing individual income, expenses, and net profit by entity

recognizing the decrease in the value of an asset due to age and use

amounts paid to shareholders out of current or retained earnings

Double-Entry Bookkeeping
system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits)

money owed to the owner or owners of a company, also known as “owner’s equity”

Financial Accounting
accounting focused on reporting an entity’s activities to an external party; ie: shareholders

Financial Statement
a record containing the balance sheet and the income statement

Fixed Asset
long-term tangible property; building, land, computers, etc.

General Ledger
a record of all financial transactions within an entity

an intangible asset reflecting the value of an entity in excess of its tangible assets

Income Statement
a summary of income and expenses

merchandise purchased for resale at a profit

Inventory Valuation
the method to set the book value of unsold inventory: i.e. “LIFO,” last in, first out; “FIFO,” first in, first out; “average,” an average cost over a given period, “last cost,” the cost based on the last purchase; “standard,” a “deemed” amount related to but not tied to a specific purchase, “serialized,” based on a uniquely identifiable serial number or character of each inventory item

the original billing from the seller to the buyer, outlining what was purchased and the terms of sale, payment, etc.

Job Costing
system of tracking costs associated with a job or project (labor, equipment, etc) and comparing with forecasted costs

a record where transactions are recorded, also known as an “account”

money owed to creditors, vendors, etc

Liquid Asset
cash or other property that can be easily converted to cash

money borrowed from a lender and usually repaid with interest

Master Account
an account on the general ledger that subtotals the “subsidiary accounts” assigned to it; i.e. Cash might be the master account for a list of depository accounts at banks

Net Income
money remaining after all expenses and taxes have been paid

Non-cash Expense
recognizing the decrease in the value of an asset; i.e. depreciation and amortization

Non-operating Income
income generated from non-recurring transactions; ie: sale of an old building

a written agreement to repay borrowed money; sometimes used in place of “loan”

Operating Income
Income generated from regular business operations

Other Income
income generated from other than regular business operations, i.e. interest, rents, etc.

a list of employees and their wages

the process of entering then permanently saving or “archiving” accounting data

see “net income”

Profit/Loss Statement
see “income statement”

the process of matching one set of data to another; i.e. the bank statement to the check register, the accounts payable journal to the general ledger, etc.

Retained Earnings
the amount of net profit retained and not paid out to shareholders over the life of the business

total income before expenses.

Shareholder Equity
the capital and retained earnings in an entity attributed to the shareholders

Single-Entry Bookkeeping
system of accounting in which transactions are entered into one account

Statement of Account
a summary of amounts owed to a vendor, lender, etc.

Subsidiary Accounts
the subaccounts that are totaled on the financial statement under “master accounts;” i.e. “Cash-ABC Bank” might be one of several subsidiary accounts that are subtotaled under “Cash”

assets purchased to be consumed by the entity

Treasury Stock
shares purchased by the entity from shareholders, reducing shareholder equity

an accounting entry that reduces the value of an asset due to an impairment of that asset; i.e. the account receivable from the bankrupt customer