Accounting Jargon Buster
Accounting – process of identifying, measuring, and reporting financial information by use of a double entry accounting system.
Accounts Payable – (AP) money owed to creditors, to other businesses; the company must pay money to vendors for the purchase services or goods.
Accounts Receivable – (AR) records of any money that a company is owed because of the sale of their goods or services.
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.
Accruals – 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.
Amortization – gradual reduction of amounts in an account over time, either assets or liabilities.
Asset – property or item with a cash value that is owned by a business or individual.
Audit Trial – a record of every transaction, when it was done, by whom and where, used by auditors when validating the financial statement.
Auditors – 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.
Bookkeeping – Recording of financial transactions both income and expenditure in an accounting system.
Budgeting – Budgeting involves maintaining a financial plan to control cash flow.
Capital Stock – Total amount of common and preferred stock issued by a company
Capitalized Expense – Accumulated expenses that are expensed over time.
Cash Flow – the total amount of money being transferred into and out of a business, especially as affecting liquidity.
Cash-Basic Accounting – a method in which income and expenses are recorded when they are paid.
Charts of Accounts – a listing of a company’s accounts and their corresponding numbers
Closing the Books/Year End Closing.
Cost Accounting – Used internally to determine the cost of operations and to establish a budget to increase profitability.
Credit – Entered in the right column of accounts. Liability, equity and revenue increase on the credit side.
Credit Note – A form or letter sent by a seller to a buyer, stating that a certain amount has been credited to the buyer’s account. A credit note is issued in various situations to correct a mistake.
Debit – Entered in the left column of accounts. Assets and expenses increase on the debit side.
Departmental Accounting – Shows individual departments’ income, expenses and net profit.
Depreciation – recognizing the decrease in the value of an asset due to age and use.
Dividends – Profits returned to the shareholders of a corporation.
Double-Entry Bookkeeping – Requires entries of debits and credits for each financial transaction
Equity – Represents the value of company ownership.
Financial accounting – is the field of accounting concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders using either the Historical Cost or Constant Purchasing Power Accounting model.
Financial Statement – a record containing the balance sheet and the income statement.
Fixed Asset – Used for a long period of time, e.g. equipment or buildings, computers.
General Ledger – Where debit and credit transactions are recorded.
Goodwill – The account for goodwill is located in the assets section of a company’s balance sheet. It is an intangible asset, as opposed to physical assets like buildings and equipment.
Income Statement – a summary of income and expenses.
Inventory Valuation – A valuation method modified for use in real estate and business appraisals
Inventory – merchandise purchased for resale at a profit
Invoice – a list of goods sent or services provided, with a statement of the sum due for these; a bill.
In the Black – Makes reference to a profit on the books.
In the Red – Makes reference to a loss on the books
Job Costing – system of tracking costs associated with a job or project (labour, equipment, etc) and comparing with forecasted costs
Journal – The first place financial transactions are entered. They are entered chronologically.
Liability – In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
Liquid Asset – An asset is said to be liquid if it is easy to sell or convert into cash without any loss in its value. Definition: An asset is said to be liquid if it is easy to sell or convert into cash without any loss in its value. By definition, bank notes and checking accounts are the most liquid assets.
Loan – money borrowed from a lender and usually repaid with interest.
Master Account – A Master Account has subsidiary accounts. Accounts Receivable could be a master account for various individual receivable accounts.
Net Income – Net Income equals revenue minus expenses, taxes, depreciation and interest.
Non-Cash Expense – Does not require cash outlay, e.g. depreciation, amortization.
Non-Operating Income – Income not generated from the business. An example might be the sale of unused equipment.
Note – a written agreement to repay borrowed money
Operating Income – is a measure of profitability that tells investors how much revenue will eventually become profit for a company. Operating income is also called Earnings Before Interest and Taxes (EBIT). It is important to understand what expenses are included and excluded when calculating operating income.
Other Income – income generated from other than regular business operations, i.e. interest, rents
Outstanding Invoice – an invoice that has not yet been paid
Payroll – a list of employees and their wages.
Posting – Refers to the recording of ledger entries.
Profit – gross income minus expenses.
Profit/Lost Statement – A financial report issued by a company on a regular basis that discloses earnings, expenses and net profit for a given time period (Income Statement)
Reconciliation – The act of proving an account balances, debits and credits equal.
Retained Earnings – In accounting, retained earnings refers to the portion of net income of a corporation that is retained by the corporation rather than distributed to shareholders as dividends.
Revenue – total income before expenses, gross income.
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 Accounts – a summary of amounts owed to a vendor, lender.
Subsidiary Accounts – Accounts that are under a control account; they must equal the main account balance (Office Suppliers, Cleaning Supplies)
Suppliers – assets purchased to be consumed by the business, to carry out business activities
Treasury Stock – A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market (“open market” including insiders’ holdings).
Trial Balance – A trial balance is a list of all the General ledger accounts (both revenue and capital) contained in the ledger of a business
Write-down/Write-off – 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