Accounting Terms Chap 1-8

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1 Accounting Terms Chap - TERM DEFINITION CHAPTER Account Account balance A record that summarizes all the transactions pertaining to a single item in the equation. The difference between the increases and decreases in an Account title The name given to an Accounting Accounting equation Accounting system The process of planning, recording, analyzing, and interpreting financial information. An equation showing the relationship among assets, liabilities, and owner s equity. A planned process designed to compile financial data and summarize the results in records and reports. Asset Anything of value that is owned. Business ethics The use of ethics in making business decisions. Business plan Capital account Compound interest A formal written document that describes the nature of a business and how it will operate. An account used to summarize the owner s equity in a business. Interest paid on an original amount deposited in a bank plus any interest that has been paid. Creditor A person or business to whom a liability is owed. Entrepreneur Someone who owns, operates, and takes the risk of a business venture. Equities Financial rights to the assets of a business. Equity The difference between assets and liabilities. Ethics The principles of right and wrong that guide an individual in making decisions. Expense The cost of goods or services used to operate a business. Page

2 Accounting Terms Chap - Financial statements Financial reports that summarize the financial condition and operations of a business. GAAP Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities. Generally accepted principles See GAAP. Interest An amount paid for the use of money for a period of time. Language of business The process of planning, recording, analyzing, and interpreting financial information. Liability An amount owed. Net worth statement A formal report that shows what an individual owns, what an individual owes, and the difference between the two. Owner s equity Personal net worth The amount remaining after the value of all liabilities is subtracted from the value of all assets. The difference between personal assets and personal liabilities. Proprietorship A business owned by one person. Revenue An increase in equity resulting from the sale of goods or services. Sale on account A sale for which payment will be received at a later date. Service business A business that performs an activity for a fee. Sole proprietorship A business owned by one person. Transaction Withdrawals Accounts payable Accounts receivable Any business activity that changes assets, liabilities, or owner s equity. Assets taken from the business for the owner s personal use. Amounts to be paid in the future for goods or services already acquired. Amounts to be received in the future due to the sale of goods or services. Page

3 Accounting Terms Chap - Chart of accounts A list of accounts used by a business. Credit An amount recorded on the right side of an Debit An amount recorded on the left side of an Forensic accountant Normal balance An accountant who combines and investigating skills to uncover suspected fraudulent business activity, or to prevent such activity. The side of an account that is increased is called the normal balance of the T account An device used to analyze transactions. Check A business form ordering a bank to pay cash from a bank Double-entry The recording of debit and credit parts of a transaction. Entry Information for each transaction recorded in a journal. Invoice A form describing the goods or services sold, the quantity, the price, and the terms of sale. Journal A form for recording transactions in chronological order. Journalizing Recording transactions in a journal. Memorandum Proving cash Receipt Sales invoice A form on which a brief message is written to describe a transaction. Determining that the amount of cash agrees with the records. A business form giving written acknowledgement for cash received. An invoice used as a source document for recording a sale on A sales invoice is also referred to as a sales ticket or a sales slip. Sales slip See sales invoice. Page

4 Accounting Terms Chap - Sales ticket See sales invoice. A business paper from which information is obtained for a journal entry. Source document Account number The number assigned to an Correcting entry File maintenance General ledger If a transaction has been improperly journalized and posted to the ledger, the incorrect journal entry should be corrected with an additional journal entry, called a correcting entry. The procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current. A ledger that contains all accounts needed to prepare financial statements. Ledger A group of accounts. Opening an account Posting Accounting clerk Bank statement Writing an account title and number on the heading of an Transferring information from a journal entry to a ledger An worker who processes routine details about transactions. A report of deposits, withdrawals, and bank balances sent to a depositor by a bank. Blank endorsement An endorsement consisting only of the endorser s signature. Canceled check A check which has been paid by the bank. Cash over Cash short Checking account Debit card Deposit slip A petty cash on hand amount that is more than the recorded amount. A petty cash on hand amount that is less than the recorded amount. A bank account from which payments can be ordered by a depositor. A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder. A bank form which lists the checks, currency, and coins an account holder is adding to a bank Page

5 Accounting Terms Chap - Dishonored check A check that a bank refuses to pay. EFT See electronic funds transfer. Electronic funds transfer A computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents. Endorsement Non-sufficient funds check A signature or stamp on the back of a check transferring ownership. A check dishonored by the bank because of insufficient funds in the account of the maker of the check. NSF check See non-sufficient funds check. Petty cash An amount of cash kept on hand and used for making small payments. Petty cash slip A form showing proof of a petty cash payment. Postdated check A check with a future date on it. Restrictive endorsement An endorsement restricting further transfer of a check s ownership. Special endorsement An endorsement indicating a new owner of a check. Voided check A check that cannot be processed because the maker has made it invalid. Accounting period See fiscal period. Accrual basis of Reporting income when earned and expenses when incurred. Adjusted trial balance A trial balance prepared after adjusting entries are posted. Adjusting entries Adjustments Balance sheet Journal entries recorded to update general ledger accounts at the end of a fiscal period. Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period. A financial statement that reports assets, liabilities, and owner s equity on a specific date. Page

6 Accounting Terms Chap - Cash basis of Certified public accountant (CPA) Fiscal period Reporting income when the cash is received and expenses when the cash is paid. An accountant who has passed the uniform certified public exam and met the licensing requirement for a state. The length of time for which a business summarizes its financial information and reports its financial performance. Fiscal year A fiscal period consisting of consecutive months. Income statement Net income Net loss Prepaid expense Trial balance Work sheet Budget Comparative financial statements Deficit Financial Financial ratio Interim financial statements Managerial Pay yourself first A financial statement showing the revenue and expenses for a fiscal period. The difference between total revenue and total expenses when total revenue is greater. The difference between total revenue and total expenses when total expenses are greater. Cash paid for an expense in one fiscal period that is not used until a later period. A proof of the equality of debits and credits in a general ledger. A columnar form used to summarize the general ledger information needed to prepare financial statements. A financial road map used by individuals and companies as a guide for spending and saving. Financial statements that provide information for multiple fiscal periods. A negative balance that remains after total expenses are subtracted from total income. The area of which focuses on reporting information to external users. A comparison between two components of financial information. Financial statements providing information for a time period shorter than the fiscal year. The area of which focuses on reporting information to internal users. A budgeting strategy of setting aside at least 0% of aftertax income for saving and investing. Page

7 Accounting Terms Chap - Ratio analysis The calculation and interpretation of a financial ratio. Return on sales The ratio of net income to total sales. Stakeholders Any persons or groups who will be affected by an action. Surplus Vertical analysis Accounting cycle Audit Audit trail A positive balance that remains after total expenses are subtracted from total income. Reporting an amount on a financial statement as a percentage of another item on the same financial statement. The series of activities included in recording financial information for a fiscal period. An examination of financial records, accounts, and supporting documents to check their accuracy. A paper or electronic path that provides a documented history of a transaction. Auditor The accountant who conducts the audit. Closing entries Journal entries used to prepare temporary accounts for a new fiscal period. Nominal accounts See temporary accounts. Permanent accounts Accounts used to accumulate information from one fiscal period to the next. Post-closing trial balance A trial balance prepared after the closing entries are posted. Public firm Temporary accounts An business that helps other businesses with issues. Accounts used to accumulate information until it is transferred to the owner s capital Page

Accounting Glossary 1. an equation showing the relationship among assets, liabilities, and

Accounting Glossary 1. an equation showing the relationship among assets, liabilities, and Accounting Glossary 1 GLOSSARY A Account a record summarizing all the information pertaining to a single item in the accounting equation. (p. 10) Account balance the amount in an account. (p. 10) Account