Accelerated depreciation
Depreciation method that allows large depreciation deductions in the early years of an asset's life and smaller ones later.
Account
One specific ledger item, such as cash, that will be shown on a financial statement.
Accounting cycle
Actions taken at the end of an accounting period to reconcile the business transactions of that period.
Accounting equation
Assets = Liabilities + Equity
Accounting period
Period of time for which the company is reporting financial information. Typical accounting periods would be monthly, yearly, and quarterly.
Accounts Payable ledger
A subsidiary ledger with accounts for each creditor of the business. It is used to record purchases, payments, and credits.
Accounts Receivable ledger
A subsidiary ledger used to record the activities of each credit account for a business.
Accounts payable
A liability that results from buying goods and services on credit during the normal operations of a business. In many business transactions, accounts payable are due within 30 days of the transaction date.
Accrual basis of accounting
Accounting system that requires revenue and expense to be reported when they occur.
Accruals
Revenue or expense amounts that have been accumulating for the business but have not been recorded in the journal(s).
Accrued expense
An expense that has not yet been paid, but the company has received the benefit.
Adjusted bank balance
The amount that should be in the bank after a bank reconciliation.
Adjusted book balance
The checkbook balance after completing a bank reconciliation.
Adjusted trial balance
The trial balance after the adjusting entries have been recorded.
Adjusting entries
Special entries which are required to bring accounts to the correct balance at the end of an accounting period.
Aging of Accounts Receivable method
A method of estimating bad debts by calculating the length of time an account is past due and applying a business defined percentage to the amount that will be uncollectable.
Allowance for Doubtful Accounts account
A special account created to hold the estimated uncollectable account amount.
Allowance method
A method of estimating the amount of uncollectable accounts receivable accounts and posting that amount to the general journal.
Amortization
Method used to record the expensing of intangible assets.
Assets
Resources owned or controlled by a company.
Audit
Process of checking each entry in a set of books to make sure it agrees with the original paperwork (invoices and receipts).
Bad debts expense
A special account created to record the exact amount of uncollectable accounts for a business.
Balance per bank
The balance of a business's bank account, as reported on a bank statement.
Balance per book
The balance of a business's checkbook, as recorded in the checkbook or check register.
Balance sheet
Financial statement that reports a company's financial status on a specific date. It lists its assets, liabilities and equity. It uses values from the income statement and statement of owner's equity.
Balancing
Adding or subtracting the previous balance to the current balance.
Bank reconciliation
The process of comparing and correcting the bank statement data against the business's checkbook data.
Bank statement
A monthly document created by a business's bank detailing the activities on the business's bank accounts.
Betterment
Item that improves (betters) a plant asset.
Bonds payable
Money that is due to a bond holder but has not yet been paid.
Book value
The value of an asset when you take the original cost less any accumulated depreciation.
Break even
When a company's revenues equal its expenses.
Cash
A business asset, which can include a business's currency or coin, checks, cashiers' checks, or money orders payable to the business, along with money held in the business's bank accounts.
Cash basis of accounting
Accounting system that records accounting transactions based on when the cash is received.
Cash disbursements journal
A journal used to record all payments of cash by the company.
Cash equivalents
Business investments that can be converted quickly to cash.
Cash payments journal
A special journal used to record cash disbursements by the business.
Cash receipts journal
A special journal used to record cash received by the company.
Chart of accounts
A list of all accounts used by the company.
Check
A written authorization for a bank to release a specific amount of a business's cash funds to a creditor.
Classification structure
A special type of balance sheet that allows for additional sub-headings.
Close
Setting temporary capital accounts to zero.
Closing
The process of bringing an account balance to zero. This is usually only done for temporary accounts.
Closing entries
Entries which are used to close out the temporary accounts.
Compound entry
A journal entry with more than one debit or credit.
Conservatism
An accounting concept that states the revenue is only recorded when fully realized.
Contingent liability
A potential liability that could arise from a past business activity.
Contra
An account which is an offset to another account.
Control account
General ledger account for which a subsidiary ledger is kept.
Copyright
Exclusive right to distribute a work of literature, music, art, or other items. A copyright has a life of 70 years beyond the creator's life span.
Corporation
A state-chartered legal entity, in which the assets and liabilities remain separate from its owners.
Credit
An entry that is recorded in the credit (right) column of an account.
Credit memorandum
Issued by a supplier to a receiving business as notification that a specific amount has been subtracted from its amount due. This is usually issued for purchase returns or purchase allowances.
Credit sales
Sales made by a business for which the customer agrees to pay at a later date.
Creditor
Person or business granting credit to another person.
Current assets
Assets which will be used up or converted into cash within a short period of time, typically a year.
Current liabilities
Debts which will become due within a short period of time, typically a year.
Current ratio
A calculation used to determine a company's liquidity. The formula is current assets divided by current liabilities.
Debit
An entry that is recorded in the debit (left) column of an account.
Debtor
Person or business borrowing money from another person.
Deferrals
Revenue or expense amounts recorded in the journal(s) for which the business has not actually received or provided payment yet.
Deferred taxes
A liability that results from the temporary difference in taxes due based on the company's accounting records and tax return information.
Depletion
Method to record the using, or consumption, of natural resources
Deposit
The amount of cash placed in a bank by a business.
Deposits in transit
Deposits made by the business after the bank statement is issued.
Depreciation
The expensing of an asset's useful value over the time period it is being used. A loss of value over time. Many assets depreciate as they get older.
Direct Write-Off method
A method of removing uncollectable amounts directly from the Accounts Receivable account.
Double-entry accounting
A system whereby a debit entry is always entered with a corresponding credit entry. This is also referred as double-entry bookkeeping.
Drawing
An account which keeps track of owner withdrawals from the company.
EFTPS
Electronic Federal Tax Payment System. This system allows taxpayers to remit taxes electronically.
Enterprise Resource Planning (ERP)
Software that integrates all of the company's operations with the accounting system.
Equity
The company owner's claim on a company's assets. Also known as owner's equity or capital.
Event
A happening that has a measurable effect on the accounting equation
Exempt
Used to describe an employee who is not protected by the Fair Labor Standards Act of 1938.
Expenses
The outflow of assets or the incursion of liabilities.
External transactions
Exchanges between business entities that result in a change to the accounting equation.
Extraordinary repair
Repair that extends the useful life of a plant asset.
FASB
Financial Accounting Standards Board
FICA
Federal Insurance Contributions Act. Taxes collected through this act fund the social security and Medicare programs.
FUTA
Federal Unemployment Tax Act. This act requires the payment of a federal tax to provide benefits to unemployed workers.
Fair Labor Standards Act
A federal law that establishes a minimum hourly wage and requires overtime to be paid when more than 40 hours are worked in a week. This law applies to businesses engaged in interstate commerce either directly or indirectly.
Financial accounting
Communicates financial information to external users.
Financial statements
Specific documents created by accountants to report the financial position of a business.
First-in first-out (FIFO)
The method of inventory costing in which the cost of the first items purchased is assigned to the inventory first.
Fixed asset
The assets a company uses in operating its business. It is a synonym for fixed assets and property, plant, and equipment.
Franchise license
License to operate a franchise, granted by the owner of the franchise.
Freight In account
A special temporary expense account used to track the charges for the delivery of merchandise purchased for resale. This account is included in the Cost of Goods Sold account.
GAAP
Generally accepted accounting principles
General journal
The journal used to record all business transactions for a business.
General-purpose financial statements
Reports with information for a broad spectrum of external users. Includes balance sheets, cash-flow statements, income statements, and statements of owner's equity.
Goodwill
Additional value a business has beyond the difference between its assets and liabilities.
Gross pay
Employee's pay before any deductions.
Gross profit method
The method of valuing inventory that uses the ratio of cost of goods sold to net sales.
IASB
International Accounting Standards Board
Inadequacy
Asset is no longer able to meet the company's needs due to growth of the business.
Income statement
Financial statement showing the revenues and expenses of a company's business operations as either net income, net loss, or break even.
Income summary
A special account used to hold values during the closing process.
Indefinite useful life
Asset that has an unlimited life.
Installment payments
A form of credit offered by larger businesses to help customers purchase large ticket items. This form of credit usually includes interest.
Intangible asset
Asset that is not physically used in the operations of the company, but that gives the owner certain benefits.
Internal control system
A system used by a business to protect its assets and encourage efficiency and accuracy.
Internal controls
Policies that allow managers to control and monitor business activities such as company policies, accounting procedures, and physical safeguards to protect assets.
Internal transactions
Exchanges within a business entity that might or might not affect the accounting equation.
Inventory
Goods kept on hand by a business for resale.
Journal
A record of all transactions occurring in the business. A file used to record business transactions in chronological order.
Journalizing
The process of recording a transaction in a journal.
Last-in first-out (LIFO)
The method of inventory costing in which the cost of the last items purchased is assigned to the inventory first.
Leasehold improvement
Improvement made to leased property
Ledger
A special file maintained by all businesses into which transactions for a period of time are entered. The values for ledger entries are provided by the journal(s).
Liabilities
Debts or obligations a company owes to its creditors.
Line of credit
An offer of credit from a business to a customer. The customer can make purchases and then make one lump payment at the end of the period.
Liquidity
Describes how easily something can be converted to cash.
Long-term liability
An amount that is due on a date beyond the next year or the company's normal operating cycle.
Lookback period
The four quarter period ending on June 30th of the preceding year.
Lower of cost or market (LCM)
The accounting rule that requires a business to provide a non-overstated value of its inventory when reporting.
Managerial accounting
Communicates financial information to internal users (management).
Market price
The price for a business to purchase an inventory item.
Markon
The difference in the cost of an item from purchase price to sale price.
Matching taxes
Taxes that the employer pays to match the amount of tax withheld from the employee.
Modem
A device used to transmit data through telephone lines.
Natural resource
Asset such as oil, gas, and timber, that is consumed by a business.
Net income
When a company's revenues exceed its expenses.
Net loss
When a company's expenses exceed its revenues.
Net pay
Employee's pay after all deductions have been take out.
Non-current assets
Assets that are not expected to be used up in the current operating cycle (approximately one year) of a business.
Non-current liabilities
Debts which are not due in the current operating cycle (approximately one year) of a business.
Note payable
written promise to pay a certain amount of money on a specific date. Also referred to as a promissory note.
Obsolescence
Asset is no longer efficient in producing a product or service due to technological innovations.
Ordinary repair
Repair needed to keep assets in normal operating condition. This repair is treated as an expense at the time it is incurred.
Outstanding checks
Checks written by the business after the bank statement is issued.
Owner's investments
Assets provided by the owner for a company.
Owner's withdrawals
Assets removed from a company by the owner for personal use.
Partnership
An association of two or more persons who carry on as co-owners of a business for profit.
Patent
Exclusive right to produce and distribute items. Patents have a life of 20 years.
Percent of Accounts Receivable method
A method of estimating bad debts by calculating the total accounts receivable accounts by a business-defined percentage.
Percent of Sales method
A method of estimating bad debts by calculating the total credit sales by a business-defined percentage.
Periodic inventory system
A system of inventory tracking in which counts of inventory are completed only on set occasions.
Permanent accounts
Accounts that are not set to zero during the closing process. Assets, liabilities, and capital accounts are permanent accounts.
Perpetual inventory system
A system of inventory tracking in which technology allows for the inventory levels to be monitored at all times.
Petty cash
A small fund of cash set up within a business to pay for unexpected expenses.
Petty cash analysis sheet
A worksheet used to enter information regarding the transactions of the petty cash fund.
Physical inventory
The process of counting all of the items in inventory.
Plant assets
The assets a company uses in operating its business. It is a synonym for fixed assets and property+F99, plant, and equipment.
Post-closing trial balance
A trial balance after the closing process has been completed.
Posting
The process of recording the journal information into the individual accounts.
Posting reference
A reference that tells you where an entry originated and where it was posted.
Prepaid expense
An expense that has been paid in advance of when the item will actually be used.
Property, plant, and equipment
The assets a company uses in operating its business. It is a synonym for fixed assets and plant assets.
Prove
Verifying the accuracy of the subsidiary journal.
Purchase Allowance
A deduction in the amount owed by a purchaser to a supplier due to defective or incorrect merchandise.
Purchase Return
Merchandise returned to a supplier who then provides a credit memorandum for the entire purchase.
Purchase Returns and Allowances
An account used to record all returns and allowances received by the business. It can also be used to track the history of supplier problems.
Purchase invoice
A list of items sent to a business and the amount owed by that business. This is a bill.
Purchase order
A written order to the suppliers of a business for a set quantity of specific products at a set price and at set credit terms. This must be signed by someone with authority to purchase for the business.
Purchase requisition
A list of merchandise a business needs to purchase to refill inventory levels.
Purchases account
A special temporary expense account used to track merchandise purchased for resale by the business. It is included in the Cost of Goods Sold account.
Purchases journal
A special journal used to record only credit purchases of merchandise for resale.
Realized gain or loss
Gain or loss that is recorded in the general journal and is shown on the income statement.
Receiving report
A report made by a business when a shipment is received from a supplier. It lists the products received and their condition on arrival.
Retail method
The method of valuing inventory that uses the ratio of cost to retail price.
Revenue
The influx of assets from the sale of goods or services, or from the use of company money or property.
SEC
Securities and Exchange Commission
SUTA
State Unemployment Tax Act. This act requires payment of a state tax to provide benefits to unemployed workers.
Sales Returns and Allowances account
A special account created to track the amount of returns and allowances for a business for a period.
Sales allowance
When a business accepts an item back from a customer or seeks to offset a problem with an item by crediting the customer's account with a partial amount of the purchase price.
Sales journal
A journal used to record sales on account of inventory.
Sales return
When a business accepts an item back from a customer and issues a full credit to the customer's account.
Salvage value
The estimated value of an asset when a company is finished with it.
Schedule of Accounts Payable
A list of all of the accounts in the Accounts Payable ledger and their current balances.
Sole proprietorship
A business owned and operated by one person.
Source document
The business document that supports a journal entry.
Special journal
A journal that is designed to group together transactions of a similar type.
Specific identification
The method of inventory costing in which each item is tracked and recorded according to its purchase and sale price.
Statement of owner's equity (SOE)
Financial statement showing changes in the owner's equity based on net income or net loss and owner investments and withdrawals.
Straight line depreciation
An often used depreciation method whereby an asset's value is written off in equal amounts over the life of the asset.
Subsidiary ledgers
Ledgers which contain the details for a general ledger account. Common subsidiary ledgers are accounts payable and accounts receivable.
T-account
A tool used to learn the double-entry accounting system. It has the appearance of the letter T. The left side is for debit entries and the right side is for credit entries. The account title appears at the top of the T.
Taxes payable
Taxes that are due but have not yet been paid.
Temporary accounts
Accounts that will have a zero balance when closing is complete. Revenue, expense, drawing, and income summary are temporary accounts.
Trademark
Distinct identifying symbols or names of a company.
Transaction
Any event that affects the accounting equation. A business activity that can be recorded in a journal.
Transaction analysis
Keeps the accounting equation balanced
Trial balance
A complete list of all business accounts and their current balances.
Unearned revenue
Revenue for which a company has been paid, but the goods or services have not yet been delivered to the customer.
Unrealized gain or loss
Gain or loss that is not recorded in the general journal or shown on the income statement. Some gains are not immediately recognized so as to not overstate earnings in the current period.
Useful life
The period of time an asset can be productively used.
Voucher system
A system that requires all payments from the business to be made only with proper authorization.
W-4
Employee's Withholding Allowance Certificate. Used to determine the amount of federal income tax withheld from an employee's paycheck.
Wage base limit
A limit beyond which wages will not be taxed.
Wage-bracket method
A commonly used technique for computing employee federal income tax deductions.
Wages payable
Wages that have been earned by the employees but are not yet paid to them.
Warranty
A promise from a seller to correct or replace a product or service that is not up to performance expectations.
Weighted average
The method of inventory costing in which the average cost of the items on hand is assigned to the inventory.
Worksheet
A tool used by accountants to assist in financial statement preparation. It has columns for the beginning trial balance, adjustments, and the adjusted trial balance.