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Accounting Terminology
Accounting Terminology - Terms & Definitions
24
Accounting
Professional
11/12/2010

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Term
Accounts Payable
Definition
Also called A/P or Creditors.
Accounts payable are the bills your business owes to suppliers.
Term
Accounts Receivable
Definition
Also called A/R or Debtors.
Accounts receivable are the amounts owed to you by your customers.
Term
Accrual Based Accounting
Definition
With the accrual method, you record income when the sale occurs, not necessarily when you receive payment. You record an expense when you receive goods or services, even though you may not pay for them until later.
Term
Assets
Definition
Things of value held by the business.
Assets are balance sheet accounts. Examples of assets are accounts receivable, furniture, fixtures and bank accounts.
Term
Balance Sheet
Definition
Also called a statement of financial position, it is a financial "snapshot" of your business at a given point in time. It lists your assets, your liabilities, and the difference between the two, which is your equity, or net worth.
Term
Capital
Definition
Money invested in the business by the owners. Also called equity.
Term
Cash Based Accounting
Definition
If you use the cash method, you record income only when you receive cash from your customers. You record an expense only when you write the check to the vendor.
Term
Chart of Accounts
Definition
The list of account titles you use to keep your accounting records.
Term
(COGS)
Definition
(COGS) Cost of Goods Sold - Cost of items or services sold to your customers.
Term
Creditor
Definition
A company or individual whom you owe money to.
Term
Credits
Definition
At least one component of every accounting transaction (journal entry) is a credit. Credits increase liabilities and equity and decrease assets.
Term
Current Assets
Definition
Assets that are in the form of cash or will generally be converted to cash or used up within one year. Examples are accounts receivable and inventory.
Term
Current Liabilities
Definition
Liabilities payable within one year. Examples are accounts payable and payroll taxes payable.
Term
Debits
Definition
At least one component of every accounting transaction (journal entry) is a debit. Debits increase assets and decrease liabilities and equity.
Term
Depreciation
Definition
An annual write-off of a portion of the cost of fixed assets, such as vehicles and equipment. Depreciation is listed among the expenses on the income statement.
Term
Double Entry Accounting
Definition
In double-entry accounting, every transaction has two entries: a debit and a credit (called a journal entry). Debits must always equal credits. All General Ledger based accounting programs use double entry accounting.
Term
End of Year Rollover
Definition
With general ledger based accounting programs, the P & L categories are zero'd and balance sheet categories are carried forward. This is a term used in old accounting systems and not used much these days. Modern accounting systems tend to use open ended accounting.
Term
Equity
Definition
The net worth of your company. Also called owner's equity or capital. Equity comes from investment in the business by the owners, plus accumulated net profits of the business that have not been paid out to the owners.
Term
Fixed Assets
Definition
Assets that are generally not converted to cash within one year. Examples are equipment and vehicles.
Term
General Ledger
Definition
A general ledger is the collection of all balance sheet, income, and expense accounts used to keep the accounting records of a business. A general ledger works with double entry accounting and journal entries for each transaction.
Term
Income Accounts
Definition
These are the accounts you use to keep track of your sources of income. Examples are merchandise sales, consulting revenue, and interest income.
Term
Income Statement
Definition
Also called a profit and loss statement or a "P&L." It lists your income, expenses, and net profit (or loss). The net profit (or loss) is equal to your income minus your expenses.
Term
Inventory (Stock)
Definition
Goods you hold for sale to customers. Inventory can be merchandise you buy for resale, or it can be merchandise you manufacture or process, selling the end product to the customer.
Term
Journal
Definition
The chronological, day-to-day transactions of a business are recorded in sales, cash receipts, and cash payment journals. A general journal is used to enter period end adjusting and closing entries and other special transactions not entered in the other journals. In a traditional, manual accounting system, each of these journals is a collection of multi-column spreadsheets.
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