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VYC1 Accounting 1
VYC1 Principles of Accounting WGU
| Term | Definition |
|---|---|
| accounting | the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties |
| accounting system | a process designed to accumulate, classify, and summarize financial data |
| auditing | the review of financial statements to assess their fairness and adherence to generally accepted accounting principles |
| auditor's report | an independent accountant's review of a firm's financial statements |
| certified public accountant | an independent accountant who provides accounting services to the public for a fee |
| corporation | a publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business |
| creditor | one to whom money is owed |
| discussion memorandum | an explanation of a topic under consideration by the Financial Accounting Standards Board |
| economic entity | a business or organization whose major purpose is to produce a profit for its owners |
| entity | anything having its own separate identity, such as an individual, a town, a university, or a business |
| exposure draft | a proposed solution to a problem being considered by the Financial Accounting Board |
| financial statements | periodic reports of a firm's financial position or operating results |
| generally accepted accounting principles (GAAP) | accounting standards developed and applied by professional accountants |
| governmental accounting | accounting work performed for a federal, state, or local governmental unit |
| international accounting | the study of accounting principles used by different countries |
| management advisory services | services designed to help clients improve their information systems or their business performance |
| managerial accounting | accounting work carried on by an accountant employed by a single business in industry |
| partnership | a business entity owned by two or more people who are legally responsible for the debts and taxes of the business |
| public accountants | members of firms that perform accounting services for other companies |
| separate entity assumption | the concept of keeping a firm's financial records separate from the owner's personal financial records |
| social entity | a nonprofit organization, such as a city, public school, or public hospital |
| sole proprietorship | a business entity owned by one person who is legally responsible for the debts and taxes of the business |
| Statements of Financial Accounting Standards | accounting principles established by the Financial Accounting Standards Board |
| stock | certificates that represent ownership of a corporation |
| stockholders | the owners of a corporation; also called shareholders |
| tax accounting | a service that involves tax compliance and tax planning |
| account payable | amounts a business must pay in the future |
| accounts receivable | claims for future collection from customers |
| assets | property owned by a business |
| balance sheet | a formal report of a business's financial condition on a certain date; reports the assets, liabilities, and owner's equity of the business |
| break even | a point at which revenue equals expenses |
| business transaction | a financial event that changes the resources of a firm |
| capital | financial investment in a business |
| equity | an owner's financial interest in a business |
| expense | an outflow of cash, use of other assets, or incurring of a liability |
| fair market value | the current worth of an asset or the price the asset would bring if sold on the open market |
| fundamental accounting equation | the relationship between assets and liabilities plus owner's equity |
| income statement / profit and loss statement / statement of income and expenses | a formal report of business operations covering a specific period of time; |
| liabilities | debts or obligations of a business |
| net income | the results of an excess of revenue over expenses |
| net loss | the result of an excess of expenses over revenue |
| on account / charge account / open-credit account | an arrangement to allow payment at a later date |
| owner's equity / proprietorship / net worth | the financial interest of the owner of a business; also called proprietorship or net worth |
| revenue / income | an inflow of money or other asset that results from the sales of goods or services or from the use of money or property |
| statement of owner's equity | a formal report of changes that occurred in the owner's financial interest during a reporting period |
| withdrawals | funds taken from the business by the owner for personal use |
| account balance | the difference between the amounts recorded on the two sides of an account |
| accounts | written records of the assets, liabilities, and owner's equity of a business |
| chart of accounts | a list of the accounts used by a business to record its financial transactions |
| classification | a means of identifying each account as an asset, liability, or owner's equity |
| credit | an entry on the right side of an account |
| debit | an entry on the left side of an account |
| double-entry system | an accounting system that involves recording the effects of each transaction as debits and credits |
| drawing account | a special type of owner's equity account set up to record the owner's withdrawal of cash from the business |
| footing | a small pencil figure written at the base of an amount column showing the sum of the entries in the column |
| normal balance | the increase side of an account |
| permanent account | an account that is kept open from one accounting period to the next |
| slide | an accounting error involving a misplaced decimal point |
| T account | a type of account resembling a T, used to analyze the effects of a business transaction |
| temporary account | an account whose balance is transferred to another account at the end of an accounting period |
| transposition | an accounting error involving misplaced digits in an error |
| trial balance | a statement to test the accuracy of total debits and credits after transactions have been recorded |
| accounting cycle | a series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information |
| audit trail | a chain of references that makes it possible to trace information, locate errors, and prevent fraud |
| balance ledger form | a ledger account form that shows the balance of the account after each entry is posted |
| chronological order | organized in the order in which the events occur |
| compound entry | a journal entry with more than one debit or credit |
| correcting entry | a journal entry made to correct an erroneous entry |
| general journal | a financial record for entering all types of business transactions; a record of original entry |
| general ledger | a permanent classified record of all accounts used in a firm's operation; a record of final entry |
| journal | the record of original entry |
| journalizing | recording transactions in a journal |
| ledger | the record of final entry |
| posting | transferring data from a journal to a ledger |
| account form balance sheet | a balance sheet that lists assets on the left and liabilities and owner's equity on the right (see Report form balance sheet) |
| adjusting entries | journal entries made to update accounts for items that were not recorded during the accounting period |
| book value | that portion of an asset's original cost that has not yet been depreciated |
| contra account | an account with a normal balance that is opposite of a related account |
| contra asset account | an asset account with a credit balance, which is contrary to the normal balance of an asset account |
| depreciation | allocation of the cost of a long-term asset to operations during its expected useful life |
| prepaid expenses | expense items acquired, recorded,and paid for in advance of their use |
| report form balance sheet | a balance sheet that lists the asset accounts first, followed by liabilities and owner's equity |
| salvage value | an estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life |
| straight-line depreciation | allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life |
| worksheet | a form used to gather all data needed at the end of an accounting period to prepare financial statements |
| closing entries | journal entries that transfer the results of operations (net income or net loss) to owner's equity and reduce the revenue, expense, and drawing account balances to zero |
| income summary account | a special owner's equity account that is used only in the closing process that summarize the result of operations |
| interpret | to understand and explain the meaning and importance of something (such as financial statements) |
| postclosing trial balance | a statement that is prepared to prove the equality of total debits and credits after the closing process is completed |
| accounts receivable ledger | a subsidiary ledger that contains credit customer accounts |
| charge-account sales | sales made through the use of open-account credit or one of various types of credit cards |
| contra revenue account | an account with a debit balance, which is contrary to the normal balance for a revenue account |
| control account | an account that links a subsidiary ledger since its balance summarizes the balances of the accounts in the subsidiary ledger |
| credit memorandum | a note verifying that a customer's account is being reduced by the amount of a sales return or sales allowance plus any sales tax that may have been involved |
| invoice | a customer billing for merchandise bought on credit |
| list price | an established retail price |
| manufacturing business | a business that sells goods that it has produced |
| merchandise inventory | the stock of goods a merchandising business keeps on hand |
| merchandising business | a business that sells goods purchased for resale |
| net price | the list price less all trade discounts |
| net sales | the difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account |
| open-account credit | a system that allows the sale of services or goods with the understanding that payment will be made at a later date |
| retail business | a business that sells directly to individual consumers |
| sales allowance | a reduction in the price originally charged to customers for goods or services |
| sales journal | a special journal used to record sales of merchandise on credit |
| sales return | a firm's acceptance of a return of goods from a customer |
| Sales Return and Allowances | a contra revenue account where sales returns and sales allowances are recorded; sales returns and allowances are subtracted from sales to determine net sales |
| schedule of accounts receivable | a listing of all balances of the accounts in the accounts receivable subsidiary ledger |
| service business | a business that sells services |
| special journal | a journal used to record only one type of transaction |
| subsidiary ledger | a ledger dedicated to accounts of a single type and showing details to support a general ledger account |
| trade discount | a reduction from list price |
| wholesale business | a business manufactures or distributes goods to retail businesses or large consumers such as hotels and hospitals |
| accounts payable ledger | a subsidiary ledger that contains a separate account for each creditor |
| cash discount | a discount offered by suppliers for payment received within a specified period of time |
| cost of goods sold | the actual cost to the business of the merchandise sold to the customers |
| Freight In account | an account showing transportation charges for items purchased |
| purchase allowance | a price reduction from the amount originally billed |
| purchase invoice | a bill received for goods purchased |
| purchase order | an order to the supplier of goods specifying items needed, quantity, price, and credit terms |
| purchase requisition | a list sent to the purchasing department showing the items to be ordered |
| purchase return | return of unsatisfactory goods |
| Purchases account | an account used to record cost of goods bought for resale during a period |
| purchases discount | a cash discount offered to the customer for payment within a specified period |
| purchases journal | a special journal used to record the purchase of goods on credit |
| receiving report | a form showing quantity and condition of goods received |
| sales discount | a cash discount offered by the supplier for payment within a specified period |
| sales invoice | a supplier's billing document |
| schedule of accounts payable | a list of all balances owed to creditors |
| Transportation In account | see Freight In account |
| bank reconciliation statement | a statement that accounts for all differences between the balance on the bank statement and the book balance of cash |
| blank endorsement | a signature of the payee written on the back of the check that transfers ownership of the check without specifying to whom or for what purpose |
| bonding | the process by which employees are investigated by an insurance company that will insure business against losses through employee theft or mishandling of funds |
| canceled check | a check paid by the bank on which it was drawn |
| cash | in accounting, currency, coins, checks, money orders, and funds on deposit in a bank |
| cash payment journal | a special journal used to record transactions involving the payment of cash |
| cash receipts journal | a special journal used to record and post transactions involving the receipt of cash |
| cash register proof | a verification that the amount of currency and coins in a cash register agrees with the amount shown on the cash register audit tape |
| Cash Short or Over account | an account used to record any discrepancies between the amount of currency and coins in the cash register and the amount shown on the audit tape |
| check | a written order signed by an authorized person instructing a bank to pay a specific sum of money to a designated person or business |
| credit memorandum | a form that explains any addition other than a deposit, to a checking account |
| debit memorandum | a form that explains any deduction, other than a check, from a checking account |
| deposit in transit | a deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement |
| deposit slip | a form prepared to record the deposit of cash or checks to a bank account |
| dishonored (NSF) check | a check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check |
| drawee | the bank on which a check is written |
| drawer | the person or firm issuing a check |
| electronic funds transfer (EFT) | an electronic transfer of money from one account to another |
| endorsement | a written authorization that transfers ownership of a check |
| full endorsement | a signature transferring a check to a specific person, firm, or bank |
| negotiable | a financial instrument whose ownership can be transferred to another person or business |
| outstanding checks | checks that have been recorded in the cash payments journal but have not yet been paid by the bank |
| payee | the person or firm to whom a check is payable |
| petty cash analysis sheet | a form used to record transactions involving petty cash |
| petty cash fund | a special-purpose fund used to handle payments involving small amounts of money |
| petty cash voucher | a form used to record the payments made from a petty cash fund |
| postdated check | a check dated some time in the future |
| promissory note | a written promise to pay a specified amount of money on a specific date |
| restrictive endorsement | a signature that transfers a check to a specific party for a stated purpose |
| service charge | a fee charged by a bank to cover the costs of maintaining accounts and providing services |
| statement of account | a form sent to a firm's customers showing transactions during the month and the balance owed |
| commission basis | a method of paying employees according to a percentage of net sales |
| compensation record | see individual earnings record |
| employee | a person who is hired by and works under the control and direction of the employer |
| Employee's Withholding Allowance Certificate (Form W-4) | a form used to claim exemption (withholding) allowances |
| exempt employees | salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour Law |
| federal unemployment taxes | taxes levied by the federal government against employers to benefit unemployed workers |
| hourly rate basis | a method of paying employees according to a stated rate per hour |
| independent contractor | one who is paid by a company to carry out a specific task or job but is not under the direct supervision or control of the company |
| individual earnings record | an employee record that contains information needed to compute earning and complete tax reports |
| Medicare tax | a tax levied on employees and employers to provide medical care for the employee and employee's spouse after each has reached age 65 |
| payroll register | a record of payroll information for each employee for the pay period |
| piece-rate basis | a method of paying employees according to the number of units produced |
| salary basis | a method of paying employees according to an agreed-upon amount for each week or month |
| Social Security Act | a federal act providing certain benefits for employees and their families; officially the Federal Insurance Contributions Act |
| social security (FICA) tax | a tax imposed by the Federal Insurance Act and collected on employee earnings to provide retirement and disability benefits |
| state unemployment taxes | taxes levied by a state government against employers to benefit unemployed workers |
| tax-exempt wages | earnings in excess of the base amount set by the Social Security Act |
| time and a half | rate of pay for an employee's work in excess of 40 hours a week |
| wage-bracket table method | a simple method to determine the amount of federal income tax to be withheld using a table provided by the government |
| workers' compensation insurance | insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of the employment |
| Employer's Annual Federal Unemployment Tax Return, Form 940 | preprinted government form used by the employer to report unemployment taxes for the calendar year |
| Employer's Quarterly Federal Tax Return, Form 941 | preprinted government form used by the employer to report payroll tax information relating to social security, Medicare, and employee income tax withholding to the IRS |
| experience rating system | a system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate |
| merit rating system | see experience rating system |
| Transmittal of Wage and Tax Statements, Form W-3 | preprinted government form submitted with Form W-2 to the Social Security Administration |
| unemployment insurance program | a program that provides unemployment compensation through a tax levied on employers |
| Wage and Tax Statement, Form W-2 | preprinted government form that contains information about an employee's earnings and tax withholdings for the year |
| withholding statement | see Wage and Tax Statement, Form W-2 |
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