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Accounting Terms
Term | Definition |
---|---|
asset | property or items of value owned by a business |
liability | amount owed to creditors |
profit | the amount earned above the amount of expense spent by a business |
loss | the amount of expense that is more than the amount earned by a business |
entrepreneur | a person who turns ideas for products or services into a real business |
service business | a business that provides a needed service for a fee |
merchandising business | a business that buys products and resells them |
manufacturing business | a business that buys raw materials and turns them into finished products |
sole proprietorship | a business owned and operated by one person |
partnership | a business owned and operated together by two or more people |
corporation | a business recognized by law to have a life of its own, owned by stockholders |
GAAP | the set of rules that all accountants use to record information and prepare reports |
financial accounting | a type of accounting that focuses on reporting information to external users, such as stockholders and investors |
management accounting | a type of accounting that focuses on reporting information to internal users, in order to help the business succeed |
business entity | the assumption that a business exists independently of the owner's personal finances |
accounting period | the period of time covered by an accounting report |
going concern | the assumption that a business is expected to keep operating forever |
property | anything of value that a business or person owns and therefore controls |
financial claim | legal right to an item |
creditor | a business or person who you owe money to |
equity | the value of the business |
accounts receivable | the amount of money owed to a business by its customers |
accounts payable | the amount of money that a business owes to its creditors |
on account | the purchase of an item on credit (to be paid later) |
debit | an entry on the left side of an account |
credit | an entry on the right side of an account |
revenue | money earned from the sale of goods and services |
expense | the cost of goods or services used to run a business |
withdrawal | the removal of cash or another asset from the business by the owner for personal use |
capital | money supplied by investors or owners for a business |
chart of accounts | a list of all accounts used by a business |
double entry system | a system that uses the debit and credit sides of an account to record transactions |
normal balance | the increase side of an account |
temporary account | account used only during the accounting period that do not transfer over (i.e. revenue, expense, and withdrawal accounts) |
permanent account | account that carries a balance over from one accounting period to the next (i.e. assets, liabilities, owner's capital accounts) |
source document | the original paper that shows that a transaction occurred |
fiscal year | an accounting period of twelve months; can start at any time |
calendar year | an accounting period of twelve months that starts Jan. 1 and ends Dec. 31 |
accrual basis | a type of accounting that records money as it is earned or spent, not necessarily when it actually goes in or out of the bank account |
cash basis | a type of accounting that records money when it actually goes in or out of a bank account |
P & L | income statement; a report of net income or net loss for a specific period |
balance sheet | a report of balances in the permanent accounts on a specific date |
ratio analysis | looking at the relationships between different amounts on financial statements |
return on sales | ratio looking at how much of each sales dollar is profit; net income divided by sales |
working capital | the amount of current assets that is more than the current liabilities |
liquidity | how easily an asset can be changed to cash |
current ratio | current assets divided by current liabilities |
quick ratio | total cash and receivables divided by current liabilities |
bill | (QB term) when you buy something (or use a service) but don’t pay yet |
pay bill | (QB term) paying (some or all of) the money you owe to a vendor |
check | (QB term) paying money right away without a bill |
invoice | (QB term) when a customer buys something from you but doesn’t pay yet |
receive payment | (QB term) when the customer makes a (full or partial) payment on the invoice you sent |
sales receipt | (QB term) when you receive money without an invoice from a customer |
bank deposit | (QB term) when you put money straight into the bank |
journal entry | (QB term) anything that cannot be done using the usual methods. for example, the owner giving the business a desk. |