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Accounting Terms

TermDefinition
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.
Created by: emuroff