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