Glossary of Terms

 

Accounting Glossary of Terms…

Welcome to the TMRG accounting glossary of terms.

Like law, accountancy has a minefield of jargon that can get confusing very quickly! If you’re here because you need a brush up on some terms or just starting out your journey into accountancy – use this fantastic free resource for further reading on pretty much any financial term you see here. https://www.investopedia.com/

Accounting Equation

The accounting equation is the proposition that a company’s assets (valuable thing or person) must be equal to the sum of its liabilities (debts) and equity (Value after liabilities). The Accounting Equation is Assets = Liabilities + Equity.

Accounting

Accounting keeps track of the financial records of a business. The accounting process includes summarizing, analysing and reporting these transactions to oversight agencies, regulators and tax collection entities.

Accounts Payable (AP)

Accounts Payable are liabilities of a business and represent money owed to others.

Accounts Receivable (AR)

Assets of a business and represent money owed to a business by others.

Accrual Accounting

Records financial transactions when they occur rather than when cash changes hands. The method follows the matching principle, which says that revenues and expenses should be recognized in the same period.

Accruals

This is revenues earned or expenses incurred which impact a company’s net income, although cash transactions do not necessarily have to be involved.

Amortization

Amortization is an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time.

Asset

Items of value that are owned.

Audit Trail

Allow financial transactions to be traced to their source.

Auditors

Examine financial accounts and records to evaluate their accuracy and the financial condition of the entity.

Balance Sheet

A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time.

Bookkeeping

Bookkeeping is the process of keeping track of every financial transaction made by a business firm from the opening of the firm to the closing of the firm.

Budgeting

A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis.

Capital Stock

Capital stock is the amount of common and preferred shares that a company is authorized to issue, according to its corporate charter.

Capital Surplus

Capital surplus, or share premium, most commonly refers to the surplus resulting after common stock is sold for more than its par value.

Capitalized Cost

With capitalized costs, the monetary value isn’t leaving the company with the purchase of an item, as it is retained in the form of a fixed or intangible asset.

Cash Flow

Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business.

Cash-Basis Accounting

Cash basis refers to a major accounting method that recognizes revenues and expenses at the time cash is received or paid out.

Chart of Accounts

An organization’s list of accounts used to record financial transactions.

Closing the Books/Year End Closing

Closing the Books occurs at the end of the annual period and allows for a start with a clean book at the beginning of the next year.

Cost Accounting

Is a form of managerial accounting that aims to capture a company’s total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense.

Credit

A credit is an outstanding amount that is due to a creditor by a debtor (borrower)

Debit

A debit is an accounting entry that results in either an increase in assets or a decrease in liabilities on a company’s balance sheet.

Departmental Accounting

Shows individual departments’ income, expenses and net profit.

Depreciation

The decrease in an asset’s value over time.

Dividends

A distribution of a names percentage of profits returned to the shareholders of a corporation.

Double-Entry Bookkeeping

Double-entry bookkeeping, in accounting, is a system of book-keeping where every entry to an account requires a corresponding and opposite entry to a different account. Left side being debit and the right being credit.

Equity

Represents the value of company ownership.

Financial Accounting

Prepares financial reporting primarily for external users.

Financial Statement

Financial statements are written records that convey the business activities and the financial performance of a company.

Fixed Asset

A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses in its operations to generate income. e.g. Equipment and buildings.

General Ledger (GL)

A set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports.

Goodwill

Goodwill is an intangible asset that accounts for the excess purchase price of another company.

Income Statement

An income statement is a financial statement that shows you the company’s income and expenditures.

Inventory Valuation

The cost associated with an entity’s inventory at the end of a reporting period.

Inventory

Inventory consists of raw materials, work in progress, and finished goods.

Invoice

An Invoice shows the amount of money owed for goods or services received.

In The Black

Refers to a profit on the books; opposite of “in the red.” In the days of handwritten accounting, ledger entries written in black meant there was a profit, but those in red meant there was a loss.

In The Red

Refers to a loss on the books; opposite of “in the black.”

Job Costing

Job costing involves the accumulation of the costs of materials, labour, and overhead for a specific job.

Journal

The first place financial transactions are entered. They are entered chronologically.

Liability

A liability is something a person or company owes, usually a sum of money.

Liquid Asset

Consist of cash and other assets that can be easily converted to cash.

Loan

A monetary advance from a lender to a borrower.

Master Account

A Master Account is the record of financial rights and obligations of an Account Holder and the Administrative Reserve Bank

Net Income

Net Income equals revenue minus expenses, taxes, depreciation and interest.

Non-Cash Expense

Does not require cash outlay, e.g. – depreciation.

Non-operating Income

Income not generated from the business. An example might be the sale of unused equipment.

Note

A Note is a document promising to repay a debt.

Operating Income

Determined by subtracting operating expenses from operating revenue. Interest and income tax expenses are not included.

Other Income

Non-recurring income, e.g. – interest.

Payroll

An account listing employee and any wages and salaries due.

Posting

Refers to the recording of ledger entries.

Profit

Profit is revenue minus expenses. Reductions for taxes, interest, and depreciation are included.

Profit/Loss Statement

A financial report issued by a company on a regular basis that discloses earnings, expenses and net profit for a given time period.

Reconciliation

The act of proving an account balances. i.e. debits and credits equal. An example of reconciling an account is to verify that the bank statement matches the checkbook balance, making allowances for outstanding checks and deposits.

Retained Earnings

Money left after all the bills have been paid and all the shareholder dividends have been distributed; often reinvested in the business.

Revenue

The actual amount of money a company brings in during a particular time period; gross income.

Shareholder Equity

Shareholders’ equity (or business net worth) shows how much the owners of a company have invested in the business—either by investing money in it or by retaining earnings over time

Single-Entry Bookkeeping

An accounting process that uses one entry, instead of debit and credit entries. Small businesses using cash accounting system benefit from the ease of this system, which is much like keeping a checkbook.

Statement of Account

A statement of accounts is a document that reflects all transactions that took place between you and a particular customer for a given period of time.

Subsidiary Accounts

A subsidiary account is an account that is kept within a subsidiary ledger, which in turn summarizes into a control account in the general ledger.

Supplies

Consumable materials used in business and replenished as needed. Supplies are not inventory for sale; rather they are used to carry out business activities.

Treasury Stock

Shares a company retains or buys back once offered to the public for purchase.

Write-down/Write-off

The difference between a write-off and a write-down is just a matter of degree. A write-down is performed in accounting to reduce the value of an asset to offset a loss or expense. A write-down becomes a write-off if the entire balance of the asset is eliminated and removed from the books altogether.

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