Accounting terms A-Z
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Commonly used accounting terms
Accounting - process of identifying, measuring, and reporting financial information of an entity
Accounting Equation - assets = liabilities + equity
Accounts Payable - money owed to creditors, vendors, etc.
Accounts Receivable - money owed to a business, i.e.: credit sales
Accrual Accounting - a method in which income is recorded when it is earned and expenses are recorded when they are incurred
Asset - property with a cash value that is owned by a business or individual
Balance Sheet - summary of a company's financial status, including assets, liabilities, and equity
Bookkeeping - recording financial information
Cash-Basis Accounting - a method in which income and expenses are recorded when they are paid.
Chart of Accounts - a listing of a company's accounts and their corresponding numbers
Cost Accounting - a type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions
Credit - an account entry with a negative value for assets, and positive value for liabilities and equity.
Debit - an account entry with a positive value for assets, and negative value for liabilities and equity.
Depreciation - recognizing the decrease in the value of an asset due to age and use
Double-Entry Bookkeeping - system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits)
Equity - money owed to the owner or owners of a company, also known as "owner's equity"
Financial Accounting - accounting focused on reporting an entity's activities to an external party; ie: shareholders
Financial Statement - a record containing the balance sheet and the income statement
Fixed Asset - long-term tangible property; building, land, computers, etc.
General Ledger - a record of all financial transactions within an entity
Income Statement - a summary of income and expenses
Job Costing - system of tracking costs associated with a job or project (labor, equipment, etc) and comparing with forecasted costs
Journal - a record where transactions are recorded, also known as an "account"
Liability - money owed to creditors, vendors, etc
Liquid Asset - cash or other property that can be easily converted to cash
Loan - money borrowed from a lender and usually repaid with interest
Net Income - money remaining after all expenses and taxes have been paid
Non-operating Income - income generated from non-recurring transactions; ie: sale of an old building
Note - a written agreement to repay borrowed money; sometimes used in place of "loan"
Operating Income - income generated from regular business operations
Payroll - a list of employees and their wages
Profit - see "net income"
Profit/Loss Statement - see "income statement"
Revenue - total income before expenses.
Single-Entry Bookkeeping - system of accounting in which transactions are entered into one account
The fundamentals of accounting
Accounting 101 for small business: http://www.smallbizu.org/a101/
Basics of accounting: http://www.businesstown.com/accounting/basic.asp
Accounting basics: http://www.accountingcoach.com/online-accounting-course/60Xpg01.html
What is the basic accounting equation?
Accounting is built upon the fundamental accounting equation:
Assets = Liabilities + Owner's Equity
This equation must remain in balance and for that reason our modern accounting system is called a dual-entry system. This means that every transaction that is recorded in accounting records must have at least two entries; if it only has one entry the equation would necessarily be unbalanced.
The equation’s three parts are explained as follows:
- Assets = what the business has or owns (equipment, supplies, cash, accounts receivable)
- Liabilities = what the business owes outsiders (bank loan, accounts payable)
- Owner’s Equity = what the owner owns (investment and business profit)
What is a General Ledger?
The general ledger, sometimes known as the nominal ledger, is the main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses.
The general ledger is a collection of the group of accounts that supports the items shown in the major financial statements. It is built up by posting transactions recorded in the sales daybook, purchases daybook, cash book and general journals daybook. The general ledger can be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger.What is a BALANCE SHEET?
Balance sheet is a picture of a company’s financial condition at a single point in time. The information it gives is divided into details about its asset and liabilities.
What is Asset?
An asset is everything that a company owns and that has the power to earn money for a business. Assets are divided into: Current assets: cash, securities, stock (materials, unfinished and finished goods), accounts receivable or debtors (money from sales the company has not yet received). A company’s fixed assets are equipment, machinery, buildings or land it owns. Intangible assets are not physical in nature and are therefore difficult to value. They involve things such as goodwill: a company’s good reputation with existing customers, patents, licenses etc. All fixed assets (except land) are shown on the balance sheet at original cost minus any depreciation. Depreciation is accounting practice which takes into account the fact that some assets, such as machinery or equipment, lose value over time because they wear out and become obsolete. The value of the equipment is written down each year and written off completely at the end. The value of the asset at any time is its book value. This may or may not be its market value, i.e. the amount that it could be sold for at any time.
What is Liability?
Everything that a business owes (company’s debts to suppliers, lenders, the tax authorities, etc) are its LIABILITIES.
Current or short-term liabilities are debts that have to be paid within a year:
- accounts payable or creditors is the amount a company owes to suppliers
- overdrafts
- interest payments
- tax payable.
Long-term liabilities are debts that have to be paid in more than a year from the date of the balance sheet,
for example bank loans or bonds.
SHAREHOLDER’S EQUITY
What is the shareholder's equity?
Companies which have their shares listed on the stock exchange need to include one more item in their balance
sheet: shareholder’s equity. It is a net worth of the business after all of its obligations have been met.
It includes the capital they have invested (share capital or equity) and the profits that have not been
paid out in dividends to shareholders, but have been kept by the company as retained earnings.
What is Value added tax?
Value added tax is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax. Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state.
What are the commonly used accounting terms in English and in Croatian?
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