accounting terminology Related: Introduction to Accounting - Class 11 - Accountancy?

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accounting terminology Related: Introduction to Accounting - Class 11...

General Accounting Terminology

Accounts Payable: Money or other obligations owed to creditors for services and materials, a Liability on the Balance Sheet.

Accounts Receivable: Money or other obligations due for services rendered or items sold on terms, an Asset on the Balance Sheet.

Accrual Based Accounting: Represents a method of recording accounting transactions when they occur, whether or not cash has changed hands. The accounting software uses an Accrual based accounting system.

Accrued Liabilities: Represents expenses that are incurred prior to being paid. For example, salaries earned by your employees and paid in a subsequent month are accrued as a liability until they are paid.

Accrued Revenue: Represents revenue that is earned and recorded but not yet received in the form of cash.

Asset: The things a company owns, seen on the Balance Sheet and represented as 1-xxxx accounts in your Chart of Accounts.

Balance Sheet: The primary financial statement that shows detailed assets, liabilities and equity at a point in time.

Cash Based Accounting: Represents a method of recording accounting transactions most easily described as accounting for cash transactions. Entries do not affect your financial statements until cash changes hands. In this environment, you do not track receivables and payables. Cash received is recorded as income when received and expenses are recorded when paid.

Chart of Accounts: A list of categories or accounts where transactions are recorded.

Cost of Goods Sold (COGS): Represents the cost of items or services sold to customers. These costs are kept in the Inventory asset account (1-xxxx) until they are sold. Then they are passed over to the COGS (5-xxxx) account. Seen on the Profit and Loss and represented as 5-xxxx accounts in your Chart of Accounts.

Credit: When we are talking about credits in relation to double-entry accounting - we are talking about one half of a transaction (the other side being a debit). Credits and debits effect accounts in different ways depending on what type of account is being used. For more information please see this article.

Current Year Earnings: This account represents year to date earnings, not yet recorded into the Retained Earnings account.

Debit: When we are talking about debits in relation to double-entry accounting - we are talking about one half of a transaction (the other side being a credit). Credits and debits effect accounts in different ways depending on what type of account is being used. For more information please see this article.

Deferred Revenue: Represents income received, but not yet earned. This is typically a liability account.

Double Entry Accounting: The accounting products follow the convention of Double Entry Accounting. Every accounting transaction is comprised of debits that equal credits.

Equity (Capital): The owner's interest in the business, which is the total assets minus the total liabilities of a company, seen on the balance sheet and represented in as 3-xxxx accounts in your Chart of Accounts.

Expenses: Costs incurred in the business used to generate revenue, seen on the Profit and Loss report and represented in your Chart of Accounts as 6-xxxx accounts.

General Ledger: An accounting record where all of your accounts are maintained. In the accounting products, when you enter any transaction, the General Ledger accounts are automatically updated.

Gross Profit: Represents your revenue from sales of inventory or services, less Cost of Goods Sold, before overhead expenses.

Journals: Account ledgers where entries are recorded. The accounting products have General, Disbursements, Receipts, Sales, Purchases, and Purchases journals. Every transaction creates a corresponding set of debit and credit entries in a specific journal.

Liability: The things a company owes in cash or other resources, represented as 2-xxxx in your Chart of Accounts. These are claims against assets.

Net Profit/Loss: Total Income minus Total Expenses minus Total COst of Sales. The bottom line!

Operating Profit: Profit before Other Income is added and Other Expenses are subtracted.

Overhead Expenses: Represents the expenses of a business independent of how much revenue is generated. Can also be considered Fixed Costs, things like rent, salaries, and utilities.

Profit and Loss Statement (or Income Statement): The primary financial statement that shows detailed revenues and expenses for a period of time.

Prepaid Expenses: Represents expenses that are paid in advance of incurring them. For example, you might pay a year's worth of insurance and accrue 1/12 of it each month. This is typically an asset account.

Retained Earnings: Represents the cumulative net income or loss of a business since its inception. When you Start a New Year in the accounting products, the program automatically transfers your year-end (Current Year's Earnings) income or loss to this account. This is called the closing entry.

Start a New Year: The process in the accounting products that closes the "books" of a fiscal year, transfers your Current Years Earnings to Retained Earnings and prepares the accounts for a new fiscal year. All Income and Expense accounts are zeroed to start the new year.

Subsidiary Ledgers: Customer and vendor balances that equal the amount of the Accounts Receivable and Accounts Payable General Ledger accounts.

Trial Balance: A list of all your General Ledger accounts and their current balances.

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