Glossary: Accounting Terminology | Principles and Practice of Accounting - CA Foundation PDF Download

Accounting is a very necessary subject in the field of commerce. It is very hard to imagine a business without accounting. Accounting terminology gives the complete description of the terms that are used and it is important to know the accounting terminology before delving into the subject.

Accounting Terminology

It is important to learn about Accounting terminologies before starting with the study of accounting. Besides that, the knowledge about common terminologies of accounting help to easily understand accounting in detail. Some of them are as follows.

Account

This is the first term in the glossary of accounting terminology.  An Account keeps the records in a classified manner in the general ledger.

Account Balance

It is of two types: first a debit balance and second a credit balance. When the sum of debit entries is more than the sum of credits, it is a debit balance and if the sum of debit entries is less than the sum of credits, then it is a credit balance.

Accounting

Accounting is everything about the process that helps to record, summarize, analyze, and report data that concerns financial transactions. Besides that, it also takes care of the profits and loss issues in business.

Accounts Payable

These are the liabilities in a business or an organization that shows the money owed to others. For example, money spent on pending bills and taxes.

Accounts Receivable

This is an asset that represents the money owed by the other to the business and the organization. For example, money the debtors owe the organization or credit sales made by the organization.

Accrual Basis

This is an accounting method that performs many functions like recognizing the revenue when earned, rather than when collected, and expenses that are incurred rather than when they are paid. In other words, the Accrual basis records all the financial transfers when they occur, i.e. in the period in which they occur rather.

Asset

It is a very important term in accounting terminology. It is a cash convertible property that one owns. For example, land, buildings, cash in bank accounts are all assets. There are broadly two types of assets – current assets and fixed assets.

Audit

The audit is a formal examination and evaluation of an organization’s records to ensure quality assurance, check internal control, eliminate fraud, and check the effectiveness of the policies.

Balance Sheet

It is the summary report on a specific date of the assets, liabilities and net assets of the business.

Budget

Budget is the total requirement of assets in the whole coming year.

Credit

It represents the reduction of an asset or in other words, the expenditure made or added to a liability. Its entry is done on the right side of the balance sheet.

Debit

It represents the gain in the asset or the earnings made. The entry of debt is done on the left side of a double-entry accounting system.

Double-Entry Accounting

Double-entry accounting records financial transactions in which each transaction is entered into two or more accounts. Furthermore, it involves two-way, self-balancing posting. Total debits must equal total credits. Which means for every entry there is an equal and opposing effect.

Expense

An expense is funds paid by the organization or business. For example, paychecks to employees, reimbursements to employees, payments to vendors for goods or services.

FASB

FASB stands for Financial accounting standards board. It is an independent, private, nongovernmental authority that establishes the accounting principles in the United States.

Financial  Statements

Financial statements are a series of reports showing a summary view of the various financial activities of the business at a specific point in time. Also, each statement tells a different story about financial activity taking place in the organization. The three main aspects of financial statements are Profit and Loss A/c, Balance sheet, and Cash flow Statement.

Fiscal Year

A fiscal year is a period of 12 consecutive months chosen by an organization as its accounting period which may

or may not be a calendar year. The general fiscal year used in India is 1st April to 31st March.

Fixed Asset

A fixed asset is any real item with a useful life of more than one year and, i.e. it does not have liquidity. For example, the building of a company and the equipment required.

Fund Balance (Net Assets)

Fund balance represents the net assets of the company. To arrive at this number take total assets minus total liabilities.  Also, Any excess revenue over expenses or cumulative appreciation or depreciation on investments will become a net asset at the end of the fiscal year.

GAAP

GAAP is an abbreviation for Generally accepted accounting principles which includes conventions, rules. In addition, the procedures that are necessary to define accepted accounting practice at a particular time. Besides that, The highest levels of such principles are set by FASB.

General Ledger

The general ledger is the collection of all assets, liability, fund balance (net assets), revenue and expense accounts.

Income Statement

An Income statement is a summary report that shows revenues and expenses over a specific period of time, such as a month, quarter or fiscal year.

Journal Entry

A journal entry is a group of debit and credit transactions that are included in the general ledger. Consequently, All entries in the journal must result in zero so debits must be equal to credits.

Liability

Liability is what the business organization owes to others. For example-loans, taxes,  long-term debt from a bond issue, funds held by the college for a third party such as a student group.

Net Income (loss)

Net Income (loss) is the amount a department lost for a specific period of time. The arrival at this number takes total revenues minus total expenses.

Restricted Fund

A restricted fund is a fund established to account for assets whose income must be used for purposes established by donors or grantors.

Revenue

Revenue is the funds collected by the business, it can also be called income. For example, tuition, fees, etc.

Subsidiary Ledger

A subsidiary ledger is a group of accounts containing the detail of debit and credit entries. For instance, detailed information is contained in Accounts Payable.

Unrestricted Fund

An unrestricted fund is an accounting terminology term that is a fund having no restrictions as to use or purpose.