Accounting Terms Glossary

Accounts Payable: Accounts of money you owe. A liability that is usually created when you've made a purchase on credit.

Accounts Receivable: Accounts of money owed to you for the sale of goods or services.

Accrual basis: A method of accounting where transactions are recorded as they occur regardless of when payment for that transaction is made or received

Accrued Assets: Assets from revenues earned but not yet received.

Accrued Expenses: A liability incurred during the accounting period for which payment has not been made.

Accrued Income: Income earned during an accounting period but not received/recorded by the end of the period.

Aging: The grouping of like transactions by date. Example - sorting invoices by due date.

Adjusting Entries: Special accounting entries that are made when you close the books at the end of an accounting period to bring the ledger up to date.

Asset: Items that a business or individual owns or are owed.

Audit: The scrutinizing of accounting records and supporting documents for accuracy and completeness.

Audit trail: The information within the accounting system that reveals the effects of a transaction.

Bad Debt: An account or receivable that has been deemed unrecoverable and written-off.

Balance Sheet: A statement listing the total assets and liabilities; indicating the net worth of the company for the given time period.

Capital: The right to assets of the owner of a business..

Cash basis: An accounting method where transactions are recorded when the actual change of payment occurs, regardless of when the goods or services are delivered.

Certified Financial Statements: Financial statements that have been audited and certified by a CPA.

Chart of accounts: A numerical listing of a business’s accounts.

Closing Entries: Journal entries made at the end of the period to return the balance in all accounts to zero and ready the account for the next reporting period..

Credit: An entry on the right side of an account - decreases assets or increases liabilities.

Debit: An entry on the left side of an account - increases assets or decreases liabilities.

Depreciation: The allocation of the cost of a tangible, long-term asset over its useful life.

Expenses: The daily costs incurred in running a business.

Fiscal: A 12 month accounting period. Not necessarily a calendar year.

Form 941: The IRS form filed quarterly to report income tax, FICA, and Medicare withholdings.

Form 1099: An IRS form sent to certain vendors whom you have paid more than $600 during the year.

General Ledger: The master record of all the balance sheet and income statement account balances.

Gross profit: The amount of net sales minus the amount of cost of sales

Income statement: A statement that summarizes revenues and expenses.

Invoice: A form, sent from the seller to the buyer, listing the items bought, price, terms etc..

Journal: A chronological record of transactions, also known as the book of original entry.

Ledger: A book containing accounts to which debits and credits are posted from books of original entry.

Liability: A debt or obligation.

Net sales: The amount left when returns, discounts, and allowances are deducted from sales revenue.

Operating Expenses: The expenses that are incurred from the daily operation of the business.

Owners' equity: The owners' right to the assets of an entity.

Prepaid Expenses: Amounts that are paid in advance for product is not used up during the accounting period.

Post: The process of transferring amounts from a journal to the appropriate ledger accounts.

Purchase order: Written instructions to a vendor to ship and bill for the listed items.

Reversing Entry: An entry made to reverse a prior entry..

Trial Balance: A work sheet showing the balances in each account; used to prove the equality of debits and credits.