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194 terms




Depreciation method that allows large depreciation deductions in the

early years of an asset's life and smaller ones later.


One specific ledger item, such as cash, that will be shown on a

financial statement.

Accounting cycle

Actions taken at the end of an accounting period to reconcile the

business transactions of that period.

Accounting equation

Assets = Liabilities + Equity

Accounting period

Period of time for which the company is reporting financial

information. Typical accounting periods would be monthly, yearly, and

Accounts Payable

A subsidiary ledger with accounts for each creditor of the business. It

is used to record purchases, payments, and credits.

Accounts Receivable

A subsidiary ledger used to record the activities of each credit account

for a business.

Accounts payable

A liability that results from buying goods and services on credit during
the normal operations of a business. In many business transactions,
accounts payable are due within 30 days of the transaction date.

Accrual basis of

Accounting system that requires revenue and expense to be reported

when they occur.


Revenue or expense amounts that have been accumulating for the

business but have not been recorded in the journal(s).

Accrued expense

An expense that has not yet been paid, but the company has received
the benefit.

Adjusted bank

The amount that should be in the bank after a bank reconciliation.

Adjusted book

The checkbook balance after completing a bank reconciliation.

Adjusted trial

The trial balance after the adjusting entries have been recorded.

Adjusting entries

Special entries which are required to bring accounts to the correct

balance at the end of an accounting period.

Aging of Accounts
Receivable method

A method of estimating bad debts by calculating the length of time an

account is past due and applying a business defined percentage to the
amount that will be uncollectable.

Allowance for
Doubtful Accounts

A special account created to hold the estimated uncollectable account


Allowance method

A method of estimating the amount of uncollectable accounts

receivable accounts and posting that amount to the general journal.


Method used to record the expensing of intangible assets.


Resources owned or controlled by a company.


Process of checking each entry in a set of books to make sure it agrees

with the original paperwork (invoices and receipts).

Bad debts expense

A special account created to record the exact amount of uncollectable

accounts for a business.

Balance per bank

The balance of a business's bank account, as reported on a bank


Balance per book

The balance of a business's checkbook, as recorded in the checkbook or

check register.

Balance sheet

Financial statement that reports a company's financial status on a

specific date. It lists its assets, liabilities and equity. It uses values from
the income statement and statement of owner's equity.


Adding or subtracting the previous balance to the current balance.

Bank reconciliation

The process of comparing and correcting the bank statement data

against the business's checkbook data.

Bank statement

A monthly document created by a business's bank detailing the

activities on the business's bank accounts.


Item that improves (betters) a plant asset.

Bonds payable

Money that is due to a bond holder but has not yet been paid.

Book value

The value of an asset when you take the original cost less any

accumulated depreciation.
Break even

When a company's revenues equal its expenses.


A business asset, which can include a business's currency or coin,

checks, cashiers' checks, or money orders payable to the business,
along with money held in the business's bank accounts.

Cash basis of

Accounting system that records accounting transactions based on when

the cash is received.

Cash disbursements

A journal used to record all payments of cash by the company.

Cash equivalents

Business investments that can be converted quickly to cash.

Cash payments

A special journal used to record cash disbursements by the business.

Cash receipts journal

A special journal used to record cash received by the company.

Chart of accounts

A list of all accounts used by the company.


A written authorization for a bank to release a specific amount of a

business's cash funds to a creditor.


A special type of balance sheet that allows for additional sub-headings.


Setting temporary capital accounts to zero.


The process of bringing an account balance to zero. This is usually

only done for temporary accounts.

Closing entries

Entries which are used to close out the temporary accounts.

Compound entry

A journal entry with more than one debit or credit.


An accounting concept that states the revenue is only recorded when

fully realized.

Contingent liability

A potential liability that could arise from a past business activity.


An account which is an offset to another account.

Control account

General ledger account for which a subsidiary ledger is kept.


Exclusive right to distribute a work of literature, music, art, or other

items. A copyright has a life of 70 years beyond the creator's life span.

A state-chartered legal entity, in which the assets and liabilities remain

separate from its owners.


An entry that is recorded in the credit (right) column of an account.

Credit memorandum

Issued by a supplier to a receiving business as notification that a

specific amount has been subtracted from its amount due. This is
usually issued for purchase returns or purchase allowances.

Credit sales

Sales made by a business for which the customer agrees to pay at a

later date.


Person or business granting credit to another person.

Current assets

Assets which will be used up or converted into cash within a short

period of time, typically a year.

Current liabilities

Debts which will become due within a short period of time, typically a

Current ratio

A calculation used to determine a company's liquidity. The formula is

current assets divided by current liabilities.


An entry that is recorded in the debit (left) column of an account.


Person or business borrowing money from another person.


Revenue or expense amounts recorded in the journal(s) for which the

business has not actually received or provided payment yet.

Deferred taxes

A liability that results from the temporary difference in taxes due based
on the company's accounting records and tax return information.


Method to record the using, or consumption, of natural resources


The amount of cash placed in a bank by a business.

Deposits in transit

Deposits made by the business after the bank statement is issued.


The expensing of an asset's useful value over the time period it is being
used. A loss of value over time. Many assets depreciate as they get

Direct Write-Off

A method of removing uncollectable amounts directly from the

Accounts Receivable account.


A system whereby a debit entry is always entered with a corresponding


credit entry. This is also referred as double-entry bookkeeping.


An account which keeps track of owner withdrawals from the



Electronic Federal Tax Payment System. This system allows taxpayers

to remit taxes electronically.

Enterprise Resource
Planning (ERP)

Software that integrates all of the company's operations with the

accounting system.


The company owner's claim on a company's assets. Also known as

owner's equity or capital.


A happening that has a measurable effect on the accounting equation


Used to describe an employee who is not protected by the Fair Labor

Standards Act of 1938.


The outflow of assets or the incursion of liabilities.

External transactions

Exchanges between business entities that result in a change to the

accounting equation.

Extraordinary repair

Repair that extends the useful life of a plant asset.


Financial Accounting Standards Board


Federal Insurance Contributions Act. Taxes collected through this act

fund the social security and Medicare programs.


Federal Unemployment Tax Act. This act requires the payment of a

federal tax to provide benefits to unemployed workers.

Fair Labor
Standards Act

A federal law that establishes a minimum hourly wage and requires

overtime to be paid when more than 40 hours are worked in a week.
This law applies to businesses engaged in interstate commerce either
directly or indirectly.

Financial accounting

Communicates financial information to external users.

Financial statements

Specific documents created by accountants to report the financial

position of a business.

First-in first-out

The method of inventory costing in which the cost of the first items
purchased is assigned to the inventory first.

Fixed asset

The assets a company uses in operating its business. It is a synonym for

fixed assets and property, plant, and equipment.

Franchise license

License to operate a franchise, granted by the owner of the franchise.

Freight In account

A special temporary expense account used to track the charges for the
delivery of merchandise purchased for resale. This account is included
in the Cost of Goods Sold account.


Generally accepted accounting principles

General journal

The journal used to record all business transactions for a business.

financial statements

Reports with information for a broad spectrum of external users.

Includes balance sheets, cash-flow statements, income statements, and
statements of owner's equity.


Additional value a business has beyond the difference between its

assets and liabilities.

Gross pay

Employee's pay before any deductions.

Gross profit method

The method of valuing inventory that uses the ratio of cost of goods
sold to net sales.


International Accounting Standards Board


Asset is no longer able to meet the company's needs due to growth of

the business.

Income statement

Financial statement showing the revenues and expenses of a company's

business operations as either net income, net loss, or break even.

Income summary

A special account used to hold values during the closing process.

Indefinite useful life

Asset that has an unlimited life.

Installment payments

A form of credit offered by larger businesses to help customers

purchase large ticket items. This form of credit usually includes

Intangible asset

Asset that is not physically used in the operations of the company, but
that gives the owner certain benefits.

Internal control

A system used by a business to protect its assets and encourage

efficiency and accuracy.

Internal controls

Policies that allow managers to control and monitor business activities

such as company policies, accounting procedures, and physical

safeguards to protect assets.

Internal transactions

Exchanges within a business entity that might or might not affect the
accounting equation.


Goods kept on hand by a business for resale.


A record of all transactions occurring in the business. A file used to

record business transactions in chronological order.


The process of recording a transaction in a journal.

Last-in first-out

The method of inventory costing in which the cost of the last items
purchased is assigned to the inventory first.


Improvement made to leased property


A special file maintained by all businesses into which transactions for a

period of time are entered. The values for ledger entries are provided
by the journal(s).


Debts or obligations a company owes to its creditors.

Line of credit

An offer of credit from a business to a customer. The customer can

make purchases and then make one lump payment at the end of the


Describes how easily something can be converted to cash.

Long-term liability

An amount that is due on a date beyond the next year or the company's
normal operating cycle.

Lookback period

The four quarter period ending on June 30th of the preceding year.

Lower of cost or
market (LCM)

The accounting rule that requires a business to provide a nonoverstated value of its inventory when reporting.


Communicates financial information to internal users (management).

Market price

The price for a business to purchase an inventory item.


The difference in the cost of an item from purchase price to sale price.

Matching taxes

Taxes that the employer pays to match the amount of tax withheld from
the employee.


A device used to transmit data through telephone lines.

Natural resource

Asset such as oil, gas, and timber, that is consumed by a business.

Net income

When a company's revenues exceed its expenses.

Net loss

When a company's expenses exceed its revenues.

Net pay

Employee's pay after all deductions have been take out.

Non-current assets

Assets that are not expected to be used up in the current operating

cycle (approximately one year) of a business.


Debts which are not due in the current operating cycle (approximately
one year) of a business.

Note payable

written promise to pay a certain amount of money on a specific date.

Also referred to as a promissory note.


Asset is no longer efficient in producing a product or service due to

technological innovations.

Ordinary repair

Repair needed to keep assets in normal operating condition. This repair

is treated as an expense at the time it is incurred.

Outstanding checks

Checks written by the business after the bank statement is issued.

Owner's investments

Assets provided by the owner for a company.

Owner's withdrawals

Assets removed from a company by the owner for personal use.


An association of two or more persons who carry on as co-owners of a

business for profit.


Exclusive right to produce and distribute items. Patents have a life of

20 years.

Percent of Accounts
Receivable method

A method of estimating bad debts by calculating the total accounts

receivable accounts by a business-defined percentage.

Percent of Sales

A method of estimating bad debts by calculating the total credit sales

by a business-defined percentage.

Periodic inventory

A system of inventory tracking in which counts of inventory are

completed only on set occasions.

Permanent accounts

Accounts that are not set to zero during the closing process. Assets,
liabilities, and capital accounts are permanent accounts.

Perpetual inventory

A system of inventory tracking in which technology allows for the

inventory levels to be monitored at all times.

Petty cash

A small fund of cash set up within a business to pay for unexpected


Petty cash analysis


A worksheet used to enter information regarding the transactions of the

petty cash fund.

Physical inventory

The process of counting all of the items in inventory.

Plant assets

The assets a company uses in operating its business. It is a synonym for

fixed assets and property+F99, plant, and equipment.

Post-closing trial

A trial balance after the closing process has been completed.


The process of recording the journal information into the individual


Posting reference

A reference that tells you where an entry originated and where it was

Prepaid expense

An expense that has been paid in advance of when the item will
actually be used.

Property, plant, and


The assets a company uses in operating its business. It is a synonym for

fixed assets and plant assets.


Verifying the accuracy of the subsidiary journal.

Purchase Allowance

A deduction in the amount owed by a purchaser to a supplier due to

defective or incorrect merchandise.

Purchase Return

Merchandise returned to a supplier who then provides a credit

memorandum for the entire purchase.

Purchase Returns
and Allowances

An account used to record all returns and allowances received by the

business. It can also be used to track the history of supplier problems.

Purchase invoice

A list of items sent to a business and the amount owed by that business.
This is a bill.

Purchase order

A written order to the suppliers of a business for a set quantity of

specific products at a set price and at set credit terms. This must be
signed by someone with authority to purchase for the business.

Purchase requisition

A list of merchandise a business needs to purchase to refill inventory


Purchases account

A special temporary expense account used to track merchandise

purchased for resale by the business. It is included in the Cost of Goods
Sold account.

Purchases journal

A special journal used to record only credit purchases of merchandise

for resale.

Realized gain or loss

Gain or loss that is recorded in the general journal and is shown on the
income statement.

Receiving report

A report made by a business when a shipment is received from a

supplier. It lists the products received and their condition on arrival.

Retail method

The method of valuing inventory that uses the ratio of cost to retail


The influx of assets from the sale of goods or services, or from the use
of company money or property.


Securities and Exchange Commission


State Unemployment Tax Act. This act requires payment of a state tax
to provide benefits to unemployed workers.

Sales Returns and

Allowances account

A special account created to track the amount of returns and

allowances for a business for a period.

Sales allowance

When a business accepts an item back from a customer or seeks to

offset a problem with an item by crediting the customer's account with
a partial amount of the purchase price.

Sales journal

A journal used to record sales on account of inventory.

Sales return

When a business accepts an item back from a customer and issues a

full credit to the customer's account.

Salvage value

The estimated value of an asset when a company is finished with it.

Schedule of Accounts

A list of all of the accounts in the Accounts Payable ledger and their
current balances.

Sole proprietorship

A business owned and operated by one person.

Source document

The business document that supports a journal entry.

Special journal

A journal that is designed to group together transactions of a similar


Specific identification

The method of inventory costing in which each item is tracked and

recorded according to its purchase and sale price.

Statement of owner's
equity (SOE)

Financial statement showing changes in the owner's equity based on

net income or net loss and owner investments and withdrawals.

Straight line

An often used depreciation method whereby an asset's value is written

off in equal amounts over the life of the asset.

Subsidiary ledgers

Ledgers which contain the details for a general ledger account.

Common subsidiary ledgers are accounts payable and accounts


A tool used to learn the double-entry accounting system. It has the

appearance of the letter T. The left side is for debit entries and the right
side is for credit entries. The account title appears at the top of the T.

Taxes payable

Taxes that are due but have not yet been paid.

Temporary accounts

Accounts that will have a zero balance when closing is complete.

Revenue, expense, drawing, and income summary are temporary


Distinct identifying symbols or names of a company.


Any event that affects the accounting equation. A business activity that
can be recorded in a journal.

Transaction analysis

Keeps the accounting equation balanced

Trial balance

A complete list of all business accounts and their current balances.

Unearned revenue

Revenue for which a company has been paid, but the goods or services
have not yet been delivered to the customer.

Unrealized gain or

Gain or loss that is not recorded in the general journal or shown on the
income statement. Some gains are not immediately recognized so as to
not overstate earnings in the current period.

Useful life

The period of time an asset can be productively used.

Voucher system

A system that requires all payments from the business to be made only
with proper authorization.


Employee's Withholding Allowance Certificate. Used to determine the

amount of federal income tax withheld from an employee's paycheck.

Wage base limit

A limit beyond which wages will not be taxed.


A commonly used technique for computing employee federal income

tax deductions.

Wages payable

Wages that have been earned by the employees but are not yet paid to


A promise from a seller to correct or replace a product or service that is

not up to performance expectations.

Weighted average

The method of inventory costing in which the average cost of the items
on hand is assigned to the inventory.


A tool used by accountants to assist in financial statement preparation.

It has columns for the beginning trial balance, adjustments, and the
adjusted trial balance.