Glossary of Bookkeeping and Accounting Terms

Bookkeeping and Accounting terminology can be confusing, particularly as many people use different terms to mean essentially the same thing. Here’s a pretty thorough glossary for your reference. Please feel free to contact us at www.profitlineusa.com, if we missed a term that’s important to you.


Account

An account is a record in the general ledger used to collect and store information that is similar or related. The collection of an organization’s accounts constitutes their chart of accounts.


Accounting

The collective process of recording and processing an organization’s financial events and transactions. This process typically begins when the transaction occurs and ends with its inclusion in the organization’s financial statements. 


Account Balance

The amount of money in a financial repository, such as a savings or checking account, at any given moment. The net balance of assets and liabilities during an accounting period.


Accounting Cycle

The stepwise process of the organization’s bookkeeping/accounting system, from the initial occurrence of a financial event or transaction, to the closing of the books and the preparation of accurate financial statements. The accounting cycle typically includes: identifying, collecting and analyzing the transaction and any documentation associated with it, recording the transaction in the bookkeeping system by posting the transaction to the appropriate account, preparing associated financial reports and/or trial balance, preparing financial statements, recording and posting closing entries, preparing a post-closing trial balance, and, in some cases posting any adjusting or reversing entries.


Accounting Equation

The accounting equation refers to the relationship between three key amounts: assets, liabilities and equity, and is the basis for the balance sheet.

               ASSETS = LIABILITIES + EQUITY


Accounting Period

Refers to the span of time over which the organization’s books are balanced and the financial statements are prepared. The beginning of the accounting period may differ according to regulation or the organization’s needs, but many companies choose the calendar year as their fiscal year and thus, their accounting period begins on January 1. In addition to balancing their books and preparing statements on an annual basis, many organizations also do so on a quarterly basis, that is every 3 months.


Accounting Records

Key sources of information and evidence used to prepare, verify and/or audit the financial statements. They also include documentation to prove asset ownership for creation of liabilities and proof of monetary and non monetary transactions.


Accounting System

Also known as a bookkeeping system, it is a tool used to record and track an organization’s financial transactions. In its simplest manual form, ledgers have been used and small organizations often use electronic spreadsheets such as those in Excel, Google Docs and other applications. Desktop and cloud based systems are plentiful, including the popular QuickBooks, and offer a variety of features and functionality. Choosing the right system depends on the organization’s size, number and complexity of transactions, reports required, and other factors.


Accounts Payable

Amounts owed to suppliers and vendors who provide goods and services to the organization but did not require immediate payment.


Accounts Payable Statement

This financial report summarizes the organization’s accounts payable, showing suppliers and vendors, amounts due, and due dates.


Accounts Receivable

Amounts owed to the organization for services performed or products sold but not yet paid for.


Accounts Receivable Aging Report

A financial report that provides details of all amounts owed to the organization, including customer names, amounts due, and length of time the receivable has been outstanding. 


Accounts Receivable Turnover Ratio

Also called receivables turnover ratio, it is a measure of the speed at which an organization collects its accounts receivable. This ratio provides a measure of the organization’s effectiveness in collecting its debts and managing its extension of credit to its customers. It is an important activity ratio that measures how efficiently assets are being used.

It is calculated using the following formula:

               ACCOUNTS RECEIVABLE TURNOVER = NET CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLE


Accrual Accounting

This bookkeeping method tracks the theoretical or projected inflows and outflows of money. Here expenses are recorded at the time they are incurred and revenues, or receipts, are recorded at the time they are earned.

Accrual accounting requires far more recording and financial housekeeping than does cash accounting but it gives management a better picture of the financial outlook for the organization as it better matches income and expenses in the correct period. By calculating accounts receivable and accounts payable, management has a clearer picture of profits for any given period. For accrual accounting, the date of completion is used as the transaction date, not the date of payment.


Accrued Interest

The method of accounting that recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.


Accrued Interest expense

Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security.


Accrued Revenue

Revenue that has been earned by providing a good or service, but for which no payment has been received because the customer has yet to be billed.


Accumulated Depreciation

This is the amount of all long-term asset costs allocated to depreciation expenses since the time the assets were acquired. This account appears on the organization’s balance sheet.


Acid-test Ratio

Also called the quick ratio, it compares current assets, including cash, marketable securities, and accounts receivable, to total current liabilities.


Adjusting Entries

These journal entries are made in order to bring the organization’s balance sheet and income statement completely up to date on an accrual basis. They are made to record several financial events, including expenses that have been incurred and revenue that have been earned, but not yet been entered in the records, and expenses and revenue that have already been recorded but that involve more than the current accounting period.


Amortization

The allocation of the value of an asset, expense, or a loan through equal amounts over a certain period of time. This period of time is usually the useful life of the asset or, in the case of a loan, the life of the loan.


Asset

Assets are anything of economic value owned by the organization. Many assets can be converted to cash and, when listing assets on the balance sheet or elsewhere, they are usually listed by their liquidity, from most liquid (e.g. cash on hand), to least liquid (e.g. real estate, machinery).

The usual categories for assets are:

               Current Assets – Cash and other liquid items

               Long-term Assets – Real estate and equipment

               Prepaid and Deferred Assets – Prepaid rent and prepaid insurance

               Intangible Assets  – Such as trademarks and goodwill


Audited Financial Statements

Financial statements that have been prepared by, and include a report from an independent auditor who is attesting to their fairness and their compliance with GAAP – generally accepted accounting principles.


Bad Debt

The amount of accounts receivable that proves to be uncollectible. Bad debt is treated as an operating expense.


Balance Sheet

Also known as the Statement of Financial Position, the balance sheet (BS) provides a snapshot of the organization’s financial position as of a particular date. It details all assets, liabilities, and equity. It is called Balance Sheet because it lays out the ACCOUNTING EQUATION:

ASSETS = LIABILITIES + EQUITY. Put another way: ASSETS – LIABILITIES = EQUITY

The balance sheet is considered one of the three core financial statements, with the other two being: income statement and cash flow statement. It is typically prepared monthly, together with these.


Bank Account Reconciliation

Also called bank reconciliation or simply bank rec, it refers to the process of comparing the company’s records of inflows and outflows with those of the bank, as detailed in the bank statement. It is an important process to do as soon as possible, once the bank statement is available, so that the company can determine its true cash position.


Bank Endorsement

An endorsement by a bank for a negotiable instrument, such as a banker’s acceptance or time draft. This assures any counterparty that the bank will stand behind the obligations of the creator of the instrument.


Bank Statement

Refers to the statement from the organization’s bank detailing the activity in the company’s accounts. It includes all deposits received by the bank over the period in question (usually a calendar month), all checks and debits paid by the bank, service fees, and any other inflows and outflows from the account.


Bill of Lading

A legal document between a shipper and a carrier that details the type, quantity and destination of the goods being carried. The bill also serves as a shipment receipt when the carrier delivers the goods at the predetermined destination.


Bookkeeping

The process of recording financial transactions and keeping financial records.


Book Value

When referring to an asset, the book value is the original cost of the asset’s less accumulated depreciation which has been applied to the asset.  When speaking of a company, the book value is used synonymously with owner’s equity or stockholders’ equity, depending on the type of company.


Breakeven

The breakeven point is where revenues equal expenses.


Budget

Financial projection of revenues and expenses for a future period.


Budget Report

An internal report used by management to compare the estimated budgeted projections with the actual performance number achieved during a period. In other words, a budget report is designed to compare how close the budgeted performance was to the actual performance during an accounting period.


Budget Variance Report

Compares an organization’s actual revenues and expenses with those budgeted for the period.


Capital

The term capital usually refers to owners’ or stockholders’ equity, although it can also be used to denote real property, plant, and equipment, as in the terms capital budgeting and capital expense.


Cash

Cash includes all checking account balances, as shown in the organization’s records, currency, coins, and checks received from customers but not yet deposited.


Cash Accounting

Also called cash-based accounting, this method tracks the actual inflows and outflows of money in real time. With cash accounting, accounts receivable is only counted when the money is actually received by the company, and accounts payable is only counted when the money is actually paid by the company.

Cash accounting can be appealing because it is simpler, it makes intuitive sense, and it is familiar as it is how most of us manage our personal finances. However, it can distort earning patterns and spending patterns because it depends on payment schedules. It does not present an accurate picture of the business’ performance and it does not account for situations where the organization has extended credit to customers or used credit to buy from suppliers and vendors. It can also lead management to believe that the business is experiencing false highs and lows.


Cash Discount

Also called sales discount, the term refers to the discounts the company may apply to goods and services if bought on special terms, or paid for within a specified period of time. Net sales are calculated by subtracting cash discounts, sales returns, and allowances.


Cash Flow Statement

Also known as the statement of cash flows, the cash flow statement provides a summary of the organization’s cash flow over a given period of time. These cash flows include all inflows and outflows of money for all of the organization’s activities, including operating, investing and financing.


Chart of Accounts

The chart of accounts is a listing of the names of the accounts that an organization needs for recording, monitoring, and tracking its particular activity. It is used for recording all of the organization’s transactions and can be tailored to suit the needs of small businesses and non-profit organizations. The chart of accounts can be changed over time to adapt to the organization’s changing needs, either expanded or contracted.

Accounts are typically listed in the following order:

Balance sheet accounts:

  • Assets
  • Liabilities
  • Owner’s equity

 Income statements accounts:

  • Operating revenue
  • Operating expenses
  • Non-operating revenues and gains
  • Non-operating expenses and losses

Within each category, accounts can be further organized by business function, and/or by company department, product line, etc. A company’s organization or product line can serve as the outline for the chart of accounts, and each product line, or department can be accountable for its own expenses by having its own detailed expense sub-accounts within its account.

A chart of accounts can be as large and complex or as small and simple as the organization’s needs dictate. It can also mirror other needs, such as IRS reporting.


Closing Entries

Refers to the journal entries that are made once the financial statements have been prepared at the end of the accounting period. Closing entries serve to “close” the books and close any temporary accounts for the period. Most closing entries affect income statement accounts but are also needed to transfer owners’ draw accounts.


Consigned Goods

Refers to merchandise that may be sold by a company but is not owned by it. The company that has possession of the goods is said to have them on consignment and is the consignee. The owner of the goods is referred to as the consignor, who pays the consignee a fee for selling the goods.


Contribution Margin

The contribution margin is calculated by subtracting variable expenses from revenues and indicates how much is available from sales to contribute to the fixed expenses of the company and, eventually, to profit.


Controlling Account

Also called control account, this is a high level account in the chart of accounts which reflects the relevant transactions without providing any details.


Correcting Entry

Refers to a journal entry that is made to correct a previous entry.

Cost Accounting

Cost accounting focuses on determining the unit cost of the items sold or processed. In determining the cost of a unit, companies can accurately value their inventory and their cost of goods sold. 

Cost of Goods Sold

The cost of goods sold, or COGS, is the total cost of merchandise sold to customers. It is reported on the income statement when sales revenues of the goods sold are reported. For the retailer it includes the cost from suppliers plus any additional costs incurred to get the merchandise into inventory and ready for sale. Such additional costs can include storage, shipping, insurance, etc. When sold, the value of goods is removed from inventory and reported as cost of goods sold on the income statement.

The following formula is used to calculate Cost of Goods Sold:

STARTING INVENTORY + PURCHASES – CLOSING INVENTORY = COST OF GOODS SOLD

Credit Line

Also called line of credit, it is the amount that a bank engages to lend to an organization, usually on an as needed basis.

Current Assets

These assets include cash, marketable securities, accounts receivable, and any other assets that the organization expects can be converted to cash within one year of the balance sheet date. Current assets are listed in order of liquidity, with the most liquid listed first (e.g. cash) and the least liquid listed last (e.g. prepaid rent).

Current Liabilities

These are the organization’s financial obligations that are due within one year of the balance sheet date.

Current Ratio

A good indicator of a company’s ability to pay its debts over the coming year, the current ratio is calculated by dividing current assets by current liabilities. Used to measure the health of a business, good current ratio varying between industries.

Debit

The entry on the left side of a double-entry bookkeeping system that represents the addition of an asset or expense, or the reduction to a liability or revenue.

Debit Card

A payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases.

Deferred Revenue

Payments received in advance for services which have not yet been performed or goods which have not yet been delivered. These revenues are classified on the company’s balance sheet as a liability and not as an asset.

Deficit

A financial shortage that occurs when liabilities exceed assets.

Depreciation

The expense allowance made for wear and tear on an asset over its estimated useful life.

Direct Labor

The employees and temporary help who work directly on a manufacturer’s product.

Direct Materials

A material that will become part of a finished product and can easily be economically traced to specific product units.

Double Entry System of Accounting

The double entry system requires that every transaction has at least two entries, to at least two different accounts in the organization’s chart of accounts. Every transaction involves at least one debited account and one credited account, however often several accounts are often involved, depending on the transaction.

Earnings per Share (EPS)

The measure of performance calculated by dividing the net earnings of a company by the average number of shares outstanding during a period.

EBITDA

An acronym that stands for: earnings before interest, taxes, depreciation and amortization. EBITDA is often scrutinized as the true measure of a company’s performance as it excludes items not directly related to the operation of the business.

Employee Benefit Plan

Compensation arrangement, generally in writing, used by employers in addition to salary or wages. Some plans such as group term life insurance, medical insurance, and qualified retirement plans are treated favorably under the tax law. Most common qualified retirement plans are: (1) defined benefit plans – a promise to pay participants specified benefits that are determinable and based on factors such as age, years of service, and compensation; or (2) defined contribution plans – provide an individual account for each participant and benefits based on items such as amounts contributed to the account by the employer and employee and investment experience. This type includes profit-sharing plans, employee stock ownership plans, and 401(k) plans.

Equity

Also known as shareholder’s equity, or net worth, or book value, an organization’s equity is equal to its assets minus its liabilities.

Equity Ratio

An investment leverage or solvency ratio that measures the amount of assets that are financed by owners’ investments by comparing the total equity in the company to the total assets.

Estimated Salvage Value

The estimated resale value of an asset at the end of its useful life. It is subtracted from the cost of a fixed asset to determine the amount of the asset cost that will be depreciated. Thus, salvage value is used as a component of the depreciation calculation.

Expenses

Expenses are all of the costs incurred in operating a business or running an organization.

Expense report

A form completed by employees to itemize the expenditures for which they are requesting reimbursement. Receipts are typically attached to the form if the related expenditure amounts exceed a certain minimum amount.

Extraordinary Gain or Loss

This is a gain or a loss that is the result of unforeseen or atypical events, not associated with the normal course of business.

FIFO

In inventory management, FIFO is one of the most common methods of inventory valuation. It means first in, first out, and assumes that the goods that are first added to inventory are the first ones removed from inventory for sale. Two other common methods of inventory valuation are LIFO and weighted average.

Record keeping tends to be easier under the FIFO method as there are fewer old inventory layers to keep track of – the oldest items are always rolling out of inventory. In addition, FIFO is thought to more accurately reflect the actual flow of materials in a company as few businesses sell newer items first. In addition FIFO creates fewer inventory layers and less stale inventory.

In an inflationary environment costs of goods are increasing, so older items will be less expensive. Thus FIFO will decrease the cost of goods sold because older less expensive goods will be included. This will increase profit for the period.

In a deflationary environment the cost of goods is decreasing so older items will be more expensive than the newer ones. Here FIFO will increase the cost of goods sold and thus decrease profit for the period.

Financial Accounting

The process of preparing financial statements that companies use to show their financial performance and position to people outside the company, including investors, creditors, suppliers, and customers. These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement, that record the company’s operating performance over a specified period.  This is one of the most important distinctions from managerial accounting, which by contrast, involves preparing detailed reports and forecasts for managers inside the company.

Financial Ratio

Sometimes called an accounting ratio, a financial ratio is a relative magnitude of two selected numerical values taken from an enterprise’s financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.

Financial Statements

Presentation of financial data including balance sheets, income statements, and income statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time and its results of operations for a period then ended.

Finished Goods

The products that have been made and are ready for sale.

Fiscal Period (Financial-Dictionary)

The period of time reflected in financial statements. Usually, the fiscal period is either the calendar year or a quarter.

Fiscal Year

A period of 12 consecutive months chosen by an entity as its accounting period which may or may not be a calendar year.

Fixed Assets

Any tangible long term assets used in the continuing operation of a business that are unlikely to change for a long time.

Fixed Costs

These are costs that do not change with production but are associated with the overhead of the business or organization.

Goodwill

A premium paid in the acquisition of an entity over the fair value of its identifiable tangible and intangible assets with less liabilities assumed.

Gross Earnings

For individuals, this refers to the total income earned prior to the application of any tax deductions or adjustments. For public companies, gross earnings are an accounting convention, referring to the amount left over from total revenues over a specified time period once the cost of goods sold has been deducted.

Gross Pay

The total amount of remuneration paid to an employee. It is paid out through the payroll system. Gross pay is the total amount of remuneration before taxes and other deductions are removed.

Gross Profit

Gross profit is equal to net sales minus the cost of goods sold. It is reported on the income statement.

Gross Sales

The difference between revenue and cost of goods sold.

Growth Rate

The year over year (YOY) rate at which revenue increases or decreases.

Income Statement

Also known as profit and loss Report, or statement of revenue and expense, or statement of comprehensive income, or simply P&L, the income statement reports activity for any given period. This activity includes all revenues, sales, expenses, and net profit, and shows the change in owners’ equity over the period being reported.

The Income Statement should be prepared regularly in order to allow management to track the performance of the organization, and certainly monthly and for the entire fiscal year. It can be very useful to prepare income statements that compare similar periods, or compare the current year with previous ones. 

Indirect Expense

Those expenses that are incurred to operate a business as a whole or a segment of a business and so cannot be directly associated with a cost object, such as a product, service, or customer. A cost object is any object which you are separately measuring costs.

Indirect Labor

The cost of any labor that supports the production process, but which is not directly involved in the active conversion of materials into finished products.

Indirect Materials

The minor materials and other production supplies that cannot be conveniently and economically traced to specific products.

Intangible Assets

An asset having no physical existence such as trademarks and patents.

Interest

Payment for the use or forbearance of money.

Interest Expense

The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. It represents interest payable on any borrowings – bonds, loans, convertible debt or lines of credit. It is essentially calculated as the interest rate times the outstanding principal amount of the debt.

Interest Income

The amount of interest that has been earned during a specific time period. This amount can be compared to the investments balance to estimate the return on an investment that a business is generating.

Interest Payable

Amount owed, but not yet paid, for all interest on all notes payable up until the date of the balance sheet. It is calculated by multiplying the principal amount of the note or loan times the effective interest rate, times the time period.

Interest Rate

An amount of money charged for borrowing money or paid for the use of somebody else’s money.

Inventory

Inventory is merchandise purchased for the purpose of being sold to customers. The cost of all merchandise purchased but not yet sold is reported as inventory in the account “inventory” or “merchandise inventory”. Inventory is reported as a current asset on the organization’s balance sheet.

There are several acceptable methods for valuing inventory, called inventory valuation methods. Careful monitoring of inventory is critical to many businesses as too much can result in needless additional costs of storage and insurance and runs the risk of obsolescence, while too little can result in lost sales.

Inventory Record

A manual or computer-based record of the quantity and kind of inventory (1) at hand, (2) committed (allocated) to firm-orders or work-in-progress, and (3) on order. It often includes history of the recent transactions in each inventory item, also called stock record.

Inventory Valuation

A calculation of the value of the products or materials that a company has available for sale or use at the end of a particular accounting period, or the value itself.

Inventory Valuation Methods

There are several acceptable methods for valuing inventory, including FIFO, LIFO, and weighted average.

Invoice

A bill prepared by a seller of goods or services and submitted to the purchaser.

Invoice Processing (Wikipedia)

Involves the handling of incoming invoices from arrival to post.

Journal

Any book containing original entries of daily financial transactions.

Ledger

Any book of accounts containing the summaries of debit and credit entries.

Liability

An organization’s LIABILITIES are its obligations to pay. They are usually listed by the timing of the obligation, from most to least recent.

Categories of LIABILITIES are:

               CURRENT LIABILITIES – payable within one year, such as wages, taxes, accounts payable

               LONG-TERM LIABILITIES – payable in over one year, such as bank loans

LIFO

The LIFO method of inventory valuation assumes that the goods last added to inventory are the first goods to be removed from inventory for sale. Two other common methods of inventory valuation are FIFO and weighted average.

The LIFO method can require more record keeping as the oldest items can remain in the system for a much longer period of time. These inventory layers can be many and old, with significant cost variations. This can result in significant increases or decreases in the cost of goods sold.

In an inflationary environment costs of goods are increasing, so older items will be less expensive. Thus LIFO will increase the cost of goods sold because more recently added, more expensive goods will be included. This decreases profit for the period.

In a deflationary environment the cost of goods is decreasing so older items will be more expensive than the newer ones. Here LIFO will decrease the cost of goods sold and thus increase profit for the period.

Long-term Asset

An asset that has the following characteristics: (1) it has a useful life of more than one year; (2) it is acquired for use in the operation of a business; and (3) it is not intended for resale to customers.

Managerial Accounting

Reporting designed to assist management in decision-making, planning, and control.

Marginal Income

The difference between the amount of income a company generates and the amount of variable cost it incurs.

Market Value (Investopedia)

The price an asset would fetch in the marketplace.

Merchandise

Items that can be bought or sold; commercial goods.

Merchandise Inventory

Merchandise inventory is the cost of all merchandise purchased but not yet sold.

Merchandise Inventory Turnover Ratio (Investopedia)

A ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.

Mortgage

A mortgage is a formal loan on real estate.

Net Income

Excess or deficit of total revenues and gains compared with total expenses and losses for an accounting period.

Net Loss

The difference between expenses and revenues when expenses exceed revenues over a period of time.

Net Pay (AccountingCoach)

Gross wages or gross salaries minus withholdings for payroll taxes and other items such as insurance, union dues, United Way, etc. Also referred to as “take home pay” or the amount the employee “cleared.”

Net Profit

The profit of a company after operating expenses and all other charges including taxes, interest, and depreciation have been deducted from total revenue. Also called net earnings or net income.

Net Sales

Net sales is equal to total sales minus sales discounts, sales returns and sales allowances.

Notes Payable

Notes payable include the principal amount due on bank loans and other promises to pay.

Notes Receivable

Collective term for written promissory notes that are due in less than one year and are held by the entity to whom payment is promised.

Operating Budget

A budget that portrays a company’s expenses, expected costs, and estimated incomes, considering the quarterly or annual performance. Accountants complete the operating budget before the accounting period starts in order to include income and cost projections.

Operating Costs

The expenses associated with the maintenance and administration of a business on a day-to-day basis. The operating cost is a component of operating income and is usually reflected on a company’s income statement.

Operating Expenses

These are the indirect costs of normal business operations and can include both fixed costs and variable costs.

Operating Revenue

A company’s profit after subtracting operating expenses or costs of running the daily business. Operating incomes helps investors separate out the earnings for the company’s operating performance by excluding interest and taxes.

Outsourcing

The act or an instance of purchasing essential products or services from another company.

Overhead

Costs of a business that are not directly associated with the production or sale of goods or services.

Owner’s Equity

The residual interest in the assets of the business entity that remains after deducting that entity’s liabilities.

Payroll (Reviso)

A company’s financial list of the salaries, wages, bonuses, net pay, and deductions of their employees. In accounting, the term payroll signifies the amount that has been paid out to employees for the services they have done for the organization within a certain period of time.

Pay period (PatriotSoftware)

A recurring length of time over which employee time is recorded and paid. Examples of pay periods are weekly, bi-weekly, semi-monthly, and monthly.

Personal Property

Movable property that is not affixed to the land (real property). Personal property includes tangible items such as cash, cars and computers, as well as intangible items, such as royalties, patents, and copyrights.

Petty Cash

A small amount of cash that a company keeps on hand to pay for minor expenses in an office.

Physical Inventory

An actual count of all merchandise on hand at the end of an accounting period.

Posting (AccountingTools)

Posting in accounting is when the balances in subledgers and the general journal are shifted into the general ledger. Posting only transfers the total balance in a subledger into the general ledger, not the individual transactions in the subledger.

Prepaid Insurance

The cost of all insurance that is paid in advance of the accounting period under consideration.

Price-earnings Ratio (Investopedia)

The ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

Profit

Revenue minus total expenses, costs and taxes.

Profitability Analysis (Wikipedia)

In cost accounting, profitability analysis is an analysis of the profitability of an organization’s output. Output of an organization can be grouped into products, customers, locations, channels, and/or transactions.

Purchase Order

Written authorization to a vendor to deliver specified goods or serviced at a stipulated price.

Purchase

A temporary account used under the periodic inventory system to record the total cost of all merchandise purchased for resale during an accounting period.

Quick Assets

Assets that are or are expected to be converted into cash in the near term: cash, accounts receivable, short-term investments.

Quickbooks (Wikipedia)

An accounting software package developed and marketed by Intuit. QuickBooks products are geared mainly toward small and medium-sized businesses and offer on-premises accounting applications as well as cloud-based versions that accept business payments, manage and pay bills, and payroll functions.

Quick Ratio

Also called the acid-test ratio, it compares current assets, including cash, marketable securities, and accounts receivable, to total current liabilities.

Real Estate (aka real property)

Piece of land and all physical property related to it, including houses, fences, landscaping, and all rights to the air above the earth and below the property.

Revenue

Total income received from sales.

Reversing Entry (MyAccountingCourse)

An optional journal entry that is recorded at the beginning of an accounting period to undo the prior period’s adjusting entries. In other words, these entries cancel out or reverse the adjusting journal entries recorded at the end of the prior accounting period.

Salary

The compensation usually associated with executives, managers, professionals, office managers, etc. whose pay is stated on an annual or on a monthly basis.

Sales Allowance

The reduction in the selling price when a customer agrees to accept a defective unit instead of returning it to the seller. It is normally recorded under the account “sales returns and allowances.”

Sales Discount

A sales discount that is given to a buyer for early payment for sales made on credit.

Sales Invoice

The request of payment by the customer for goods sold or services provided the seller. An invoices generally lists the description and the quantity of the item sold or service provided. The document is also a record of the sale for both the seller and the buyer.

Salvage Value

Selling price assigned to retired fixed assets or merchandise unsalable through usual channels.

Schedule of Accounts Receivable

A report made by management that lists each customer in the accounts receivable system and how much they owe. In other words, the schedule of accounts receivable is simply a list of all the customers who owe the company money on account.

Service Revenue

Amounts earned by the organization from the provision of services to customers, either for cash or credit.

Stockholders’ Equity

The owner’s equity in a corporation.

Straight-line Depreciation

Accounting method that reflects an equal amount of wear and tear during each period of an asset’s useful life. For instance, the annual straight-line depreciation of a $2,500 asset expected to last five years is $500.

Supplies

In the Chart of Accounts, the Supplies account includes the cost of all supplies that have not yet been used. Supplies that have been used are recorded in the account “Supplies Expense”.

Supplies Expense

Cost of all supplies used.

Tax Accounting (Investopedia)

A structure of accounting methods focused on taxes rather than the appearance of public financial statements. Tax accounting is governed by the IRC, which dictates the specific rules that companies and individuals must follow when preparing their tax returns.

Terms of Sale

The terms which the buyer and seller agree upon.

Total Costs

Sum of fixed costs, semi-variable costs, and variable costs.

Trial Balance

A comparison of the total of debit and credit balances in the ledger to check that they are equal.

Uncollectible Accounts

Receivables, loans or other debts that have virtually no chance of being paid. An account may become uncollectible for many reasons, including the debtor’s bankruptcy, an inability to find the debtor, fraud on the part of the debtor, or lack of proper documentation to prove that debt exists.

Unearned Revenue

Amounts received in advance of the delivery of goods or the provision of services. Unearned Revenue is a Liability Account and once the services are provided or the goods are delivered, the Unearned Revenue account is decreased, thus decreased the organization’s total Liabilities.

Variable Costs

In contrast with fixed costs, variable costs vary with production level.

Wages Payable

Amounts owed to employees for time worked but not yet paid. Wages Payable are listed separately from other Accounts Payable.

Weighted Average

In inventory valuation weighted average refers to the method whereby a weighted average of cost is assigned to the cost of goods sold for the period. It is a very useful method when inventory items are so intermingled that it is impossible to assign a specific cost to each unit, or when inventory items are fungible. With this method, inventory and cost of goods sold is valued between the value of the oldest and newest units.

Work in Process

Inventory account consisting of partially completed goods awaiting completion and transfer to finished inventory.

Working Capital

Excess of current assets over current liabilities.