Accounting definition
Equities
Financial rights to the assets of a business
GAAP
Generally Accepted Accounting Principles. The standards and rules the accountants follow while recording and reporting financial activities.
Normal Balance
The side of the account that is increased
Business plan
A formal written document that describes the nature of a business and how it will operate.
Ledger
A group of accounts
General Ledger
A ledger that contains all accounts needed to prepare financial statements
Chart of account
A list of accounts used by a business
Creditor
A person or business to whom liability is owed
Proving cash
Determining that the account of cash agrees with the balance of the cash account in the accounting records
Accounts payable
amounts to be paid in the future for goods or services already acquired
Correcting entry
an additional journal entry made to correct an incorrect journal entry
sale invoice
an invoice used as a source document for recording a sale on account
prepaid expense
cash paid for an expense in one fiscal period that is not used until a later period
Adjustments
changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period
Financial statement
financial reports that summarize the financial condition and operations of a business
Net worth statement
formal report that shows what an individual owns, what an individual owes, and the difference between the two
Owners Equity
the amount remaining after the value of all liabilities is subtracted from the value of all assets
net loss
the difference between total revenue and total expenes when total expenes are greater
net income
the difference between total revenue and total expense when total revenue is greater
Accounting Equation
the equation showing the relationship among assets, liabilities, and owers equity Asset = Liability + Owners Equity
Fiscal Period
the length of time for which a business summarizes its financial information and reports its financial performance.
Account Number
the number assigned to an account
Accounting
the process of planning, recording, analyzing and interpreting financial information.
double entry accounting
the recording of debit and credit parts of a transaction
Trial balance
the total of all debit account balances must equal the total of all credit account balances.
Business ethics
the use of ethics in making business decisions
Withdrawals
Assets taken from the business for the owners personal use
Fiscal year
A fiscal period consisting of 12 consecutive months
invoice
A form describing the goods or services sold, the quantity, the price, and the terms of sale
Journal
A form for recording transactions in chronological order
Proprietorship
A business owned by one person
Service Business
A business that performs an activity for a fee
Account
A record that summarizes all the transactions pertaining to a single item in the accounting equation
Sale on account
A sale for which payment will be received at a later date
Accounts receivable
Amounts to be received in the future due to the sale of goods or services
Capital Account
An account used to summarize the owners equity in a business
T account
An accounting device used to analyze transactions
Liability
An amount owed
Debit
An amount recorded on the left side of an account
Credit
An amount recorded on the right side of an account
Revenue
An increase in equity resulting from the sale of goods or services
Transaction
Any business activity that changes assets, liabilities, or owners equity
Asset
Anything of value that is owned
Journalizing
Recording transactions in a journal
accrual basis of accounting
Reporting income when it is earned and expenses when they are incurred
Expense
The cost of goods or services used to operate a business
Equity
The difference between assets and liabilities
Personal net worth
The difference between personal assets and personal liabilities
Account Balance
The difference between the increases and decreases in an account
Account title
The name given to an account
Ethics
The principles of right and wrong that guide an individual in making decisions
File Maintenance
The procedure of arranging accounts in a general ledger, assigning account numbers, and keeping records current.
Posting
Transferring information from a journal entry to a ledger account
Opening an account
Writing an account title and number on the heading of an account
receipt
a business form giving written acknowledgement for cash
Check
a business form ordering a bank to pay cash
source document
a business paper form which information is obtained
Work sheet
a columnar accounting form used to summarize the general ledger information needed to prepare financial statements
income statement
a financial statement showing the revenue and expenses for a fiscal period
Balance sheet
a financial statement that reports the value of a business assets, liabilities, and owners equity on a specific date
memorandum
a form on which a brief message is written to describe a transactions
Accounting system
a planned process designed to compile financial data and summarize the results in accounting records and reports
Entry
information for each transaction recorded in a journal
cash basis of accounting
reporting income when the cash is received and expenses when the cash is paid