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