Nebula Development. Accounting Glossary

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Account: An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.

Accounting: A service activity designed to accumulate, measure, and communicate financial information about economic entities for decision-making purposes.

Accounting Cycle: The procedures for analyzing, recording, classifying, summarizing, and reporting the transactions of a business.

Accounting Model:The basic accounting assumptions, concepts, principles, and procedures that determine the manner of recording, measuring, and reporting an entity's transactions.

Accounting System:The set of manual and computerized procedures and controls that provide for identifying relevant transactions or events; preparing accurate source documents, entering data into the accounting records accurately, processing transactions accurately, updating master files properly, and generating accurate documents and reports.

Account Payable:An amount owed to a supplier for good or services purchased on credit; payment is due within a short time period, usually 30 days or less.

Account Receivable:A current asset representing money due for services performed or merchandise sold on credit.

Account Receivable Turnover:A measure used to determine a company's average collection period for receivables; computed by dividing net sales (or net credit sales) by average accounts receivable.

Accrual Basis:Gross income is recognized when earned.

Accrual-Basis Accounting:A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.

Accrued Expenses:Expenses that arise through adjusting entries when accounting for unrecorded expenses.

Accrued Liabilities:Liabilities that arise through adjusting entries when accounting for unrecorded liabilities.

Accumulated Depreciation:The total depreciation recorded on an asset since its acquisition; a contra account deducted from the original cost of an asset on the balance sheet.

Acid-test Ratio (or Quick Ratio):A measure of a firm's ability to meet current liabilities; more restrictive than the current ratio, it is computed by dividing net quick assets (all current assets, except inventories and prepaid expenses) by current liabilities.

Adjusted Gross Income:An individual taxpayer's total income minus deductions (adjustments) for individual retirement plan contributions and alimony paid.

Adjusting Entries:Entries required at the end of each accounting period to recognize, on an accrual basis, revenues and expenses for the period and to report proper amounts for asset, liability, and owners' equity accounts.

Adjustments to Gross Income:Amounts deducted from the gross income of an individual taxpayer in arriving at adjusted gross income; includes contributions to individual retirement plans and alimony paid.

Adverse Opinion:Audit report indicating the auditor believes the overall financial statements are so materially misstated or misleading that the statements do not fairly represent the financial position or results of the operations and cash flows.

Aging Accounts Receivable:The process of categorizing each account receivable by the number of days it has been outstanding.

Allowance for Uncollectible Accounts:A contra account, deducted from Accounts Receivable, that shows the estimated losses from uncollectible accounts.

Allowance Method:The recording of estimated losses due to uncollectible accounts as expenses during the period in which the sales occurred.

Amortization:The process of cost allocation that assigns the original cost of an intangible asset to the periods benefited.

Annual Report:A document that summarizes the results of operations and financial status of a company for the past year and outlines plans for the future.

Annuity:A series of equal amounts to be received or paid at the end of equal time intervals.

Arm's-Length Transactions:Business dealings between independent and rational parties who are looking out for their own interests.

Articulation:The interrelationships among the financial statements.

Asset Turnover Ratio:An overall measure of how effectively assets are used during a period; computed by dividing net sales by average total assets.

Assets:Economic resources that are owned or controlled by an entity.

Audit:The result of an independent accountant's review of the statements and footnotes to ensure compliance with generally accepted accounting principles and to render an opinion on the fairness of the financial statements.

Audit Committee:Members of a client's board of directors who are responsible for dealing with the external and internal auditors.

Audit Report:A report issued by an independent CPA that expresses an opinion about whether the financial statements present fairly a company's financial position, operating results, and cash flows in accordance with generally accepted accounting principles.

Authorized Stock:The amount and type of stock that may be issued by a company, as specified in its articles of incorporation.

Available-For-Sale Securities:Debt and equity securities not classified as trading, held-to-maturity, or equity method securities.

 

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Bad Debt:An uncollectible account receivable.

Balance Sheet A statement of financial position, specifically the financial statement that shows the assets, liabilities, and owners' equity of an entity at a particular date.

Bank Reconciliation:The process of systematically comparing the cash balance as reported by the bank with the cash balance on the company's books and explaining any differences.

Basket Purchase:The purchase of two or more assets acquired together at a single price.

Board of Directors:Individuals elected by the stockholders to govern a corporation.

Bond:A contract between a borrower and a lender in which the borrower promises to pay a specified rate of interest for each period the bond is outstanding and repay the principal at the maturity date.

Bond Carrying Value:The face value of bonds minus the unamortized discount or plus the unamortized premium.

Bond Discount:The difference between the face value and the sales price when bonds are sold below their face value.

Bond Indenture:A contract between a bond issuer and a bond purchaser that specifies the terms of a bond.

Bond Maturity Date:The date at which a bond principal or face amount becomes payable.

Bond Premium:The difference between the face value and the sales price when bonds are sold above their face value.

Book Value:The net amount shown in the accounts for an asset, liability, or owners' equity item.

Book Value Per Share:A measure of net worth; computed by dividing stockholders' equity for each class of stock by the number of shares outstanding for that class.

Business:An organization operated with the objective of making a profit from the sale of goods or services.

Business Documents:Records of transactions used as the basis for recording accounting entries; includes invoices, check stubs, receipts, orders, and similar business papers.

Business Expenses:Expenses that have been paid or incurred in the course of business and that are ordinary, necessary, and reasonable in amount.

 

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Calendar Year:An entity's reporting year, covering 12 months and ending on December 31.

Callable Bonds:Bonds for which the issuer reserves the right to pay the obligation before its maturity date.

Capital:The total amount of money or other resources owned or used to acquire future income or benefits.

Capital Account:An account in which a proprietor's or partner's interest in a firm is recorded; it is increased by owner investments and net income and decreased by withdrawals and net losses.

Capital Expenditure:An expenditure that is recorded as an asset because it is expected to benefit more than the current period.

Capital Gain:The excess of the selling price over the cost basis when assets, such as securities and other personal and investment assets, are sold.

Capital Lease:A leasing transaction that is recorded as a purchase by the lessee.

Capital Stock:The portion of a corporation's owners' equity contributed by investors (owners) in exchange for shares of stock.

Cash:Coins, currency, money orders, checks, and funds on deposit with financial institutions; the most liquid of assets.

Cash Basis:Gross income is recognized when cash is received.

Cash-Basis Accounting:A system of accounting in which transactions are recorded and revenues and expenses are recognized only when cash is received or paid.

Cash Disbursements Journal:A special journal in which all cash paid out for supplies, merchandise, salaries, and other items is recorded.

Cash Dividend:A cash distribution of earnings to shareholders.

Cash Equivalents:Short-term, highly liquid investments that can be converted easily into cash.

Cash Inflows:Any current or expected revenues or savings directly associated with an investment.

Cash Outflows:The initial cost and other expected outlays associated with an investment.

Cash Over and Short:An account used to record overages and shortages in petty cash.

Cash Receipts Journal:A special journal in which all cash received, from sales, interest, rent, or other sources, is recorded.

Ceiling:The maximum market amount at which inventory can be carried on the books; equal to net realizable value.

Certified Public Accountant (CPA):A special designation given to an accountant who has passed a national uniform examination and has met other certifying requirements; CPA certificates are issued and monitored by state boards of accountancy or similar agencies.

Chart Of Accounts:A systematic listing of all accounts used by a company.

Charter (Articles of Incorporation):A document issued by a state that gives legal status to a corporation and details its specific rights, including the authority to issue a certain maximum number of shares of stock.

Classified Balance Sheet:A balance sheet in which assets and liabilities are subdivided into current and noncurrent categories.

Closed Transaction:A transaction that is completed within the accounting period; both the purchase and payment or sale and receipt of payment occur within the same accounting period.

Closing Entries:Entries that reduce all nominal, or temporary, accounts to a zero balance at the end of each accounting period, transferring their preclosing balances to a permanent balance sheet account.

Code of Professional Ethics:Rules set by the AICPA's Committee on Professional Ethics, which govern the conduct of CPAs.

Common Stock:The most frequently issued class of stock; usually it provides a voting right but is secondary to preferred stock in dividend and liquidation rights.

Comparative Financial Statements:Financial statements in which data for two or more years are shown together.

Compounding Period:The period of time for which interest is computed.

Compound Journal Entry:A journal entry that involves more than one debit or more than one credit or both.

Conduit Principle:The idea that all income earned by an entity must be passed through to the owners and reported on their individual tax returns; applicable to proprietorships, partnerships, and S corporations.

Consignee:A vendor who sells merchandise owned by another party, known as the consignor, usually on a commission basis.

Consignment:An arrangement whereby merchandise owned by one party (the consignor) is sold by another party (the consignee), usually on a commission basis.

Consignor:The owner of merchandise to be sold by someone else, known as the consignee.

Consolidated Financial Statements:Statements that report the combined operating results, financial position, and cash flows of two or more legally separate but affiliated companies as if they were one economic entity.

Contingent Liability:A potential obligation, dependent upon the occurrence of future events.

Contra Account:An account that is offset or deducted from another account.

Contributed Capital:The portion of owners' equity contributed by investors (the owners) in exchange for shares of stock.

Control Account:A summary account in the General Ledger that is supported by detailed individual accounts in a subsidiary ledger.

Control Activities:Policies and procedures used by management to meet its objectives; generally divided into adequate segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance.

Control Environment:The actions, policies, and procedures that reflect the overall attitudes of top management, the directors, and the owners about control and its importance to the entity.

Convertible Bonds:Bonds that can be traded for, or converted to, other securities after a specified period of time.

Convertible Preferred Stock:Preferred stock that can be converted to common stock at a specified conversion rate.

Corporation:A legal entity chartered by a state; ownership is represented by transferable shares of stock.

Cost Method of Accounting for Investments in Stocks:Method used to account for an investment in the stock of another company when less than 20 percent of the outstanding voting stock is owned.

Cost Of Goods Sold (COGS):The expense incurred to purchase or manufacture the merchandise sold during a period.

Cost Principle:The idea that transactions are recorded at their historical costs or exchange prices at the transaction date.

Coupon Bonds:Unregistered bonds for which owners receive periodic interest payments by clipping a coupon from the bond and sending it to the issuer as evidence of ownership.

Credit:An entry on the right side of the account.

Credit Card Draft:The part of the multiple-page credit form that is sent by the retailer to the credit card company for reimbursement of the stated amount.

Cumulative-Dividend Preference:The rights of preferred stockholders to receive current dividends plus all dividends in arrears before common stockholders receive any dividends.

Current Assets:Cash and other assets that may reasonably be expected to be converted to cash within a year or during the normal operating cycle.

Current-Dividend Preference:The right of preferred shareholders to receive current dividends before common shareholders receive dividends.

Current (or Working Capital) Ratio:A measure of the liquidity of a business; equal to current assets divided by current liabilities.

 

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Date of Record:The date selected by a corporation's board of directors on which the shareholders of record are identified as those who will receive dividends.

Debentures (unsecured bonds):Bonds for which no collateral has been pledged.

Debit:An entry on the left side of an account.

Debt-Equity Management Ratio:A measurement of the relative utilization of debt and equity; computed by dividing average total assets by average stockholders' equity.

Debt Financing:Acquiring funds by borrowing money from creditors in the form of long-term notes, mortgages, leases, or bonds.

Debt Securities:Financial instruments issued by a company that carry with them a promise of interest payments and the repayment of principal.

Declaration Date:The date on which a corporation's board of directors formally decides to pay a dividend to shareholders.

Declining-Balance Depreciation Method:An accelerated depreciation method in which an asset's book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.)

Deduction:Business expenses or losses that are subtracted from gross income in computing taxable income.

Deferred Income Taxes:An account used to record the difference between income tax expense on the income statement and income taxes payable for the year to federal and state governments.

Depletion:The process of cost allocation that assigns the original cost of a natural resource to the periods benefited.