Accounting Terms

Accounting terms can be accessed by clicking on the letter below that corresponds with the first letter of the term you wish to look up. Definitions follow the terms.

If there is more information available in a different page on this site, then you will see a link near the term directing you there.



Accounting: Identifying economic events, quantifying these events in dollars and cents, recording these events, and reporting financial results. See: What is Accounting

Accounts Payable: Part of the accounting team that reviews invoices from vendors, utilities, etc and pays invoices. The accounts payable position will interact with vendors in order to resolve any issues that may happen with invoicing.

Accounts Receivable: Part of the accounting team that reviews all sales made and accounts for payments received from customers. The accounts receivable position will communicate with customers on terms of payment or billing issues.

Accrual: Recording an expense or revenue in the period it was incurred, rather than when expense was paid or revenue collected.

Activity Based Costing (ABC): A method of costing a product or service that attempts to cost a part based on actual inputs used or by driving costs to a product or service based on activities. See: ABC Cost Accounting

Administrative Costs: Costs for upper management or sales people.
See: Administrative Costs

Asset: A tangible or intangible object that is owned by a company that will have value for the company in the future.

Audit: An review and examination of past events in order to determine if these events were recorded properly.

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B

Balance Sheet: A financial report that shows the assets, liabilities and owners equity of a company.

Budget: An annual plan forecast for a business, with sales and expenses by month. See: Budget

Business Plan: A long term plan for a business, usually five years.
See: Business Plan

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Capital: The owner’s investment in the business.

Chart of Accounts: A unique number is given to each general ledger account, so the accounts can be looked up by number.

Credit: In a double entry system, the right side of the account.

Controller: Usually the highest level accounting position at a plant or non-corporate facility. This position supervises all other accounting positions in that location, and usually reports to the Chief Financial Officer (CFO).

Cost Accounting: Area of accounting that maintains and reports product or service costs. See: What is Cost Accounting

Cost of Goods Sold (COGS): Total cost of goods sold for a certain period. See: Cost of Goods Sold Report

Current Assets: Cash or other assets that are expected to last a year or less, or are expected to be sold within a year or less.

Current Liabilities: Obligations that are expected to be paid with a year or less.

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Debit: In a double entry system, the left side of the account.

Depreciation: Over the useful life of an asset, the asset is expensed a certain amount in a period to recognize the current value of the asset. This expense is depreciation.

Direct Labor: The cost of the person or persons that add value to a product or service in its manufacture. See: Direct Labor Costs

Double Entry System: The accounting system that requires that each entry into the system have an equal debit and credit balance.




Expenses: Cost of goods or services used to create revenue.

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Financial Accounting Standards Board (FASB): The rule making body for accounting standards.

Financial Statements: Financial reports that are created by Accountants to communicate to management and others interested in the business.

Fixed Costs: The costs of a business that would remain even if revenue production slows. For example: a lease on a building.

Flash Report: Monthly report that is updated each week to show management how close the month will be to the plan. See: Flash Report

Forecast: Sales and expenditures plan for a month. See: Forecast



Gross Income: All income before expenses

Gross Profit: Profit less cost of goods sold


H

Health Care Cost Accounting: Cost accounting in a health care organization. See: Hospital and Health Care Cost Accounting

Hospital Cost Accounting: Cost accounting in a hospital. See: Hospital and Health Care Cost Accounting

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Indirect Labor: Labor costs for employees who are not directly adding value to a product or service. See: Indirect Labor Costs

Income Statement: Financial report prepared for a period that shows income earned and expenses incurred for that period.

Intangible Assets: Assets that are not physical in nature, but have value. This would include things like patents and goodwill.

Internal Controls: A company’s plan to prevent theft of its assets and to assure that it’s reporting is accurate.

Inventory: A company’s stock of goods. There are several types of inventory: finished goods, raw material, in-process material, purchased goods. See: Inventory Costing




Job Order Cost Accounting: Used where it is feasible to charge costs directly to a job. See: Job Order Cost Accounting





Journal Entry: An accounting entry that records a transaction.

K



Liability: An obligation to the business, such as a loan.

Lower of Cost or Market: Accounting rule that states that parts in inventory must be valued at the lower of cost or market. See: Inventory Costing

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Managerial Accounting: Accounting that is produced for management, and usually the information produced is not made public. See: Managerial Accounting and Management Cost Accounting

Manufacturing Cost Accounting: Accounting that is produced for management, and usually the information produced is not made public. See: Manufacturing Cost Accounting

Material Cost: The cost of a particular component used in the manufacture of a product. See: Material Cost

MRP: Manufacturing resource package software. See: MRP Software




Net Income: Revenue less expenses for a given period equals net income




Owners Equity: Assets less liabilities equals the owner’s equity in a business.


P

Period Costs: Costs incurred during a particular period of time.

Petty Cash Fund: A company’s small cash fund available to make minor purchases, etc. The fund should be kept balanced by properly recording expenses and cash replenishments.





Retained Earnings: The net income of a company that has not been used or transferred out of the company.

Revenues: Business income from sale of products or services.


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Salaries: Amounts paid per period to those employees that are paid as salary (not hourly)

Sales Forecast: A future prediction of sales for a period, such as monthly, or annually. See: The Forecast

Salvage Value: The expected worth of an asset after it’s useful life.

Scrap: A defective part that has no value except as salvage. See: Scrap Report

Standard Costs: A predetermined cost based on actual inputs or studies. See: Standard Cost Accounting.



Trial Balance: A listing of accounts and the balances.



Useful Life: The anticipated length of time that an asset will be productive.

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Variable Costs: Costs that vary with the amount of production. These costs include direct labor, material costs, etc.

Variances: The difference between two things. Usually used in accounting when comparing actual versus standard, or budget versus actual.

Voucher: Some companies use a voucher system to pay bills. A voucher is a form that goes on top of a voucher package. The voucher will summarize the invoice. The voucher package includes the invoice and any backup information. The voucher usually needs to be approved with signatures before payment.

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Wages: Wages refer to the pay amount of those who receive an hourly pay.







Zero Based Budget: Type of budgeting that assumes that there was no previous budget, and all expenditures need to be justified. Usually a manager will have to show what the workforce he has budgeted will be working on, and that the expenditures for things other than wages are necessary.