Glossary of Terms
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- Accelerated Depreciation Method:
- A depreciation method that writes off a relatively larger amount of the asset’s cost near the start of its useful life than does the straight-line rate.
- Account:
- The basic storage unit of accounting data. There is a separate account for each asset, liability, and component of owner’s equity, including revenues and expenses.
- Accounting:
- An information system that measures, processes, and communicates financial information about an identifiable economic entity
- Accounting equation:
- Assets = liabilities + owner’s equity, or Owner’s equity = assets - liabilities
- Accounting period issue:
- The difficulty of assigning revenues and expenses to a short period of time
- Accounting system:
- The sequence of steps followed in the accounting process that gathers data, puts them into useful form, and communicates the results, including analyzing and recording transactions, posting entries, adjusting and closing the accounts, and preparing financial statements. The methods and records established to identify, assemble, analyze, classify, record, and report a company’s transactions, and to ensure that the objectives of internal control are being met. Also called accounting cycle.
- Accounts receivable:
- Short-term liquid assets that arise from sales on credit at the wholesale or the retail level.
- Accounts receivable aging method:
- A method of estimating uncollectible accounts based on the assumption that a predictable portion of accounts receivable will not be collected.
- Accrual:
- The recognition of an expense that has been incurred or a revenue that has been earned but that has not yet been recorded.
- Accrual accounting:
- The attempt to record the financial effects on an enterprise of transactions and other events in the periods in which those transactions or events occur rather only in the periods in which cash is received or paid by the enterprise; all the techniques by accountants to apply the matching rule.
- Accrued expenses:
- Expenses that have been incurred but are not recognized in the accounts; unrecorded expenses.
- Accrued revenues:
- Revenues for which a service has been performed or goods have been delivered but for which no entry has been made; unrecorded revenues.
- Accumulated depreciation account:
- A contra-asset account used to accumulate the depreciation expense of a specific long-lived asset.
- Adjusted trial balance:
- A trial balance prepared after all adjusting entries has been posted to the accounts.
- Adjusting entries:
- Entries made to apply accrual accounting to transactions that span more than one accounting period.
- Aging of accounts receivable:
- The process of listing each customer in accounts receivable according to the due date of the account.
- Allowance for Uncollectible Accounts:
- A contra account that serves to reduce accounts receivable to the amount that is expected to be collected in cash.
- Allowance method:
- A method of accounting for uncollectible whereby estimated uncollectible accounts are expenses in the period in which the related sales take place.
- American Institute of Certified Public Accountants (AICPA):
- The professional association of certified public accountants.
- Assets:
- Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
- Asset turnover:
- A ratio that measures how efficiently assets are used to produce sales; net sales divided by average total assets.
- Attest function:
- The examination and testing of financial statements by a certified public accountant.
- Audit:
- An examination of the financial statements of a company in order to render and independent professional opinion that they been presented fairly and prepared in conformity with generally accepted accounting principles. Also called the attest function.
- Audit trail:
- The documentary evidence of written approval by key people in a business in routinely reviewing and verifying expenditures before payment is made.
- Average-cost method:
- An inventory cost method that assumes the cost of inventory is based on the average cost of all goods available for sale.