Account Balance

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accrual

Back 1

The process of recognizing revenue that has been earned but not collected, or an expense that has been incurred but not paid.

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accrued

Back 2

Describes revenue that has been earned and a related asset that will be collected, or an expense that has been incurred and a related liability that will be paid.

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adjustment

Back 3

An entry usually made during the process of "closing the books" that results in more accurate financial statements. Adjustments involve accruals and reclassifications. Adjustments are sometimes made at the end of interim periods, such as month-end or quarterend, as well.

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charge

Back 4

in bookkeeping, a synonym for debit.

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closing the books

Back 5

The process of posting transactions, adjustments, and closing entries to the ledger and preparing the financial statements.

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credit

Back 6

The right side of an account. A decrease in asset and expense accounts; an increase in liability, owners' equity, and revenue accounts.

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debit

Back 7

The left side of an account. An increase in asset and expense accounts; a decrease in liability, owners' equity, and revenue accounts.

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entry

Back 8

a journal entry or a posting to an account.

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horizontal model

Back 9

A representation of the balance sheet and income statement relationship that is useful for understanding the effects of transactions and adjustments on the financial statements.

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journal

Back 10

a chronological record of transactions.

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journal entry

Back 11

A description of a transaction in a format that shows the debit account(s) and amount(s) and credit account(s) and amount(s).

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ledger

Back 12

A book or file of accounts

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on account

Back 13

Used to describe a purchase or sale transaction for which cash will be paid or received at a later date. A "credit" transaction.

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post

Back 14

The process of recording a transaction in the respective ledger accounts using a journal entry as the source of the information recorded.

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source document

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Evidence of a transaction that supports the journal entry recording the transaction.

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account balance

Back 16

The arithmetic sum of the additions and subtractions to an account through a given date.

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T-account

Back 17

An account format with a debit (left) side and a credit (right) side.

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transactions

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Economic interchanges between entities that are accounted for and reflected in financial statements.

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transaction analysis methodology

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he process of answering five questions to ensure that a transaction is understood:

1. What's going on?
2. What accounts are affected?
3. How are they affected?
4. Does the balance sheet balance? (Do the debits equal the credits?)
5. Does my analysis make sense?

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administrative controls

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Features of the internal control system that emphasize adherence to management's policies and operating efficiency.

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Allowance for Uncollectible Accounts (or Allowance for Bad Debts)

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The valuation allowance that results in accounts receivable being reduced by the amount not expected to be collected.

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bad debts expense (or uneollectible accounts expense)

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An estimated expense, recognized in the fiscal period of the sale, representing accounts receivable that are not expected to be collected.

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bank reconciliation

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The process of bringing into agreement the balance in the Cash account in the entity's ledger and the balance reported by the bank on the bank statement

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bank service charge

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The fee charged by a bank for maintaining the entity's checking account.

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carrying value

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The balance of the ledger account (including related contra accounts, if any) of an asset, liability, or owners' equity account. Sometimes referred to as book value.

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cash

Back 26

A company's most liquid asset; includes money in change funds, petty cash, undeposited receipts such as currency, checks, bank drafts, and money orders, and funds immediately available in bank accounts.

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cash discount

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A discount offered for prompt payment.

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cash equivalents

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Short-term, highly liquid investments that can be readily converted into cash with a minimal risk of price change due to interest rate movements; examples include U.S. Treasury securities, bank CDs, money market funds, and commercial paper.

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collateral

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Assets of a borrower that can be used to satisfy the obligation if payment is not made when due.

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collect on delivery (COD)

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requirement that an item be paid for when it is delivered. Sometimes COD is defined as "cash" on delivery.

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commercial paper

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A short-term security usually issued by a large, creditworthy corporation.

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contra asset

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An account that normally has a credit balance that is subtracted from a related asset on the balance sheet.

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cost-flow assumption

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An assumption made for accounting purposes that identifies how costs flow from the Inventory account to the Cost of Goods Sold account. Alternatives include specific identification; weighted average; first-in, first-out; and last-in, first-out.

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cost of goods sold model

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The way to calculate cost of goods sold when the periodic inventory system is used. The model is: Beginning inventory + Purchases = Cost of goods available for sale - Ending inventory = Cost of goods sold

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credit terms

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A seller's policy with respect to when payment of an invoice is due and what cash discount (if any) is allowed.

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deferred charge

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An expenditure made in one fiscal period that will be recognized as an expense in a future fiscal period. Another term for a prepaid expense.

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deferred tax asset

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An asset that arises because of temporary differences between when an item is recognized for book and tax purposes.

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deferred tax liability

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A liability that arises because of temporary differences between when an item is recognized for book and tax purposes.

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deposit in transit

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A bank deposit that has been recorded in the entity's cash account but that does not appear on the bank statement because the bank received the deposit after the date of the statement.

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financial controls

Back 40

Features of the internal control system that emphasize accuracy of bookkeeping and financial statements and protection of assets.

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finished goods inventory

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The term used primarily by manufacturing firms to describe inventory ready for sale to customers.

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first in, first out (FIFO)

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The inventory cost-flow assumption that the first costs in to inventory are the first costs out to cost of goods sold.

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imprest account

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An asset account that has a constant balance in the ledger; cash on hand and vouchers (as receipts for payments) add up to the account balance. Used especially for petty cash funds.

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internal control system

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Policies and procedures designed to provide reasonable assurance that objectives are achieved with respect to: 1. The effectiveness and efficiency of the operations of the organization. 2. The reliability of the organization's financial reporting. 3. The organization's compliance with applicable laws and regulations.

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inventory profits

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Profits that result from using the FIFO cost-flow assumption rather than LIFO during periods of inflation. Sometimes called phantom profits.

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last in, first out (LIFO)

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The inventory cost-flow assumption that the last costs in to inventory are the first costs out to cost of goods sold.

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LIFO liquidation

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Under the LIFO cost-flow assumption, when the number of units sold during the period exceeds the number of units purchased or made, at least some of the costs assigned to the LIFO beginning inventory are transferred to Cost of Goods Sold. As a result, outdated costs are matched with current revenues and inventory profits occur.

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lower of cost or market

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A valuation process that may result in an asset being reported at an amount less than cost.

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merchandise inventory

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The term used primarily by retail firms to describe inventory ready for sale to customers.

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net realizable value

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he amount of funds expected to be received upon sale or liquidation of an asset. For accounts receivable, the amount expected to be collected from customers after allowing for bad debts and estimated cash discounts.

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note receivable

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A formal document (usually interest bearing) that supports the financial claim of one entity against another.

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NSF (not sufficient funds) check

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A check returned by the maker's bank because there were not enough funds in the account to cover the check.

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operating cycle

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The average time it takes a firm to convert an amount invested in inventory back to cash. For most firms, the operating cycle is measured as the average number of days to produce and sell inventory plus the average number of days to collect accounts receivable.

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outstanding check

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A check that has been recorded as a cash disbursement by the entity but that has not yet been processed by the bank.

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periodic inventory system

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A system of accounting for the movement of items in to inventory and out to cost of goods sold that involves periodically making a physical count of the inventory on hand.

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perpetual inventory system

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A system of accounting for the movement of items in to inventory and out to cost of goods sold that involves keeping a continuous record of items received, items sold, inventory on hand, and cost of goods sold.

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petty cash

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A fund used for small payments for which writing a check is inconvenient.

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prepaid expenses

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Expenses that have been paid in the current fiscal period but that will not be subtracted from revenues until a subsequent fiscal period when the benefits are received. Usually a current asset. Another term for deferred charge.

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physical inventory

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The process of counting the inventory on hand and determining its cost based on the inventory cost-flow assumption being used.

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prepaid insurance

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An asset account that represents an expenditure made in one fiscal period for insurance that will be recognized as an expense in a subsequent fiscal period to which the coverage applies.

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raw materials inventory

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Inventory of materials ready for the production process.

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short term marketable securities

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Investments made with cash not needed for current operations.

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specific identification

Back 63

The inventory cost-flow assumption that matches cost flow with physical flow.

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valuation account

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A contra account that reduces the carrying value of an asset to a net realizable value that is less than cost.

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valuation adjustment

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An adjustment that results in an asset being reported at a net realizable value that is less than cost.

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weighted average

Back 66

The inventory cost-flow assumption that is based on an average of the cost of beginning inventory plus the cost of purchases during the year, weighted by the quantity of items at each cost.

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Work in Process Inventory

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Inventory account for the costs (raw materials, direct labor, and manufacturing overhead) of items that are in the process of being manufactured.

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write-off

Back 68

The process of removing a specific account receivable that is not expected to be collected from the Accounts Receivable account. Also used generically to describe the reduction of an asset and the related recognition of an expense.