Accounting Definitions Flashcards
Define Accounts Payable
A current liability account on the Balance Sheet that typically captures outstanding invoices suppliers have sent the business for goods that have been shipped or services that have been rendered for the business. Also called payables.
Define Accounts Receivable
A current asset account on the Balance Sheet that typically captures outstanding invoices that your business sends to customers after it ships merchandise or fulfills a service. Also called receivables.
Define Accounts Receivable Turnover Rate
A measure of the efficiency of your collections department, indicating how many times a year it collects on receivables. Accounts Receivable Turnover Rate = Yearly Credit Sales ÷ Accounts Receivables
Define Accrual Basis Accounting
A method of accounting that captures sales and expenses as they happen regardless of when the cash event occurs; net revenues are booked when the goods are shipped out the door or invoices sent, not when payment is received and, similarly, expenses are booked when bills and invoices from suppliers or subcontractors are due, not when the business pays them.
Define Aging Invoices Report
A report that shows all unpaid invoices, the due date for payment of each and the number of days it is outstanding, the amount due on each invoice, and the client responsible for each invoice.
Define Assets
What the business owns and has title to, including unpaid invoices. B
Define Balance Sheet
The financial statement that captures all the outstanding loans and debt or liabilities incurred by the business since its inception, the value of all your business’s assets, and its net worth.
Define Beginning Cash
The amount of money in a business’s account at the beginning of the month, before payments are received and expenses paid; it’s the same amount as the previous month’s Ending Cash.
Define Bond
A usually long-term debt instrument that formalizes a loan between a lender and a borrower, reflecting the amount owed and payment terms for that specific loan; it’s an asset (receivable) to the lender and a liability (payable) to the borrower.
Define Bottom Line
See net income.
Define Breakeven Point
The point at which a business “breaks even,” which occurs when its net income is neither positive nor negative but is zero, net revenues are large enough to cover all fixed and variable expenses, and the business has the potential to generate sustainable profits.
Define Breakeven Unit Volume
The number of units sold that corresponds to the number of units that must be sold to reach the breakeven point. Also called breakeven volume and breakeven point volume.
Define Cash Basis Accounting
A method of accounting that records when cash comes in from customer payments and when cash goes out to pay bills; revenues and expenses do not get captured on the Net Income Statement until a cash transaction is made.
Define Cash Flow Statement
The financial document that measures the flow of cash in and out of your business; the Ending Cash for one month becomes the Beginning Cash for the following month.
Define Cash In
The line on your Cash Flow Statement that captures all the cash coming into the business. Also called Cash Received.
Define Cash Out
The line on your Cash Flow Statement that captures all the cash going out of the business to pay expenses. Also called Cash Expenses.
Define Collateral
An asset that is pledged against a loan; it can be liquidated if the business defaults on the loan.
Define Cost Of Goods Sold (COGS)
A direct variable cost made up of the expenses associated with manufacturing, purchasing, or delivering a product or a service; it includes your direct materials and direct labor costs. See also unit cost.
Define Credit Lines Payable
Typically, revolving lines of credit that can be used in part or in full; as the money gets paid back, the credit line opens up again.
Define Credit Sales
Sales transactions where the client receives the good or service and is extended payment terms to pay the bill with cash or a cash equivalent at some point in the future.
Define Current Assets
Cash (in a bank account, money market account, or CD), accounts receivable (money owed the business), and inventory that can be converted into cash within 12 months.
Define Current Liabilities
Obligations on the part of the business that need to be paid within 12 months; includes accounts payable, notes payable, and credit lines payable.
Define Current Ratio
A measure of short-term liquidity that will tell you if there’s enough accessible cash in the business to pay short-term obligations: Current Ratio = Total Current Assets ÷ Total Current Liabilities
Define Depreciation
A portion of the total expense of an asset that is deducted each year over the useful life of the asset until the total original cost is accounted for.
Define Earnings Before Taxes (EBT)
Earnings from operations before federal, state, and local taxes are paid.
Define Ending Cash
The amount of cash in a business’s account at the end of the month, after payments received have been added and expenses paid have been deducted from Beginning Cash; one month’s Ending Cash becomes the following month’s Beginning Cash.
Define Equity Investment
Capital that a business owner has put into the business at start-up, and sometimes later as well; it appears on the Balance Sheet, under owner’s equity.
