Accounting Glossary

Question 1

Accounting

Answer 1

Can be called the language of business, it is the interpretation and presentation of financial data to business owners and investors.
Typically consists of generating:
- financial statements and reports
- budgets
- tax returns
- business performance analysis

Question 2

Accounting Software

Answer 2

Software that does various accounting and bookkeeping tasks, stores business’ financial data, and can also be used to perform business transactions.

Question 3

Accounts Payable

Answer 3

The amount of money a business owes creditors (suppliers, etc.) in return for goods and/or services received by the business.

Question 4

Accounts Receivable

Answer 4

The amount of money owed to the business by customers or clients after delivery/use of goods/services. Also known as receivables, trade debtors, or AR.

Question 5

Adjusted Trial Balance

Answer 5

An internal document that lists the general ledger account titles and their balances after any adjustments have been made. The total amount of the debit balances must be equal to the total amount of credit balances.

Question 6

Assets

Answer 6

“The stuff the business owns.”

Something owned by the entity which will be used in the business and used to generate revenue.

Question 7

Balance Day Adjustments

Answer 7

Adjustments that need to be made on some accounts at the end of the financial year, so that they accurately reflect the position of the business.

Question 8

Balance Sheet

Answer 8

A financial report that summarises a business’ assets (what it owns), liabilities (what it owes), and owner or shareholder equity at a given time.
Also known as a statement of financial position.

Question 9

Bookkeeping

Answer 9

Term used to describe the recording and organisation of financial data.
Typically consists of:
- payroll
- invoicing
- receipts and bills
- recording business transactions

Question 10

Business Accounting

Answer 10

The systematic recording, analysisng, interpreting and presentation of financial information.

Question 11

Capital

Answer 11

“The stuff the business owes to the owners.”

Includes cash and other assets introduced by the owners into a business which is normally as separate components, and then as a total capital figure or opening capital it represents the ownership in a company.

Question 12

Chart of Accounts

Answer 12

A listing of all accounts available to be used to record accounting entries, typically in numerical order (binary code) and grouped into the five accounting elements: assets, liabilities, equity, revenue and expenses.

Question 13

Cash flow and cash flow management

Answer 13

The revenue or expense expected to be generated through business activities. The process for tracking how much money is coming into and out of the business

Question 14

Cash flow statement

Answer 14

A financial report that shows where money has come from and where it is going to. Also known as statement of cash flow, or CFS. Unlike a income statement, a cash flow statement only includes spendable money.

Question 15

Credit

Answer 15

An accounting entry that may either decrease assets or increase liabilities and equity on the balance sheet.

Question 16

Current assets

Answer 16

Assets that will be converted to cash within one year, such as:

• cash
• inventory
• accounts receivable

Question 17

Debit

Answer 17

An accounting entry where there is either an increase in assets or a decrease in liabilities on a balance sheet.

Question 18

Double-entry accounting

Answer 18

In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. This makes it easier to prepare accurate financial statements and detect errors.

Question 19

Equity (Owner’s equity)

Answer 19

Generally equity is assets minus liabilities. An owner’s equity is explained in terms of the percentage of stock a person has ownership interest in the business.

Question 20

Executive summary

Answer 20

A simplified, condensed version of a longer document. It should contain the purpose and goals of the business.

Question 21

Expenses

Answer 21

The fixed, variable, accrued, or day-to-day costs that a business incurs in its operation to sell goods or services. Types of expenses include:

• Fixed expenses - such as rent that happens regularly.
• Variable expenses - such as labour cost; may change in a given time period.
• Accrued expenses - an incurred expense that has not yet been paid.
• Operational expenses - such as advertising, insurances, wages, etc.

Question 22

Financial accounting

Answer 22

Information that appears in financial statements primarily for external use e.g. investors, creditors, although management can use the information for certain internal decisions. The information is used by external parties when making decisions about increasing/decreasing investment or to extend credit.

Question 23

Financial reporting

Answer 23

A formal process to track, analyse and report a business’ income for the purpose of:

• providing information to investors
• tracking cash flow
• analysing assets, liabilities, and owner’s equity

Question 24

Financial statement

Answer 24

A report that shows the financial information of a business. There are four main types:

• balance sheet
• profit and loss statement
• cash flow statement
• statement of movements in equity

Question 25

Fixed assets

Answer 25

Any asset that cannot be easily converted to cash. Typically tangible, physical things that have an economic life of longer than a year, such as: - buildings - vehicles - furniture - office equipment.

Question 26

GAAP

Answer 26

Generally Accepted Accounting Principles A set of rules and guidelines developed by the accounting industry for compaines to follow when reporting financial data.

Question 27

Gross profit

Answer 27

The amount of money a business makes from sales after deducting the cost of making and selling their product and before operating costs, payroll, tax, and overheads are paid.

Question 28

Income

Answer 28

Revenue earned by the business by selling goods or services

Question 29

Income statement

Answer 29

This term is interchangeable with profit and loss statement. Please see the glossary entry for Profit and loss statement.

Question 30

Liabilities

Answer 30

"The stuff the business owes to third parties." A business' debts or financial obligations incurred during business operations. - Current liabilities - debts that are payable within a year. - Long-term liabilities - debts that are typically paid over a period of time, greater that one year.

Question 31

LLC

Answer 31

Limited Liability Company A corporate structure where members cannot be held accountable for business debts or liabilities.

Question 32

Managerial accounting

Answer 32

This information is used by internal managers for a range of activities, including long-range planning to detailed explanations of why actual costs varied from estimated costs. Management in a business prepare the financial statements, so must be knowledgeable concerning financial accounting and reporting.

Question 33

Net income

Answer 33

The total amount of profit a business makes after deducting expenses such as: - cost of sales (cost of goods sold) - overheads - tax

Question 34

Net profit margin

Answer 34

Net income ÷ total sales = net profit margin Shows what percentage of sales is actual profit.

Question 35

Profit and loss statement

Answer 35

Shows how much a business has spent and earned over a specified time, and whether there has been a profit or loss over the same time period. Also know as income statement, statement of operations, statement of earnings, or P&L.

Question 36

Separation of duties

Answer 36

Separation of duties (also known as Segregation of Duties) is the concept of having more than one person required to complete a task. In business the separation by sharing of more than one individual in one single task is an internal control intended to prevent fraud and error. Source: Separation of duties (September 8, 2020). In Wikipedia. https://en.wikipedia.org/wiki/Separation_of_duties. Text is available under the Creative Commons Attribution-ShareAlike License.

Question 37

Statement of movements in equity

Answer 37

Along with the profit and loss statement and the balance sheet, this is one of the financial statements prepared in accrual accounting. This statement explains the changes in an organisation's capital, accumulated reserves and retained earnings over the reporting period. Also known as the statement of changes in equity or statement of retained earnings.

Question 38

Tax accounting

Answer 38

Accounting methods that focus on taxes rather than the appearance of public financial statements. Tax accounting is governed by the IRD, which dictates the specific rules that companies and individuals must follow when preparing their tax returns.

Question 39

Trial balance

Answer 39

A business document in which all ledgers are compiled into debit and credit columns in order to ensure the bookkeeping system is mathematically correct (i.e. it balances).

Question 40

Unadjusted trial balance

Answer 40

Is the listing of the general ledger account balances at the end of a reporting period, before any balance day adjustments are made to the balances when creating financial statements. Used as the starting point for analysing account balances and making adjusted entries.

Question 41

Working capital

Answer 41

The amount of cash a business has after factoring in short term debts. Working capital is current assets less current liabilities.

Question 42

Economic Benefit

Answer 42

Is the potential for an asset to contribute either directly or indirectly to the flow of an entity's cash.

Question 43

Account (Ledger)

Answer 43

A place where we can record, sort and store financial transactions.

Question 44

T-Account

Answer 44

A graphical representation of an account.

Question 45

General Ledger

Answer 45

A place where a business stores a complete record of all its financial transactions and accounts.