Accounting Terms

Question 1

Account

Answer 1

An account can be defined as a group of transactions that have something in common.

Question 2

Accounts Payable

Answer 2

An account payable is money owed by a company to its creditors or suppliers.

Question 3

Accounts Receivable

Answer 3

An accounts receivable is money owed to a company by its debtors or customers.

Question 4

Accrual Method of Accounting

Answer 4

In accrual accounting, revenue is recorded when earned and expenses are recorded when consumed, not when paid.

Question 5

Accumulated Depreciation

Answer 5

Accumulated depreciation is the total amount of a fixed asset’s cost that has been allocated to depreciation expense since the asset was put into service.

Question 6

Adjusted Depreciation Base

Answer 6

Adjusted depreciation base is the current value minus the declining balance depreciation of last year.

Question 7

Asset

Answer 7

An asset is anything the business uses for its operations, regardless of whether it has been paid in full or not. If a company uses a pick-up truck which it still owes entirely to the bank, it is still considered an asset.

Question 8

Bad Debts

Answer 8

Bad debt is a debt that cannot be recovered.

Question 9

Billing Date

Answer 9

The billing date is the date when the invoice is officially generated.

Question 10

Break-Even Point

Answer 10

The break-even point is when a company’s revenue equal its expenses, there is no profit or loss.

Question 11

Budget

Answer 11

A budget is an estimate of income and expenditures for a set period of time.

Question 12

Cash Discount

Answer 12

A cash discount is a deduction allowed by the seller of goods or by the provider of services in order to motivate the customer to pay within a specified time.

Question 13

Cash Method of Accounting

Answer 13

In cash accounting, revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to its suppliers and employees.

Question 14

Completed Contract Method

Answer 14

Completed contract is an accounting method in which revenue and profit are recognized after the project has been completed.

Question 15

Current Assets

Answer 15

A current asset is one which can be AND is expected to be converted to cash within 12 months during the regular course of business.

Question 16

Current Liability

Answer 16

A current liability is an amount due to a creditor which must be paid within 12 months within the regular course of business.

Question 17

Declining-Balance Depreciation

Answer 17

Declining-balance method is a depreciation technique where a constant percentage is applied to the book value book value of an asset.

Question 18

Depreciable Base

Answer 18

Depreciable base is used to describe the value that is divided by the service life under the asset to determine the annual depreciation expense under the straight-line method. The depreciable base is the value of the asset to be written off over time.

Question 19

Depreciation

Answer 19

A depreciation is the means through which a company writes off the loss it experiences through the wearing down of its assets. Methods of calculating depreciation include straight-line and declining-balance.

Question 20

Financial Ratios

Answer 20

Financial ratios are used to evaluate different aspects of the condition of a company. Some examples of typical ratios are working-capital ratio, quick-assets ratio, and debt-to-equity ratio.

Question 21

Financial Statements

Answer 21

Financial statements are written records that convey the financial activities and conditions of a business. Examples of financial statements are the balance sheet, the profit and loss statement or income statement, and the statement of cash flows.

Question 22

Fixed Asset

Answer 22

A fixed asset is one that cannot and is not expected to be converted into cash within 12 month during the regular course of business.

Question 23

Incentive Discounts

Answer 23

Incentive discounts is a percentage that is discounted from an invoice when paid within a specific number of days.

Question 24

Job Costs Accounting

Answer 24

Job costs accounting is the process of assigning the costs incurred on a specific job.

Question 25

Liability

Answer 25

A long term liability is an obligation that will not be paid off in the current year or accounting period.

Question 26

Modified Accelerated Cost Recovery System (MACRS)

Answer 26

The modified accelerated cost recovered system (MACRS) is a depreciation system that allows the capitalization cost basis of assets to be recovered over a specified life of the asset by annual deductions for value depreciation.

Question 27

Net Working Capital

Answer 27

Net working capital is the aggregate amount of all current assets and current liabilities. It is used to measure the short-term liquidity of a business.

Question 28

Net Worth

Answer 28

Net worth is the difference between assets and the liabilities. It is how much the company would have if everything was sold off and all creditors were paid off.

Question 29

Operating Cycle

Answer 29

An operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods.

Question 30

Overhead Expenses

Answer 30

Overheard expenses are those required to run a business, but which cannot be directly attributed to any specific business activity, product, or service.

Question 31

Owner’s Equity

Answer 31

Owner’s equity represents the owner’s investment in the business minus withdrawal plus net income, since the business began.

Question 32

Percentage Method

Answer 32

Percentage method this method works for any number of withholding allowances the employee claims and any amount of wages.

Question 33

Percentage of Completion

Answer 33

Percentage of completion is an accounting method that designates income and expenses for the portion of work which has been completed on a project.

Question 34

Petty Cash

Answer 34

Petty cash is an accessible store of money kept by an organization for expenditures on small items.

Question 35

Salvage Value

Answer 35

Salvage value is an estimated resale value of an asset at the end of its useful life. It is subtracted from the cost of a fixed asset to determine the amount of the asset cost that will be depreciated.

Question 36

Source Documents

Answer 36

Source documents are the original record containing the details to substantiate a transaction entered in an accounting system. Examples of the asset cost that will be depreciated.

Question 37

Statement of Cash Flows

Answer 37

A statement of cash flows usually shows how the net profits of a business have been used, for example, distribution to owners, payments of liabilities, purchasing new assets.

Question 38

Straight-Line Depreciation

Answer 38

Straight-line depreciation is the default method used to gradually reduce the carrying amount of a fixed asset over its useful life.

Question 39

Useful Life

Answer 39

Useful life is the estimated lifespan of a depreciable fixed asset, during which it can be expected to contribute to company operations.

Question 40

Wage Bracket Method

Answer 40

Wage bracket withholding tables are used to calculate the amount of income that the employer must withhold from each employee’s paycheck.

Question 41

Wage Range

Answer 41

Wage range is the range of pay established by employers to pay to their employees who are performing a particular job or function.

Question 42

Withholding Allowance

Answer 42

Withholding allowance refers to an exemption that reduced how much income tax an employer deducts from an employee’s paycheck.