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Account

Each category of asset, liability, equity, income  or expense for which transactions are recorded separately.  Accounts can have a normal debit or credit balance.  Account records are usually kept as separate pages in a book called a ledger. Accounts are sometimes called ledger accounts, or general ledger accounts.

Accounting Equation

The basis for the entire accounting process:

Assets = Liabilities + Equity

or

Equity = Income - Expenses.

Accounting Period

This is the period of time over which income is calculated and adjustments are made.  Most accounting systems have an accounting period of one month.

Accounts Payable

Money owed by the company for goods and services provided on credit by its suppliers.

Accounts Receivable

Accounts maintained by a business for its customers who purchase goods and services on credit.

Accrual Method

A method of stating income for an accounting period which involves matching income and expenses to the period in which the sale or debt occurred.

Accrued Expenses

Expenses which have accrued but have not yet been recorded in the books because no invoice has been received.

Adjustments

Journal entries to record accrued expenses, depreciation, accrued income, bad debts and other items which must be recorded at the end of the accounting period in order to accurately state income.  The journal entries to record adjustments are called adjusting entries.

Assets

All the physical things and other items of value owned by a company.  Assets include finished and unfinished inventory, land, buildings, cash, and money owed to the company from credit sales.

Audit trail

The cross-referencing of business records and documents that allows an accountant to trace a transaction to its origin.

Backorder

A sales order line item condition where more is ordered than is available on hand for a given product.

Bad Debts

The amounts not paid when a customer does not pay all or part of what is owed by him.  It is recorded as an expense by an adjusting entry.

Balance Sheet

A summary of what a company owns and owes on a particular day.  It has three main categories:  assets, liabilities, and equity.

Cash Disbursement

A record of cash payments.

Cash Disbursements Journal

Records A/P check transactions (including manual checks) and CD type transactions from GL-B.

Cash Flow Statement

The statement of changes in financial position with funds defined as cash; primarily used for internal decision making.

Cash Receipt

A record of the receipt of cash sales and other sources.

Records CR type entries from GL-B, cash terms type transactions from invoice posting (SO-F or SO-G), and receipt of payment by check from AR-C.

Chart of Accounts

An index of the accounts in the ledger by their account number.  See also Ledger.

Classified Statements

Financial statements that group accounts into sets that give similar information.  See also Balance Sheet, Income Statement, and Cash Flow Statement.

Clearing Account

An account used for transactions when a General Ledger account code is not found during posting.

Closing the Books

The process of adjusting income and expense accounts so that they have a zero balance, and that the net amount is applied to Retained Earnings, at the end of an accounting year.  It is done to ensure that the books are ready to record the next accounting year's transactions.

Contra Account

An account whose balance is on the opposite side of the account to which it is related.  Examples include accumulated depreciation, which is a contra asset, sales discounts, which is a contra income, purchases returns, which is a contra expense, and discount on bonds payable, which is a contra liability.

Cost Accounting

A system of allocating costs or expenses incurred to a particular job, department or project so that a company's management can quickly determine if the project is meeting its budget or earning the company any profits.

Cost of Goods Manufactured

The cost of the raw materials, direct labor, and factory overhead incurred in producing all the goods manufactured during the period.

Cost of Goods Sold (COGS)

The cost of the raw materials, direct labor, and factory overhead incurred in producing all the goods sold during the period.

Current Assets

Assets which are converted into cash or realized in the ordinary course of business, usually within one year.

Current Liabilities

Liabilities that become payable within one year of the balance sheet date.

Credit (CR)

Increasing the balance of an account with a credit balance is called crediting, as is decreasing the balance of an account with a debit balance.

Credit Memo

A voucher which enters a credit from a vendor into the A/P transaction file.

Records all no-cash transactions from Accounts Payable, including sales and payroll tax transfers

 

Records all non-cash transactions from Accounts Receivable

 

Credit Sales Order

A sales order with negative line item quantities entered, intended to offset the effect of a posted invoice.  Sometimes called a "reversing" sales order.

Data File

Any of the windows files containing accounting information entered into and generated by the accounting system.

Debit (DR)

Increasing the balance of an account with a debit balance is called debiting, as is decreasing the balance of an account with a credit balance.

Depreciation

Allocation of the cost of a physical asset (such as a piece of equipment) over its useful life.  It is recorded as an expense.

Destructive Close

See Closing the Books.

Direct Labor Costs

Wages paid to employees (laborers and supervisors) who work directly on the product being manufactured.

Division

See Payroll Division.

Double Entry System

An accounting system that requires recording the dual aspects of every business transaction.  Each transaction affects at least two accounts and requires recording an equal dollar amount of debits and credits.

Earnings

The accumulated total of after-tax profits and losses from operations over the life of the company.  Profits add to the total and losses subtract from it. If the company has had more losses than profits, the amount will be negative.  See also Retained Earnings.

Expenses

The amount a company spends to provide goods and services to its customers or to carry on its business, excepting amounts spent to acquire assets.

Financial Statements

The balance sheet, income statement, and cash flow statement.

Fiscal Year

The twelve month period which the company chooses as its year for accounting purposes.  It is not necessarily the same as a calendar year.

FICA

(Federal Insurance Contribution Act) Social Security withheld from the employee and expensed to the employer.

Fixed Assets

Assets such as land, buildings, equipment and trucks that are used in operating the business and which have a long life.

Flag

A term used to describe a program status setting. Typically, a decision is made by the program depending on the value of the flag.

FUTA (Federal Unemployment Tax Act)

Employer's annual Federal unemployment tax paid by the employer by statute.

General Ledger

The collection of all permanent and temporary accounts of a business, in which information from the journal is recorded by a process called posting.

General Journal

A chronological record of non-cash transactions, such as adjustments.

Gross Profit on Sales

The profit made on selling the inventory before the Selling and Administrative expenses are taken into account.  It is the value of the Sales minus the Cost of Goods Sold.

History

See Transaction History.

Income

The amount that a company earns by selling goods and services.

Income statement

A statement which shows the income and expenses for a specified period of time.

Inventory

The goods a business has available for sale to their customers.  For retailers or wholesalers, the goods themselves are not modified in any major way from the time they are received until the time they are sold.  A manufacturing company's inventory will consist of raw materials, work in process, and finished products manufactured but not yet sold. See also Non-Inventory.

Inventory Location

Multiple inventory locations allow independent tracking of units on hand, units on sales order, and units on purchase order from differing physical sites or profit centers.

Inventory Reserve

An inventory condition, also called "on hold," in which the units are removed from units on hand, but the order (or the selected line items) will not appear on packing slips, no invoice is printed, no posting is done.  Inventory units are placed on reserve by setting the ready-to-ship flag on the sales order or individual line items to N.  Inventory units on reserve must released before they can be invoiced or shipped.  See Ready-to-Ship, Sales Order Release.

Invoice

A document that describes the sale of a product or service and transfers ownership to the purchaser.  It specifies the product, price, and the terms of the sale.

Journal

An accounting record in which a business' transactions are recorded in chronological order as they occur.  It is also called the General Journal.  See also Journal Entry.

Journal Entry

A systematic record of a business transaction showing the accounts affected and the amounts of debits and credits and containing sufficient other information to describe the transaction completely.

Ledger

An historical record of all of the balance sheet and income statement accounts.  Entries are made to the ledger through a process called posting.  See also Account.

Liabilities

All the debts and money owed to others by the company.  Liabilities include loans from banks, loans from shareholders, and unpaid amounts owed to suppliers and others.

Line Item

Any individual line that will print in the invoice body on an invoice form. Backorders and reserved items are also line items.

Location

See Inventory Location.

Long Term Liabilities

Liabilities that are not due to be paid during the next 12 months.

Manual Check

A check typed or written by hand as opposed to one that is printed by a computer.

Net Sales

See Income.

Non-Cash General Ledger Account

An account not directly affected by the receipt or disbursement of cash, such as depreciation and amortization.

Non-Destructive Close

A process of calculating the Current Earnings from the Income and Expense accounts without setting the account balances to zero.  This can be done continually without undesirable effects.

Non-Inventory

A category within Inventory Control which keeps track of sales and price but disregards units on hand.

NSF check

A check for which there are not sufficient funds to cover, and which a bank consequently refuses to honor.

Opening the Books

The process of setting up a new set of books with the correct balance sheet, account balances, and zero balances in the income and expense accounts.  When this is done, the new books are ready to record the upcoming accounting year's transactions.

Other Journal

Records inventory value or quantity changes and bank account funds transfer.

 

Owners' Equity

The interest or stake the owners have in a company.  It is the owners' original investment plus the accumulation of all profits that have been retained in the company since its conception.  It may be calculated by subtracting the value of the liabilities from the value of the assets.  See also Shareholders' Equity.

Packing Slip

An intermediate document used by warehouse operations to stage and fill orders prior to getting the actual printed invoice for delivery.

Payroll Division

A way of assigning different sets of payroll deductions to different groups of employees, or the name given to such a set of deductions.

Prepaid Expenses

Expenses which are paid for in advance.  The benefits from the prepaid expenses last into the future.  Insurance and rent are typical prepaid expenses.

Price Matrix

A convenient method of providing salespeople with allowable price breaks for various goods and services.

Profit

See Income.

Profit Center

A department, sales, region, project or any other part of a company for which income and expenses can be identified to determine if the division is earning profits.

Purchase Order

A document to convey to a vendor that a commitment has been made to purchase a product at a specific price under specified terms.

Ready to Ship

An inventory status description indicating that a line item or sales order will invoice print and post normally.  This also refers to a Y setting of a ready-to-ship flag.  See Inventory Reserve.

Recurring Transaction

Any transaction such as a lease payment or bank charge that occurs on a regular periodic schedule.  These can be handled by voucher, invoice, or General Journal entry, whichever is most appropriate.

Release

See Sales Order Release.

Reserve

See Inventory Reserve.

Retained Earnings

The accumulated total of after-tax profits and losses over the life of the corporation.  If a corporation had more losses than profits, the amount of Retained Earnings will be negative.  Any dividends paid are also subtracted from Retained Earnings.  See also Earnings.

Sales

See Income.

Sales Order

A record of customer orders that can have delivery invoices applied against it. A sales order records inventory sales shipped, backordered and reserved.

Sales Order Release

The process of allowing sales order line items which have been placed on hold to be assigned an invoice number for invoice printing, invoice posting, and shipping.

SDI

State Disability Insurance (payroll deduction category)

Soft Close

See Non-Destructive Close.

Source Document

An invoice, a bill, or other physical document on which the transaction recorded by the journal entry is based.

Subsidiary Ledger

A system in which a particular ledger account (e.g., Accounts Receivable) has its own ledger called a subsidiary ledger.  There is generally an account in the subsidiary ledger for each customer (or supplier or employee).

SUTA

(State Unemployment Tax Act)  State unemployment security, a statutory assessment.

Template (Recurring Transactions)

General Journal transactions, Invoices, and Vouchers that are repeated on a periodic basis can be saved as a template, or general format, to be generated at the appropriate time.

Terms of a Sale

The manner and time in which a purchase is to be paid.

Transaction History

The record kept of transaction data after the transactions are posted.  A history of this kind can be used to void paid checks or enter reversing transaction later.  See Credit Sales Order.

Trial Balance (or Detailed Trial Balance)

The process of totalling the debit and credit balances of all the accounts in the ledger to ensure that there have been no posting or adding mistakes and that the total debits equal the total credits.

Units on Hand

Inventory units available for sale, not on reserve, backorder, or sales order.

Units on Purchase Order

Inventory units which have been ordered but not received.

Units on Sales Order

Inventory units sold to a customer but not shipped or on reserve.  At the time of the order the units are removed from units on hand.

Voucher (A/R, A/P)

A method of cash control requiring that all expenditures must be approved before checks are issued in payment.

Withdrawal

The money taken out of a company by a proprietor or partner.

Work Sheet

An accounting tool used for preparing end-of-period procedures without disturbing the books of account.

 

 

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