Accounting & Bookkeeping Terms

You may be wondering about accounting or bookkeeping terms that you encountered in conversation with your accountant or CPA, or on reading news. There are some questions in your mind: what is the mean of ...?, what does this mean?, or what is the definition of ....? The accounting and bookkeeping terms are put together here to help you understand basic accounting jargon or buzz words.

Account - A systematic arrangement that shows the effect of transactions and other events on a specific element (asset, liability, and so on). Companies keep a separate account for each asset, liability, revenue, and expense, and for capital (owners’ equity). Because the format of an account often resembles the letter T, it is sometimes referred to as a T-account.

Accounting - Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the financial statement.

Accounts Payable - Accounts payable includes all expenses arising from credit purchases of merchandise or services from vendors or suppliers. As ongoing expenses of your company, they typically are current liabilities due within 12 months of the transaction date.

Accounts Receivable - Accounts receivable represents revenue that has been both earned and billed but not yet received.

Accrual Basis Accounting - Method of accounting that recognizes revenues when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.

Accrued Expense - Accrued expenses, or accrued liabilities, are payment obligations that you will pay in the future for merchandise or services already provided to your company. You recognize accrued liabilities at the end of the accounting period through adjusting entries. Unlike accounts payable, where you've received an invoice, accruals are delays in payment obligations.

Accrued Revenue - Accrued revenue is money your company has earned but hasn't yet billed the customer for. It goes on the balance sheet as a current asset. In accrual-basis accounting, companies are allowed to record revenue on their income statement as soon as they have done everything required to earn it.

Adjusting Entries - Entries made at the end of an accounting period to bring all accounts up to date on an accrual basis, so that the company can prepare correct financial statements.

Balance Sheet - Basic  financial statement , usually accompanied by appropriate disclosures that describe the basis of  accounting used in its preparation and presentation of a specified date the entity's assets, liabilities and the equity of its owners. Also known as a statement of financial condition./p>

Cash Basis - Method of bookkeeping by which revenues and expenditures are recorded when they are received and paid.

Closing Entries - The formal process by which the enterprise reduces all nominal accounts to zero and determines and transfers the net income or net loss to an owners’ equity account. Also known as “closing the ledger,” “closing the books,” or merely “closing.”

Deferred Revenue - Deferred revenue reflects cash receipts in connection with goods and services that have not yet been delivered or rendered. Deferred revenue is located in the liabilities section of a balance sheet.

Financial Statements - Collection, tabulation, and final summarization of the accounting data including balance sheets, income statements, statements of cash flow, and statement of retained earnings that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.

Income Statement - Summary of the effect of  revenues and expenses over a period of time.

Journal - The “book of original entry” where the company initially records transactions and selected other events. Various amounts are transferred from the book of original entry, the journal, to the ledger. Entering transaction data in the journal is known as journalizing.

Ledger - The book (or computer printouts) containing the accounts. A general ledger is a collection of all the asset, liability, owners’ equity, revenue, and expense accounts. A subsidiary ledger contains the details related to a given general ledger account.

Nominal Accounts - Nominal (temporary) accounts are revenue, expense, and dividend accounts; except for dividends, they appear on the income statement. Companies periodically close nominal accounts; they do not close real accounts.

Posting- The process of transferring the essential facts and figures from the book of original entry to the ledger accounts.

Prepaid Expense - Expense paid in advance that applies to a future accounting period.

Real Accounts - Real (permanent) accounts are asset, liability, and equity accounts; they appear on the balance sheet.

Statement of Cash Flows - A statement of cash flows is one of the basic financial statements that is required as part of a complete set of financial statements prepared in conformity with generally accepted accounting principles. It categorizes net cash provided or used during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash equivalents.

Statement of Retained Earnings - Statement of retained earnings reconciles the balance of the retained earnings account from the beginning to the end of the period.

Trial Balance - The list of all open accounts in the ledger and their balances. The trial balance taken immediately after all adjustments have been posted is called an adjusted trial balance. A trial balance taken immediately after closing entries have been posted is called a post-closing (or after-closing) trial balance. Companies may prepare a trial balance at any time.