Accounting Terminologies

• Account Payable
• Amount owed to a CREDITOR for delivered goods or completed services.
•
Account Receivable
• Claim against a DEBTOR for an uncollected amount, generally from a
completed transaction of sales or services rendered.
• Accountant
• Person skilled in the recording and reporting of financial transactions.
Accounting Cycle
• The sequence of steps followed in the accounting process to measure business
transactions and transform the measurements into FINANCIAL STATEMENTS for a
specific period.
• Accrual
• The recognition of an expense or revenue that has occurred but has not yet been
paid.
•
Accrual Accounting
• The attempt to record the financial effects of transactions and other events in the
periods in which those transactions or events occur rather than only in the periods in
which cash is received or paid by the business, using all the techniques developed by
accountants to apply the MATCHING PRINCIPLE.
•
• Accrual Basis
• Method of ACCOUNTING that recognizes REVENUE when earned, rather than when
collected. Expenses are recognized when incurred rather than when paid.
• Depreciation
• Expense allowance made for wear and tear on an ASSET over its estimated useful life.
•
Accumulated Depreciation
• Total DEPRECIATION pertaining to an ASSET or group of assets from the time the assets
were placed in services until the date of the FINANCIAL STATEMENT. This total is the
CONTRA ACCOUNT to the related asset account.
• Allowance for Doubtful Accounts
• A contra-asset account used to reduce ACCOUNTS RECEIVABLE to the amount that is
expected to be collected in cash.
•
• Additional Paid in Capital
• Amounts paid for stock in excess of its PAR VALUE or STATED VALUE. Also,
other amounts paid by stockholders and charged to EQUITY ACCOUNTS
other than CAPITAL STOCK.
•
Adjusted Trial Balance
• A trial balance prepared after all adjusting entries have been recorded and
posted to the accounts. Should have equal credit and debit totals.
Auditing Standards
• Guidelines to which an AUDITOR adheres. Auditing standards encompass the
auditor's professional qualities, as well as his or her judgment in performing an
AUDIT and in preparing the AUDITORS' REPORT. Audits conducted by
independent CERTIFIED PUBLIC ACCOUNTANT (CPA) usually in accordance with
GENERALLY ACCEPTED AUDITING STANDARDS (GAAS)
• Auditors' Report
• Written communication issued by an independent CERTIFIED PUBLIC
ACCOUNTANT (CPA) describing the character of his or her work and the degree of
responsibility taken. An auditors' report includes a statement that the AUDIT was
conducted in accordance with GENERALLY ACCEPTED AUDITING STANDARDS
(GAAS), which require that the AUDITOR plan and perform the audit to obtain
reasonable assurance about whether the FINANCIAL STATEMENTS are free of
material misstatement, as well as a statement that the auditor believes the audit
provides a reasonable basis for his or her opinion.
• Bad Debt
• All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.

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.

Bank Statement
• A periodic statement, usually monthly, that a bank sends to the holder of a checking account showing
the balance in the account at the beginning of the month, during, and at the end of the month.
Bank Reconciliation
• A process by which an accountant determines whether and why there is a difference between
the balance shown on the bank statement and the balance of the cash account in the firm’s GENERAL
LEDGER.
• Budget
• Financial plan that serves as an estimate of future COSTS, REVENUES or
both.
• Break-Even Point
• The point at which TOTAL REVENUES equals TOTAL COSTS.

• Business Combinations
• Combining of two entities. one entity is deemed to acquire another and
there is a new basis of accounting for the ASSETS and LIABILITIES of the
acquired company.
• Certified Public Accountant (CPA)
• ACCOUNTANT who has satisfied the education, experience, and examination requirements of
his or her jurisdiction necessary to be certified as a public accountant.
• Certified Internal AUDITOR (CIA) individual who has satisfied the examination requirements of
the Institute of Internal Auditors.
• Chief Financial Planner (CFP)
• Individual who is trained to develop and implement financial plans for individuals, businesses,
and organizations, utilizing knowledge of income and estate tax, investments, risk
management analysis and retirement planning. CFPs are certified after completing a series of
requirements that include education, experience, ethics and an exam.
Chief Executive Officer (CEO)
• Officer of a firm principally responsible for the activities of a COMPANY.
Chief Financial Officer (CFO)
• Executive officer who is responsible for handling funds, signing CHECKS, keeping financial
records, and financial planning for a CORPORATION.
Default : Failure to meet any financial obligation.
Deferred Charge
• Income received but not earned until all events have occurred. Deferred
income is reflected as a LIABILITY.
• Deficit :Financial shortage that occurs when LIABILITIES exceed ASSETS.
• Depletion
• Method of computing a deduction to ACCOUNT for a reduction
in value of extractable natural resources.
• Declining-Balance Method :An accelerated method of depreciating a
tangible long-lived ASSET by applying a fixed-rate based on some
multiple of the STRAIGHT-LINE DEPRECIATION rate to its CARRYING
VALUE.
•
Disclosure : Process of displaying accounting information so that the content
of FINANCIAL STATEMENTS is understood.
•
Discount : Reduction from the full amount of a price or DEBT.
• Direct Labor Costs :The labor cost is for specific work that can be easily and
economically traced to an end product.

Direct Material :A material that will become part of a finished product and can be
easily and economically traced to specific product units.

Direct Overhead :Portion of OVERHEAD costs allocated to manufacturing, by the

application of a standard factor termed OVERHEAD APPLICATION RATE.
•
Disbursement: Payment by cash or check.
• tax advisor
• a specialist who is able to give advice on matters of taxation
"Larger corporations often have a dedicated tax advisor to help them
minimize the amount of tax that they need to pay."

• VAT (value added tax)

• the tax which is due on the difference between the value of a product
or service and the cost of its production "The government are talking
about increasing the value added tax rate next year, which means the
cost of consumer goods will increase."
• foreign currency
• the money used in another country.
• "Because the company had offices in Spain, Brazil and America, they had to
deal with several foreign currencies including the euro."
• in excess of
• more than, greater than
• "The most recent set of accounts reported a net profit in excess of $5 million."
•
• LLC (limited liability company)
• a business entity where the debts of the company are separate from the debts
of the shareholder
• "As it was a Limited liability company, the creditors couldn't get at John's
private assets when the company went bankrupt."
• reconcile
• to ensure that two figures agree with each other
• "A lot of accounting departments reconcile the bank account to the accounts every day."

• record
• a written account of a transaction
• "The auditors went through every record of sale over the last decade before they were
satisfied."

• sole-trader
• a business which is owned and run by one person
• "Sole-traders don’t have to meet such strict accounting requirements as larger
corporations."
• Chartered Accountant
• An accountant who has a certain amount of experience and who has passed
certain exams that qualify them to be a member of an institution, such as the
Institute of Chartered Accountants in the UK. In the US a similar title is that of
Certified Public Accountant (CPA).
• Example:
• She’s been studying to become a chartered accountant for a few years now, but
she just couldn’t manage to pass the final exam.
• . Creative Accounting
• An accounting practice that tries to present an improved image of a company’s
financial situation by highlighting mainly the aspects that are favorable. Creative
accounting is considered to be legal, but is often seen as unethical.
• Example:
• As soon as our potential investor realized we had done some creative accounting,
they decided to hire an auditor.
• Return on Investment (ROI)
• The profitability ratio of a certain investment. The return on
investment is calculated as the benefit gained from the investment
divided by the cost of the investment.
 Exercise

• Look at the following sentences and choose the correct answer.

Sometimes, there’s more than one correct answer.
• When you’re done, check your answers in the key at the bottom!
• 1. They had to hire a(n) ___ because Jane was not qualified to produce
all the documents for the audit in June.
• A. auditor B. accountant C. bookkeeper
• 2./3. Her ___(2.) salary at her new workplace was higher than her
___(3.) salary in the old one, so she was much happier here.
• 2. A. net B. gross
• . 3 A. net B. gross
• 4.The basic accounting equation is: ___(4.) = ___(5.) + ___(6.)
• 4. A. assets B. liabilities C. owner’s equity
• 5. A. liabilities B. owner’s equity C. assets
• 6. A. owner’s equity B. assets C. liabilities
• 7./8. In order to see what a company’s ___(7.) is/are, you need to
have a look at the ___(8.) and subtract all the expenses of doing
business.
• 7. A. profit B. capital C. revenues
• 8. A. revenues B. profit C. liabilities
• 9. The ___ is an important accounting document showing a company’s assets,
liabilities and the owner’s equity.
• A. cash flow statement B. balance sheet C. income statement
• 10./11./12. In ___(10.), you need to record ___(11.) on the left side and ___(12.)
on the right side.
• 10. A. double entry bookkeeping B. single entry bookkeeping
• 11. A. debits B. credits
• 12. A. credits B. debits
• 13. He was hoping to be able to raise enough ___ to set up his own business in
five years’ time.
• A. assets B. capital C. equity
• 14. As she was calculating the company’s liabilities, she realized she forgot to
include the ___.
• A. accounts payable B. accounts receivable
• 15. They wanted to resort to ___ in order to convince investors of their company’s
high profitability, but then they realized that the auditors that worked for the
investors would see right through it.
• A. bookkeeping B. accounting C. creative accounting
• 16. He had been trying to pass his exams in order to become a(n) ___, but in the
end he gave up and decided to charge a higher fee for his bookkeeping services in
order to make ends meet.
• A. chartered accountant B. shareholder C. investor
• 17. The auditor was looking at the financial statements that the company presented
him when he realized he was actually interested in a different ___. He then had to
ask for a different set of financial statements.
• A. income statement B. payroll C. accounting period
• 18. She was considering giving up working as an accountant for that
company and becoming a self-employed freelancer because the ___ she
had to pay was lower. She also had the expertise to file her own tax
return, which was an additional advantage.
• A. income tax B. Value Added Tax
• 19. The idea of becoming a shareholder seemed really bad now that the
___ was lower than in any other previous year.
• A. share price B. return on investment
• 20. Their ___ was too high during the past few months, so they have
been thinking of either not giving their employees any bonuses this year
or investing less in advertising.
• A. overhead B. appreciation C. depreciation
• Now have a look at the key below and see how well you did!