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TERM

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DEFINITION CHAPTER

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Account

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A record that summarizes all the transactions pertaining to a single item in the accounting equation. 1

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Account balance

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The difference between the increases and decreases in an account. 1

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Account title

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The name given to an account. 1

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Accounting

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The process of planning, recording, analyzing, and interpreting financial information. 1

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Accounting equation

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An equation showing the relationship among assets, liabilities, and owner's equity. 1

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Accounting system

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A planned process designed to compile financial data and summarize the results in accounting records and reports. 1

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Asset

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Anything of value that is owned. 1

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Business ethics

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The use of ethics in making business decisions. 1

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Business plan

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A formal written document that describes the nature of a business and how it will operate. 1

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Capital account

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An account used to summarize the owner's equity in a business. 1

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Compound interest

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Interest paid on an original amount deposited in a bank plus any interest that has been paid. 1

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Creditor

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A person or business to whom a liability is owed. 1

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Entrepreneur

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Someone who owns, operates, and takes the risk of a business venture. 1

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Equities

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Financial rights to the assets of a business. 1

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Equity

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The difference between assets and liabilities. 1

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Ethics

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The principles of right and wrong that guide an individual in making decisions. 1

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Expense

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The cost of goods or services used to operate a business. 1

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Financial statements

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Financial reports that summarize the financial condition and operations of a business. 1

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GAAP

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Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities. 1

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Generally accepted accounting principles

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See GAAP. 1

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Interest

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An amount paid for the use of money for a period of time. 1

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Language of business

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See accounting. 1

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Liability

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An amount owed. 1

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Net worth statement

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A formal report that shows what an individual owns, what an individual owes, and the difference between the two. 1

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Owner's equity

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The amount remaining after the value of all liabilities is subtracted from the value of all assets. 1

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Personal net worth

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The difference between personal assets and personal liabilities. 1

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Proprietorship

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A business owned by one person. 1

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Revenue

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An increase in equity resulting from the sale of goods or services. 1

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Sale on account

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A sale for which payment will be received at a later date. 1

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Service business

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A business that performs an activity for a fee. 1

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Sole proprietorship

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See proprietorship. 1

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Transaction

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Any business activity that changes assets, liabilities, or owner's equity. 1

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Withdrawals

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Assets taken from the business for the owner's personal use. 1

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T Account

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An account device used to analyze transactions

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Debit

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An amount recorded on the left side of an account.

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Credit

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An amount recorded on the right side of an account.

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Normal Balance

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The side of the count that is increased.

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Chart of accounts

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a list of accounts used by a business

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Accounts payable

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amounts to be paid in the future for goods or services already acquired.

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Accounts receivable

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amounts to be received in the future due to the sale of goods or services

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journal

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a form for recording transactions in chronological order

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journalizing

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recording transactions in a journal.

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Source Document

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a business paper from which information is obtained for a journal entry

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entry

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information for each transaction recorded in a journal

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double-entry accountingq

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the recording of debit and credit parts of a rtransaction

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check

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a business form ordering a bank to pay cash from a bank account

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invoice

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a form of describing the goods and services sold, the quantity, the price, and the terms of sale.

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sale invoice

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a sales invoice used as a score document for recording a sale on account.

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receipt

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a business form giving written achknowledgement

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memorandum

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a form on which a brief message is written to describe a transaction.

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Ledger

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A group of accounts

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General Ledger

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A ledger that contains all accounts needed to prepare financial statements

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account number

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the number assigned to an account

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file maintenance

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the procedure of arranger accounts in a general ledger assigning account numbers, and keeping records current. `

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opening an account

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writing an account title and number on the heading of an account

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Posting

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transferring information from a journal entry to a ledger account.

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correcting entry

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an incorrect journal entry should be corrected by another journal entry

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Checking account

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a bank account from which payments can be ordered by a depositor

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Deposit slip

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A bank form which lists the checks, currency, and coins an account holder is adding to the bank of accounts.

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endorsment

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a signature or stamp on the back of a check transferring ownership

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blank endorsement

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an endorsement consisting only of the endorser's signature

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special endorsement

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an endorsement indicating a new owner of a check

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restrictive endorsement

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an endorsement restricting further transfer of a check's ownership

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voided check

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a check that cannot be processed because the maker has made it invalid

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bank statement

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a report of deposits, withdrawals, and bank balances sent to a depositor

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canceled check

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a check which has been paid by the bank

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dihnonored check

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a check that a bank refuses to pay

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non-sufficient funds check

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a check dishonored by the bank because of insufficient funds in the account of the maker of the check

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electronic funds transfer

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a computerized cash payments system that transfers funds without the uses of checks, currency, or other paper documents

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debit card

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a bank card that automatically deducts the amount of a purchase from the checking account of the cardholder

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petty cash

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an amount f cash kept on hand and used for making small payments

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petty cash slip

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a fomr showing proof of a petty cash payment

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cash short

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a petty cash on hand amount that is less than a recorded amount

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cash over

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a petty cash on hand amount htat is more than a recorded amount

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postdated check

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a check with a future date on it

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fiscal period

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the length of time for which a business summerizes the financial information an reports its financial perfromance

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fiscal year

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12 consecutive fiscal periods

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work sheet

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a columnar accountin form used to sumearize the general ledger information needed to prepare financial statements

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trial balance

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a proof of the equality of debits and credits in a general ledger

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prepaid expense

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cash paid for an expense in one fiscal period that is not used until a later period

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accrual basis of accounting

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reporting income whit its earned and expenses when they are incurred

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cash basis of accounting

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reporting income when the cash is received and expenses when the cash is paid

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adjustments

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changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period

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adjusting entries

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journal entries recorded to upgrade ledger account

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net loss

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The difference between total revenue and total expenses when total expenses are greater

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net income

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Also called profit. Calculated as the Revenue - Expenses

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income statement

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A financial statement showing the revenue and expenses for a fiscal period.

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Financial Accounting

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The area of accounting that focuses on reporting information to external users

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Managerial Accounting

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The area of accounting that focuses on reporting information to internal users

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Financial Ratio

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A comparison between two components of financial information

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Ratio Analysis

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The calculation and interpretation of a financial ratio

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Vertical analysis

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Reporting an amount on a financial statement as a percentage of another item on the same financial statement

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Return on sales (ROS)

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The ratio of net income to total sales

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