Business 1/ Accounting Vocabulary

Vocabulary terms and definitions related to double-entry accounting, journals, ledgers, the accounting cycle, and financial statements based on the lecture notes.

Double entry accounting

Accounting entries that have debit and credit, forming the basis for recording financial transactions.

Debit and Credit

An integral part of the journalization process that indicates the financial position of an enterprise.

Journal

Known as the book of original entry where transactions are recorded in chronological order.

General journal

The most basic type of journal where transactions are recorded in chronological order.

Simple entry

A journal entry that involves only 2 accounts (debit and credit).

Compound entry

A journal entry that involves 3 or more accounts.

Special journal

A journal used for recording similar reoccurring transactions.

Cash receipt journal

A special journal used to record all cash received.

Cash disbursement journal

A special journal used to record all cash payments.

Sales journal

A special journal used for transactions where payment is received on account.

Purchase journal

A special journal used for items purchased on account.

Ledger

Known as the book of final entry, often represented by the t account.

General ledger

A ledger that contains a group of all accounts.

Subsidiary ledger

A ledger that contains accounts with independent data.

Service business

A type of business that provides service for a fee and has no products.

Accounting Cycle

An 8-step process: 1. Analyzing transaction, 2. Journal entries, 3. Posting, 4. Trial balance, 5. Worksheet, 6. Adjusting Journal entries, 7. Financial statement, 8. Closing the book.

Trial balance

A summary of the ledger prepared at the end of an accounting period.

Financial statement

A report that shows where a company’s money came from, where it went, and where it is now.

Statement of Comprehensive income (SCI)

A statement that presents net income or loss and the results of a company’s operation for a period of time using Revenue and Expenses.

SCI Formula

$$\text{Revenue} - \text{Expense} = \text{Net income/loss}$$

Single step SCI

A format where all revenues are listed in one section while expenses are listed in another.

Statement of Changes in equity (SCE)

A statement showing changes in equity between the beginning and the end of a period.

SCE Equation

$$\text{Beginning capital} + \text{Net income} + \text{investment} - \text{drawing} - \text{net loss} = \text{ending capital}$$

Statement of Financial position (SFP)

Also known as a balance sheet, it indicates the amount of total assets, liabilities, and owner's equity involving real or permanent accounts.

Account form (SFP)

A format of the Statement of Financial position that presents Assets, Liabilities, and Owner's Equity.

Report form (SFP)

A format of the Statement of Financial position presenting Assets, Liabilities, and Owner's Equity in a vertical sequence.

Operating activities

Cash flow activities directly related to main revenue-producing activities, such as cash received from customers or payments to suppliers.

Investing activities

Cash transactions related to the purchase or sale of non-current assets, such as the sale of property.

Financing Activities

Cash transactions related to changes in equity and borrowing.

Journalizing

The act of entering transaction data into the journal.