Unit Test 1 Glossary

Accounting

is a systematic way of recording what has happened to a company financially over a business year. It involves calculating what a company owns, owes and what is the investment by owners. It calculates pro

fit or loss by taking total revenue and deducting total expenses.

Accounting Equation

Assets = Liability + Owner's Equity

Accounts Payable

Refers to the total amount owed to creditors for the purchase of goods or services by the business

Accounts Receivable

Refers to the total amount due from debtors, usually within 30 days.

Assets

are items of value owned by a business or a person.

Bookkeeping

The first part of the accounting process. This is the preparing and recording information in the accounting records. The accounting records of the business include journals and ledger accounts. The documents prepared include cheques, invoices, and receipts.

Business Entity Concept

Each business is considered a separate unit or entity, and the financial data for the business must be kept separate from the owner's personal finance data.

Capital

The money or wealth needed to produce goods and services.

Corporation

A business that has a legal existence of its own, so the owner’s liability is limited to their investment in the corporation.

Cost Principle

Assets are shown on the balance sheet at the cost of their acquisition or construction

Ethics

Accounting ethics is primarily a field of applied ethics and is part of business ethics and human ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics

Financial Position

Current balances of the recorded assets, liabilities, and equity of an organization (recorded in balance sheet)

GAAP

Generally accepted accounting principles. Previous standard accounting rules and guidelines used in Canada; see also accounting standards.

Going Concern Concept

This assumes the business will continue into the foreseeable future.

Liabilities

What the company owes. In which the company maintains all its records like debts, obligations, payable income taxes, customer deposits, wages payable, expenses incurred.

Liquidity

It is the measure of the ability of a debtor to pay their debts as and when they fall due and it is the ability to pay short-term obligations.

Marketable Securities

Items that can be easily converted to cash, for example government bonds

Monetary Unit

Standard unit of value of a country’s coinage

Net Worth

Is the difference between the value of items owned and the debts owed.

Objectivity Principle

Accounting records should be based on the objective evidence provided by source documents to support the values used in recording transactions

Owner's Equity

the owner’s claim on the business

Partnership

a business owned by two or more people

Principles of Conservatism

Where there are acceptable alternative accounting treatments for an item, accountants must choose the one that will result in lower net income and net assets

Sole Proprietorship

A business that legally has no separate existence from its owner. Income and losses are taxed on the individual's personal income tax return

Business Transaction

An exchange of things of value

Accounting Period

The period of time covered by financial statements; maybe a week, a month, a quarter, a year, or any other regular period of time; also known as the 'fiscal period'

Accounting Standards

The principles, rules, and guidelines followed when preparing and presenting accounting information; two sets of accounting standards govern the accounting profession in Canada: International Financial Reporting Standards (IFRS), and the Canadian Standards for Private Enterprises (ASPEs); all publicly traded businesses in Canada must use and follow the IFRSs; privately-owned businesses may choose between the ASPEs and the IFRSs.

Public Business

A business that is listed on a stock exchange and is accountable to the public.

Private Business

A business that does not have shares traded on the stock market.; it may be owned by one person or a small group of people, but is not accountable to the public

Maturity Date Rule

The date when liabilities are due to be paid; liabilities are listed on the balance sheet according to their maturity date.

Account

A form in which changes caused by transactions are recorded

Debit

Refers to the left side of an account

Credit

Refers to the right side of an account

Ledger

A group of accounts that may be in the form of a book containing pages for each account in a manual accounting system, or that may be stored within an accounting software system.

Double Entry Accounting System

Requires that equal debit amounts and credit amounts be recorded for each transaction

Trial Balance

List of the ledger account balances. The total of the debit balances should equal the credit balances. The trial balance is prepared to check the mathematical accuracy of the ledger

Revenue

Amounts earned from the sale of goods or services during the routine operation of a business

Expenses

The costs of items or services used up in the routine operation of a business

Net Income

The difference between revenue and expenses when revenue is greater than expenses

Net Loss

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

Income Statement

Presents the revenue, expenses, and net income/loss for a specific period of time

Profit

The increase in owner's equity that results from the successful operation of a business

Matching Principle

Expenses should be recorded and matched with the revenue they help to generate during the same accounting period

Accrual Basis of Accounting

Matches revenue earned with expenses incurred to produce that revenue during that accounting period

Revenue Recognition Principle

Revenue is recognized at the time the revenue is definitely earned.

Cash Basis Accounting

Recognizes revenue and expenses only when cash changes hands

Drawings

An equity account used to record the withdrawal of assets by an owner; a contra equity account.

Account Form Balance Sheet

A balance sheet the lists the assets on the left side and the liabilities and owner's equity on the right side.

Report Form Balance Sheet

A balance sheet that lists the assets, liabilities, and owner's equity vertically.