Financial Accounting Glossary

Financial Accounting Glossary / Pittsburgh Institute of Mortuary Science

Accounting

A language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial data

Accounting equation

Assets equal Liabilities plus Owner’s Equity

Accounts payable

An unwritten promise to pay creditors for property, such as merchandise, supplies, or equipment, purchased on credit, or for services received on credit

Accounts receivable

An unwritten promise by a customer to pay, at a later date, for goods sold or services rendered

Accrual accounting

Recording in each fiscal period applicable expenses, whether paid or not, and income earned, whether collected or not

Accrued expense

An expense incurred in operating a business during an accounting period, but not yet paid

Accrued income

Income actually earned during an accounting period, but which will not be received until a future period

Amortization

The paying off a debt in regular installments over a period of time

Assets

Property of monetary value owned by a business

Bad debts

Accounts receivable that are uncollectable

Balance sheet (statement of financial position; statement financial condition)

A formal financial statement illustrating the assets, liabilities, and owner’s equity of a business as of a specific date

Book value

The cost of a fixed asset less its accumulated depreciation

Cash basis accounting

An accounting practice in which revenue is not recognized in the accounting records until received and in which expenses are not recognized until paid

Cash discounts

Discounts from quoted prices as an inducement for prompt payment of invoices

Cash flow

The amount of cash a company generates and uses during a period

Cash flow statement

A financial report showing a firm’s sources of cash as well as its uses of cash

Copyright

The registered right of a creator to reproduce, publish, and sell the work which is the product of the intelligence and skill of that person

Corporation

An artificial being, invisible, intangible, and existing only in contemplation of law; an entity that has a distinct existence separate and apart from the existence of its individual members

Cost of Goods Sold

The cost of producing or acquiring goods or services to be sold by firm

Credit

(1) the right side of a standard account

(2) an agreement that payment for a product or service will be made at some later date

Current asset

Cash of other assets that will be converted into cash or consumed within one year

Current liabilities

Debts of a business that are generally paid within one year

Debit

The left side of a standard account

Depreciation

The loss in value of a fixed asset due to wear and tear and the passage of time

Or a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life

Drawing account (owner withdrawals)

A separate owner’s equity account in which withdrawals of cash or other assets by the owner for personal use are recorded

Expenses

A decrease in assets, other than withdrawals by the owner, which result from efforts to produce revenues

Fair Labor Standards Act (Wage and Hour Law)

Federal legislation which outlaws discriminatory practices in pay; requires employers to pay a minimum wage to employees, and to pay a minimum of one and one-half times the regular rate for any hours beyond forty worked in a week

Federal Insurance Contributions Act/ F.I.C.A

A federal act that requires most employers and employees to pay taxes to support the federal social security program and Medicare program

Federal Unemployment Tax Act/F.U.T.A.

A federal act imposed upon each employer for financing the administrations costs of the federal and state unemployment compensation programs

Fixed asset (capital)

Long-term capital that is invested in the small business

Also, funds invested in such long-term assets as: land, building, machinery, furniture, fixtures, other equipment, not to be converted to cash within one year

General journal

A book of original entry in which any business transactions is recorded in chronological order

General ledger

The book of accounts

Goodwill

An intangible asset such as the name of a funeral home; also, an intangible asset which enables a business to earn a profit in excess of the normal rate of profit earned by other businesses of the same kind

Gross pay (gross earnings)

Income before any deductions have been made

Gross profit (gross margin)

Net sales minus the cost of goods sold

Income statement (profit and loss statement; statement of operations; operating statement)

A formal financial statement which presents the income, expenses, and resulting net profit or net loss for a given period

Income tax

A tax levied on the earnings of individuals and businesses by federal, state, and local overnments

Intangible assets

Those assets that cannot be touched or grasped (examples include patents, copyrights and goodwill)

Interest

Money paid for the use of money

Inventory (merchandise)

Those goods or stock of goods which are held for resale at a profit

Invoice

A source document showing quantity, description, prices of items, total amount of purchase and the terms of payment

Liabilities

Any debts that a business owes

Long-term liabilities (fixed liabilities)

Liabilities that are not due and payable within one year

Markdown

A reduction of selling price below the original selling price

Markup

The difference between merchandise cost and selling price

Net earnings (net pay; take home pay)

Gross pay less payroll deductions; an employee’s take home pay

Net income (net profit)

The difference between gross profit and expenses when gross profit is larger

Net loss

The difference between gross profit and expenses when expenses are larger

Net sales

Sales minus sales returns and allowances minus sales discounts

Operating expense (overhead expense)

Costs related to marketing and selling a firm’s product or service, general and administrative expenses and depreciation

Owner’s equity (capital; net worth)

The amount by which the total assets exceed the total liabilities of a business; an owner’s financial interest in a business

Partnership

The voluntary association of two or more people who have combined their resources to carry on as co-owners of a lawful enterprise for their joint profit

Patent

The registered right of an inventor to make, use, and sell an invention

Retail sales tax

A tax imposed on tangible personal property sold at retail

Salary

Generally considered to be compensation for managerial or administrative services, expressed in terms of a month or year

Sole proprietorship

Business owned by one person, who bears unlimited liability for the enterpris

State Unemployment Tax Act (S.U.T.A.)

A tax levied in most states to raise funds to pay unemployment benefits

Tangible assets

Those assets that can be appraised by value or seen or touched

Transaction analysis

The effect of business activities on the accounting elements

Useful Life

The estimated determinable life of a fixed asset

Trademark

An intangible asset that is a distinct name, sign, or symbol that the federal government grants exclusive rights to use for a specified period of time

Transaction

Any activity of a business enterprise that involves the exchange of values

W-2 form

Wage and Tax Statement; a report furnished by the employer for each employee indicating gross earnings and deductions

W-4 form

Employees’ Withholding Allowance Certificate

Wage

A form of compensation usually for skilled and unskilled labor, expressed in terms of hours, weeks or pieces completed

Working capital (circulating capital)

The difference between current assets and current liabilities.