Basic Accounting Terms

Invoice

Collect payment after service

Receipt

Proof of payment by customer

Debit

Records incoming money

Credit

Records outgoing money

Markup

Amount required to cover operating expense and make profit

Markdown

Reduction in price

Cost of good

Retailer pays supplier/manufacturer for products

Selling price of goods

Customer pays retailer for goods

Discounts

Reduction to basic price

Trade discounts/ functional discounts

Discounts given to partners in distribution channel of goods and are given to distribution channel members to perform certain tasks

Cash discount

Discounts given to customers for paying with cash

Sales discount

Seller’s term for cash discount

Purchase discount

Buyer’s term for cash discount

Pay based on hourly wages

Pay is based on hours of work done

Pay based on Piece Work

Pay is based on acceptable pieces of work produced

Pay based on commission

Commission is a percentage of sales; usually paid to the person generating the sa

Net price

the value at which a product or service is sold after all taxes and other costs are added and all discounts subtracted.

Simple interest

Time is expressed in the same unit as the rate; if r is an annual rate, then t is in years

Unit price

the price for one item or measurement

Partial payment rule

Any partial loan payment is first used to pay the interest that has accrued (total interest to date), and the remainder is used to reduce the principal of the loan

Loan

a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

Interest

money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

Compound interest

Interest that is paid on both principal and interest accumulated from past periods; interest gained is added to original investment

Depreciation

Loss in value of tangible business assets or property (including land) over it's useful life due to deterioration, obsolescence,

Service hours method

Depreciation expense based on hours of useful service

Sum of years-digits method

Depreciation expense is greater for earlier years tnan for later years

Dealing balance method

Depreciation expense declines steadily over useful life of assets

Mortgage

a legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt.

Overhead costs

not directly related to the production of goods or services, but are necessary for the operation of a business (e.g rent, utilities, etc.)

Sales tax

Tax paid on purchase of most goods and services, it varies between states; collected by business and paid to state government

Revenue is the money a business earns by selling a product or service, and profit is the money your business keeps after accounting for all the expenses involved in generating that revenue.

How does revenue differ from profit?

Accounting

Information science that is used to collect & organize financial data for organizations and individuals

Bookkeeping

Type of accounting that is responsible that all info is collected and taken to consideration

Financial accounting

Type of accounting that focuses on 3 financial statement, creates annual resport

Managerial accounting

Type of accounting that deals with inside transactions. Isn’t defined by accounting principles and strategic info isn't visible by competitors. includes pricing, marginality

Tax accounting

Type of accounting that determines amount of taxes a company has to pay

Sales tax

Tax paid on purchase of most goods and services

Excise tax

Tax paid on specific goods and services

Property tax

Levied on the assessed value of property by local government