Accounting terms-Part 2

asset

property or economic resources owned by a business or individual

liability

amounts owed to creditors; claims of creditors to the assets of a business

owner's equity

total assets of the business minus liabilities; remaining funds are categorised as owner's equity

cash

paper money, coin, bank balances, checks, etc., usually a current asset, but if use is restricted, could be a long term asset

skimming

failure to report all cash receipts in order to evade income taxes

separation of duties

money handling duties (cashier) separate from recording duties (book-keeping)

deposits in transit

bank has not yet recorded company's deposit on books

outstanding checks

checks that have been written, but have not yet cleared the bank

overdraft

this happens when a check is written for more money than is deposited in the account

petty cash fund

fund for purchases of the small variety; employees make purchases and submit receipts for reimbursement.

accounts receivable

money owed to a company by it's debtors

inventory

merchandise a firm holds or manufactures

land

any property a firm owns and uses for operations

equipment

office equipment, furniture, fixtures, etc. (CNC mills, tools, chairs)

intangible assets

assets that cannot be physically touched (trademarks, patents, copyrights)

patent

exclusive right to the use of an invented asset

copyright

exclusive right to the use of something written, such as music, or a book

depletion

deprecation of natural resources

franchises

the right granted to sell services in a certain manner allowed by a government or by private firm

accounts payable

money owed to a company by it's creditors

accounting

an information system relating to the financial activities of a business

cash basis accounting

report revenues when cash is received, report expenses when cash is paid

accrual basis accounting

report revenue in the period when cash is earned

basic accounting equation

assets = liabilities + owner's equity; show's relationship between assets and total equity

equity

in finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off; for example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash

business transaction

a business event, such as buying, selling, or exchange of goods that causes a change in assets, liabilities, or equity

capital

money invested in a business by an owner or shareholders; owner's equity in a business; the owner's claim or right to a business asset or assets

credit

an agreement to pay for a purchase at a later time; entered on the right side of a T account

creditor

a person or business to which money is owed

expense

cost of goods or services that are used to operate a business; expenses decrease owners equity

on account

buying on credit; agreeing to pay for a product or service at a later date

property

items of value that are owned or controlled by a business; economic resources of a business

property rights

creditor's or owner's financial claims to assets of a business

revenue

income earned by a business from it's operations; revenue increases owner's equity, assuming expenses remain constant or do not exceed the increase in revenue

withdrawal

removal of cash or other assets from a business or account

merchandise sold equation

beginning merchandise inventory + net purchases = cost of merchandise available for sale - ending merchandise inventory = cost of merchandise available for sale

gross profit equation

net sales - cost of merchandise sold = gross profit equation

net purchases equation

purchases + transportation in - purchases discounts - purchases returns and allowances = net purchases

net sales equation

sales - sales discounts - sales returns and allowances = net sales

component percentage of net income

net income / sales

component percentage of gross profit

gross profit / sales