Intuit Academy Bookkeeping Glossary

A comprehensive collection of bookkeeping vocabulary terms and their definitions based on the INTUIT academy.

Account reconciliation

Compare two sets of records at the end of a particular accounting period. Verify that account balances are correct, identify discrepancies, and make adjustments to the account as required in order to record the correct values in the books.

Accountant

An accountant keeps track of business transactions and financial records to issue financial statements and determine how a business is doing on a financial level.

Accounts payable

Money a business owes to others for goods or services.

Accounts payable reconciliation

Compare statements or invoices provided by vendors to the accounts payable in the books. Verify there are no discrepancies in the amount a vendor is charging for the goods or services received, and the amount recorded in the books matches the amount charged by the vendor.

Accounts receivable

Money that is owed to a business for providing a good or service.

Accounts receivable aging report

Accounts receivable aging is a periodic report that categorizes a business’s accounts receivable according to the length of time an invoice has been outstanding. It is used as a gauge to determine the financial health and reliability of a business’s customers.

Accounts receivable doubtful

An allowance for doubtful accounts is considered a "contra asset," because it reduces the amount of an asset, in this case the accounts receivable. The allowance, sometimes called a bad debt reserve, represents management’s estimate of the amount of accounts receivable that will not be paid by customers.

Accounts receivable reconciliation

Compare the outstanding customer invoices and balances to the accounts receivable as entered in the general ledger. Verify amounts, uncover errors and irregularities, and identify fraudulent activity.

Accounts uncollectible

Accounts uncollectible are receivables, loans, or other debt that will not be paid by a debtor.

Accrual

An entry to record a future revenue or expense in the current period, even if money hasn’t been paid or received yet.

Accrual accounting

Revenues and expenses are reported or recognized on financial reports when they are earned or incurred, rather than when the payment is made or received.

Accumulated depreciation

Accumulated depreciation is the total amount of depreciation expense that has been allocated for an asset since the asset was put into use.

Adjusted trial balance

Listing of the ending balances in all accounts after adjusting entries have been prepared.

Adjusting entries

Creating new entries to record depreciation and accrual adjustments; these are provided to bookkeepers by a CPA or accountant.

Amortization

The structure process of paying both the principal and interest over a period of time.

Assets

Anything the business owns of value or a resource of value that has the potential to be transformed into cash.

Average cost method (AVCO)

Inventory value is based on the average cost of all materials purchased during the reporting period.

Bad debt

Bad debt is the term used for any loans or outstanding balances that a business deems uncollectible. For businesses that provide loans and credit to customers, bad debt is normal and expected.

Bad debt expenses

A bad debt expense is recognized when a receivable is no longer collectible because a customer is unable to fulfill their obligation to pay an outstanding debt due to bankruptcy or other financial problems. Companies that extend credit to their customers report bad debts as an allowance for doubtful accounts on the balance sheet, which is also known as a provision for credit losses.

Balance sheet

The balance sheet is a financial statement that reports a business’s assets, liabilities, and equity at a specific point in time.

Balances (account balances)

A total amount in an account at any given time.

Bank deposit receipt (slip)

A bank form used to document the money the customer intends to deposit into their bank account.

Bank reconciliation

Compare the books to the statement issued by the bank. Compare every transaction in the bank statement to the business’s internal records (including bank deposit slips and canceled checks) to verify both records are matching.

Bill

Record to show what business owes vendor for goods/ services.

Book balance

The ledger balance as of a certain date.

Bookkeeper

Bookkeepers document transactions, manage accounts, and record financial data.

Budget

A forecast of revenue and expenses for a future period of time.

C Corp

A business structure that is owned by one or more shareholders, but they do not carry any personal liability.

Capital

The financial monies the business uses for operations and growth, such as cash, debt, or equity.

Capital contribution

The money or assets given to the business by the owner or partners.

Cash

Assets that exist in cash form or can be immediately converted into cash.

Cash payments

Cash receipts are the collection of money, typically from a customer, which increases (debits) the cash balance recognized on a business’s balance sheet.

Cash sales

Cash sales refers to transactions where the customer pays for the goods or services immediately with cash, check, or a credit or debit card.

Cash-basis accounting

Revenues and expenses are reported or recognized on financial reports when the payment is received or made, rather than when work is performed.

Chart of accounts

Lists all of the accounts and sub-accounts used to categorize transactions.

Check

A monetary instrument directing the financial institution to pay the bearer a specified sum of money.

Close the books

Completing all necessary accounting tasks and procedures at the end of a financial period including finalizing financial statements, reconciling accounts, making adjusting entries, and preparing the accounts for the next accounting period.

Commercial loans

A debt-based funding arrangement between a business and a financial institution (traditional model of loan).

Common stock

Refers to the capital the business received in exchange for issuing stock to stockholders.

Compensating error

Two or more errors cancel each other out, for example fixed assets account is incorrectly understated $\$600$ and rent account is incorrectly overstated $\$600$.

Complete reversal of entries

The correct amount is posted to the correct accounts but the debits and credits are reversed, for example debiting an account that should have been credited.

Confidentiality

Clients entrust bookkeepers with very sensitive financial information, and a business owner must be able to trust that their bookkeeper will treat their data with the utmost care.

Conflict of interest

When a person’s individual interests raise a question about their ability to act or make decisions or judgments objectively.

Contra asset

A contra asset account offsets the balance of the associated value on the balance sheet; the natural balance of the account will either be a zero or a credit (negative) balance. It is set up as a sub-account in the Chart of Accounts.

Cost of goods sold (COGS)

Cost of goods sold, or cost of sales, is the total cost involved in manufacturing a business’ product, or the total cost of a product that is purchased, then sold. This includes all costs and expenses that directly relate to producing goods such as items for resale, raw materials, parts used to make the product, labor costs, supplies to make or sell a product, overhead costs (utilities), and shipping or freight.

Credit card reconciliation

Compare credit card receipts to credit card statements issued by a financial institution. Verify the amount billed in the credit card statement matches with actual payments. If the credit card company has committed any error, it should be reported and rectified.

Credit memo

A document issued by a seller that reduces the amount a customer owes from a previous sales invoice.

Credit sales

A decrease in assets or expenses or an increase in liabilities, owner’s equity or revenue.

Credits

A monetary instrument directing the financial institution to pay the bearer a specified sum of money.

Current assets

Assets that can be converted into cash quickly (within a year).

Current liabilities

Debt obligations that come due within one year.

Data entry error

The amount was written incorrectly or under the incorrect account.

Debits

An increase in assets or expenses or a decrease in liabilities, owner’s equity, or revenue.

Dedicated accounting software

Specialized computer programs designed specifically for managing and recording financial transactions, generating financial statements, and performing various accounting tasks.

Deferral

An entry to record a current payment or expense at a later period when the money has actually been earned or incurred.

Deferred revenue (unearned revenue)

Revenue that is paid to the business for work not yet performed, recorded in books as liability.

Depreciation

Spreading out the cost of an item over the expected life of the item.

Depreciation expense

Depreciation expense is the cost of an asset that has been depreciated for a single period. It shows how much of the asset’s value has been used up in that year.

Discrepancy

An inconsistency between the books and supporting documentation.

Disposition

When the business removes, sells, or disposes of an asset.

Dividend

Dividends are what a business pays out to shareholders from business earnings.

Double-entry accounting

A method of bookkeeping that uses at least $2$ entries, a debit and a credit, for every transaction.

Draw

When an owner takes funds from their business holdings for individual use.

Efficiency

How effectively a business is doing something over a given period of time.

Employee

Someone who may be eligible for benefits (such as medical), and the business is responsible for collecting and paying income taxes on them.

Employee vacation payable

A place to store wages for salaries dispersed when an employee is using paid time off/vacation pay.

Equity

Owner’s stake in the business, how much they have invested or withdrawn.

Error of commission

A type of data entry error where the bookkeeping entry was made to the correct type of account but the wrong customer/item, for example Customer X paid an invoice but it was credited to Customer Y’s account.

Error of omission

A transaction is missing.

Error of original entry (transposition)

During data entry, a type of data entry error where the numbers were flip-flopped. For example, $\$87.50$ entered as $\$85.70$.

Error of principle in accounting

A type of data entry error where the bookkeeping entry is made to the wrong type of account, for example a sale is credited to an expense account instead of a sales account.

Exempt

Costs associated with the action of running a business.

Federal Insurance Contributions Act (FICA)

Taxes going into Medicare and Social Security. This is paid by both employees and employers. An amount on the pay stub indicates the portion the employee contributed.

Federal Unemployment Tax Act (FUTA)

A payroll tax that only the employer pays.

Financial analysis

Financial analysis involves reviewing and comparing a business’s financial performance over time.

Financial ratios

Showcase a relationship between two or more accounting numbers that are taken from the financial statements.

Financial statements

A set of reports that show how a business is performing financially and all business activities related to running the business; includes the balance sheet, income statement, and cash flow statement.

Financing activities

Part of the statement of cash flows that includes paid-in capital or owner’s draws.

Finished goods placeholder

Completed products readily available for sale to a business’s customers.

First-in, first-out (FIFO)

The business considers the first units purchased (First In) to be the first units sold (First Out).

General Ledger (or Ledger)

Provides a record of each financial transaction that takes place during the life of an operating business and contains all accounts needed to prepare financial statements.

Gross pay (gross wages)

The total amount earned by an employee for a pay period before any deductions.

Gross profit

Total revenue minus Cost of Goods Sold.

Gross profit margin

The earnings a business makes per item sold. For example, an item that costs $\$4$ to make and sells for $\$10$ has a $\$6$ ($60\%\text{)}$ profit margin.

Historical cost placeholder

Historical cost is a measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the business.

Honesty

Owning any mistakes and doing everything you can to fix them and being open and transparent with your client about the state of their finance.

Horizontal analysis

Compares historical financial information over a series of reporting periods.

Hospital Insurance (HI or Medicare Tax)

A part of Federal Insurance Contributions Act (FICA).

In transit

A transaction recorded on the books but not yet processed and cleared by the bank.

Income statement

Also called the profit and loss (P&L) statement, the income statement shows the business’s revenues and expenses during a particular period.

Independent contractor

Considered self-employed and are contracted to provide services as a non-employee, therefore must pay taxes independently and are not eligible for benefits or regular employees.

Insolvency

When a business is unable to pay their debts when they become due.

Interest rate

The percentage of the existing principal loan balance you must pay to the lender for borrowing money.

Inventory

Inventory, or stock, is the raw material a business uses in production or finished goods ready to sell.

Investing activities

Part of the statement of cash flows that includes all cash inflow and outflows related to purchasing fixed assets or investing in another business or venture.

Inventory reconciliation

Compare purchase orders and inventory counts to the numbers in the books. Verify that descriptions, quantities and prices are entered correctly.

Inventory valuation

The process used to assign cost to the inventory on the balance sheet.

Invoice

An itemized bill of goods sold or services provided, usually carrying terms to record credit sales.

Last in, first out (LIFO)

The business considers the most recently units purchased (Last In) to be the first units sold (Last Out).

Lease

An agreement to pay rent for a specific period of time for the right to use an asset.