BASIC ACCOUNTING TERMS

Accounting - process of identifying, measuring, and reporting financial information of an entity Accounting Equation - assets = liabilities + equity Accounts Payable - money owed to creditors, vendors, etc. Accounts Receivable - money owed to a business, i.e. credit sales Accrual Accounting - a method in which income is recorded when it is earned and expenses are recorded when they are incurred, all independent of cash flow Accrued expenses those which have been used up in the current year, but have not yet been paid for. Accrued income - those which have been earned in the current period but have not yet been received. Amortization gradual reduction of amounts in an account over time, either assets or liabilities Asset - property with a cash value that is owned by a business or individual Auditors third party accountants who review an entitys financial statements for accuracy and provide a statement to that effect Balance Sheet - summary of a company's financial status, including assets, liabilities, and equity Bookkeeping - recording financial information

Cash-Basis Accounting - a method in which income and expenses are recorded when they are paid. Cash Flow - a summary of cash received and disbursed showing the beginning and ending amounts Cost Accounting - a type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions Credit - an account entry with a negative value for assets, and positive value for liabilities and equity. Debit - an account entry with a positive value for assets, and negative value for liabilities and equity. Depreciation - recognizing the decrease in the value of an asset due to age and use Dividends amounts paid to shareholders out of current or retained earnings Double-Entry Bookkeeping - system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits) Equity - money owed to the owner or owners of a company, also known as "owner's equity" Financial Accounting - accounting focused on reporting an entity's activities to an external party; ie: shareholders

Financial Statement - a record containing the balance sheet and the income statement Fixed Asset - long-term tangible property; building, land, computers, etc. General Ledger - a record of all financial transactions within an entity Goodwill an intangible asset reflecting the value of an entity in excess of its tangible assets Income Statement - a summary of income and expenses Inventory merchandise purchased for resale at a profit Inventory Valuation the method to set the book value of unsold inventory: i.e. LIFO, last in, first out; FIFO, first in, first out; average, an average cost over a given period, last cost, the cost based on the last purchase; standard, a deemed amount related to but not tied to a specific purchase, serialized, based on a uniquely identifiable serial number or character of each inventory item Journal - a record where transactions are recorded, also known as an "account" Liability - money owed to creditors, vendors, etc Loan - money borrowed from a lender and usually repaid with interest Net Income - money remaining after all expenses and taxes have been paid Non Cash Expense - recognizing the decrease in the value of an asset; i.e. depreciation and amortization

Non-operating Income - income generated from non-recurring transactions; ie: sale of an old building Operating Income - income generated from regular business operations Other Income - income generated from other than regular business operations, i.e. interest, rents, etc. Posting the process of entering then permanently saving or archiving accounting data Prepaid expenses - those to be used in the following period but have been paid for in advance. Prepaid income - those to be earned in the following period but have been received in advance. Retained Earnings the amount of net profit retained and not paid out to shareholders over the life of the business Revenue - total income before expenses. Single-Entry Bookkeeping - system of accounting in which transactions are entered into one account