Accelerated depreciation
A method of allocating the cost of a fixed asset over its useful life in a manner that allows more cost to be depreciated in the earlier years than later years. The rationale supporting this method is that a fixed asset is more productive in its earlier years than in its later years.
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Account
1) A ledger that records the activity of increases and decreases of a particular nature. 2) One of the accounts that make up the general ledger accounts. 3) An account that is listed on the chart of accounts.
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Account payable
A current liability owed by the company to a vendor for purchase of goods or services.
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Account receivable
A current asset owed to the company by customers when they purchase goods and services.
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Accounting
The function of gathering and recording financial information of a business entity for the purpose of preparing summary reports that can be analyzed and used to make managerial decisions.
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Accounting environment
Refers to the community of accounting, such as types of business organizations, flexibility of accounting rules, who the accounting authorities are, who uses financial statements, who the accounting professionals are and what accounting systems are available.
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Accounting equation for the balance sheet
Assets = Liabilities + Equity. Provides the underlying foundation for double-entry accounting.
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Accounting equation for the statement of income
Revenue - Expenses = Net Income or Loss. Measures whether the company sustained a profit or a loss from their sales activity during an accounting period.
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Accounting framework
Assets, liabilities, equity, revenue, expense.
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Accounting model
A format that depicts the debits and credits and increases and decreases for each section in the accounting framework.
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Accounting periods
One of the six basic assumptions of accounting information. The assumption that reports of activity are measured during specific time-intervals called "accounting periods". An accounting period is an interval between one point in time and another during which the financial activity of a business is measured. Usually by month or quarter but not longer than one year.
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Accounts receivable turnover ratio
Total credit sales for the year divided by the total amount of accounts receivable outstanding. Provides a way to measure collection success.
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Accrual basis
The method by which revenues are recorded when earned and expenses are recorded when they are incurred, as opposed to a cash-basis method of accounting that measures revenue when cash is received and measures expenses when they are paid. The accrual method must be used in order for financial statements to be considered prepared according to Generally Accepted Accounting Principles (GAAP).
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Accumulated depreciation
The total depreciation that has been expensed since a fixed asset was originally acquired. The accumulated amount offsets the fixed assets and results in the net book value of the fixed assets.
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Accumulated net income
An equity account of a sole proprietorship that reflects an accumulation of prior year profits and losses. It is the account that current year revenue and expense accounts are closed into at the end of each year.
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Accurate
One of the three criteria of "Dependability" which is one of the two primary characteristics of accounting information. For financial statements of be considered reasonably accurate or valid, means that they say what they mean to say. They are not overstated or understated.
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Acid-test ratio
The ratio of quick current assets to current liabilities. This ratio measures the ease in which the company can pay off its short-term liabilities, therefore a 1 to 1 ratio is deemed acceptable. Anything less is questionable. It is one of the ratios that tests the financial health of a business and is also known as the quick ratio.
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Additional Paid-in-Capital
Capital paid in by stockholders in excess of the stated value of the stock that was issued to them.
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Adjusting journal entry
Same as journal entry.
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Agent
A person authorized to act on behalf of another person.
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Allocate
To spread the cost of an item systematically among other items. For example, a check amount was written to replenish petty cash and can be allocated among several expense accounts such as postage, office expense, and meals and entertainment.
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American Institute of Certified Public Accountants
The primary association of certified public accountants. Members are bound to follow the ethical and auditing standards prescribed by the AICPA and to financial accounting standards prescribed by the Financial Accounting Standards Board (FASB).
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Amortization
Spreading the cost of intangible assets over a uniform period of time. Similar to the process of depreciation.
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Analogical
Based on an analogy.
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Analogy
Correspondence in some respects between otherwise dissimilar things.
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Asset
An economic resource a company has possession and control over that will provide a future benefit.
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Audit
The process of examining a company's financial records by either external or internal auditors for the purpose of rendering an opinion as to the quality of the financial records.
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Audit trail
The ability to follow a summary number back to its original source.
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Auditors
See audit.
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