Basic Financial Accounting Terms Accounting & Bookkeeping Terms to Know Video & Lesson Transcript

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Accounting Terms

Study some basic accounting terms to increase your financial literacy knowledge. A report of an organization’s revenues, expenses, gains, and losses over a specified time period. The end of the statement includes an organization’s net income or losses. This formula is the foundation of double-entry bookkeeping and of accounting itself. A fundamental goal of financial recordkeeping is to make sure this equation is balanced.

  • Any division of anorganizationauthorized to operate, within prescribed or otherwise established limitations, under substantial control by its ownmanagement.
  • Method used in evaluating investments whereby thenetpresent valueof allCASHoutflows and cash inflows is calculated using a givenDISCOUNT RATE, usuallyrequired rate of return.
  • Distribution of anexpense, fund, or DIVIDEND proportionate with ownership.
  • Once they do, they make adjustments, which are tracked in the worksheet.
  • An adjusting entry is required to move the expense to the correct account.
  • For an individual, thesocial securitynumber is used, and if you do not have a social security number, the IRS will assign you aTIN.

Expenseof selling, advertising, and delivery of goods and services. Process of divulgingaccountinginformation so that the content ofFINANCIAL STATEMENTSis understood. Amaterialthat will become part of a finished product and can be easily and economically traced to specific product units.

A Comprehensive Glossary Of The Most Common Accounting Terms

The reports generated by various streams of accounting, such as cost accounting and managerial accounting, are invaluable in helping management make informed business decisions. If that local car dealer with all that inventory on its lot sells a car for $10,000 cash, they debit their cash account to increase it by $10,000, but how much do they credit their inventory? Bookkeeping is the process of keeping books or recorded transactions and financial records.

Federal law enacted in 1971 giving persons the right to see theircreditrecords at credit reporting bureaus. These have the objective of detecting errors orfraudthat have already occurred that could result in a misstatement of thefinancial statements. Procedures used for rationally classifying, recording, and allocating current or predicted costs that relate to a certain product orproductionprocess.

Equity (Net Assets)

To calculate ROI, subtract the cost of investment from the current value of investment, and divide that by the cost of the investment. Entity formation is the process of classifying a business as an entity such as an LLC, sole proprietorship, partnership, S-Corp, or C-Corp. Federally licensed tax professionals who can represent U.S. taxpayers. They must pass the three-part special enrollment examination from the IRS. Cash flow is the total amount of money that comes into and goes out of a business. Here are some of the tools and services to help your business grow.

What is IFRS and GAAP?

GAAP, also referred to as US GAAP, is an acronym for Generally Accepted Accounting Principles. This set of guidelines is set by the Financial Accounting Standards Board (FASB) and adhered to by most US companies. IFRS stands for International Financial Reporting Standards.

However, in order to determine your net profit or loss, you will also have to subtract all expenses from the revenue total as well. The Profit and Loss Statement is also known as the Income Statement. It is a financial statement prepared by the accountants to summarize your business’s performance and monetary status. It includes expenses, revenues, and net profits over a while like quarterly, yearly, etc. It is an accounting statement that calculates liabilities, assets, and equity to ensure both parts of the accounting formula match.

Moving Average Method

Inquiries may range from formal written inquiries to informal oral inquiries. Minor materials and otherproductionsupplies that cannot be Accounting Terms conveniently and economically traced to specific products. Netofcashoutflows and inflows attributable to a corporateinvestmentproject.

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Since each organization is different, the reports generated by managerial accounting are specific to each organization’s needs. These reports are used by finance departments, management teams, and other such owners and employees. Managerial accounting does not have to follow generally accepted accounting principles . Credit is an accounting entry that can either increase a company’s liabilities or decrease its assets.

What is marginal cost?

A bank reconciliation should be done each month for all active bank accounts. It’s in your best interest to have a working understanding of these basic accounting and business terms and what they mean. Small business accounting software applications have made it easier than ever to manage your finances without a lot of accounting knowledge. But to manage your business and your finances properly, it’s important to understand these basic accounting terms. Usually, capital is a liquid fund obtained from own or other sources.

What are basic accounting terms?

Introduction to accounting frequently identifies assets, liabilities, and capital as the field's three fundamental concepts. Assets describe an individual or company's holdings of financial value. Liabilities are debts and unpaid expenses. Capital describes the money the entity has on hand.

It is the actual money that a company generates at a given point in time. In accounting, an accountant uses the Payroll account to show payments released for employee wages, salaries, deductions, benefits, pension funds, and bonuses/rewards. If the payroll payments accrue like unpaid wages, unpaid bonuses, pending vacation pay, etc., then such Payroll amounts will appear on the Balance Sheet as a Liability record. The asset represents anything that your business owns with a monetary value. Accountants list assets in their order of liquidity, like balance in the company bank account is the most liquid and factory land is the least liquid asset.

Additional Paid in Capital

On credit is income not generated from the sale of a company’s product or services. A floral wholesaler has revenues of $1 million and expenses of $900,000.

Accounting Terms