Glossary of Accounting

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ESP Educational Class
Mrs.ET Sopheak
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Glossary of Accounting

Accounts

• Assets: The resources owned or controlled by a business that provide future economic benefits.
• Liabilities: The debts and obligations of a business. Liabilities are claims of lenders and other creditors on the assets of a business.
• Shareholders’ equity: The shareholders’ claim on total assets, represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the company.
• Retained earnings: The amount of accumulated profit (less losses, if any), from the prior and current periods, that has been kept in the corporation for future use and not distributed to shareholders as dividends.
• Revenue (also known as income): The increase in economic benefits that result from the operating activities of a business, such as the sale of a product or provision of a service.
• Expenses: The decrease in economic benefits that result from the costs of assets consumed or services used in ongoing operations to generate revenue
• Share capital: Shares representing the ownership interest in a corporation. If only one class of shares exists, it is known as common shares.
• Dividends: The distribution of retained earnings from a corporation to its shareholders, oft en in the form of cash.
• Loss (also known as net loss): The amount by which expenses are more than revenues. Th e opposite of profit.
• Profit (also known as net income or net earnings): The amount by which revenues are more than expenses.
• Generally accepted accounting principles (GAAP): A general guide, having substantial authoritative support, that describes how economic events should be recorded and reported for financial reporting purposes.
• Fiscal year: An accounting period that is one year long.

Accounting Cycle

• Accounting cycle: A series of nine steps followed by accountants to record transactions and prepare financial statements. Th e first four steps were introduced in this chapter: analyzing transactions (step 1), journalizing transactions (step 2), posting transactions (step 3), and preparing a trial balance (step 4).
• Accounting information system: The system of collecting and processing transaction data and communicating financial information to interested parties.
• Accounting transaction An economic event that is recorded in the financial statements because it involves an exchange that affects assets, liabilities, or shareholders’ equity.
• Chart of accounts: A list of a company’s accounts and account numbers that identify where the accounts are in the general  ledger. 
• Credit Th e right side of an account.
• Debit Th e left  side of an account.
• Double-entry accounting system: A system that records the dual effect of each transaction in appropriate accounts.
• General journal: The book of original entry in which transactions are recorded in chronological order. 
• General ledger: The book of accounts that contains a company’s asset, liability, and shareholders’ equity, revenue, and expense accounts.
• Posting: The procedure of transferring journal entries to the general ledger accounts.
• T- account (also known as a general ledger account): The basic form of an account, with a debit (left ) side and a credit (right) side showing the effect of transactions on the account.
• Trial balance: A list of general ledger accounts and their balances at a specific time, usually at the end of the accounting period.

Closing Account

• Accrual basis accounting: An accounting basis in which transactions that change a company’s financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives or pays cash.
• Accrued expenses: Expenses incurred but not yet paid in cash that are recorded at the end of the period by an adjusting entry.
• Accrued revenues: Revenues earned but not yet received in cash that are recorded at the end of an accounting period by an adjusting entry.
• Adjusted trial balance: A list of accounts and their balances after all adjustments have been made. 
• Adjusting entries: Journal entries made at the end of an accounting period to update the accounts to ensure the proper recognition of revenues and expenses.
• Carrying amount (also known as book value): The difference between the cost of a depreciable asset and its accumulated depreciation. 
• Cash basis accounting: An accounting basis in which revenue is recorded only when cash is received, and an expense is recorded only when cash is paid.
• Closing entries: Entries at the end of an accounting period to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the permanent shareholders’ equity account Retained Earnings.
• Depreciation (also known as amortization): The process of allocating the cost of a depreciable asset (for example, buildings and equipment) over its useful life.
• Expense recognition Th e process of recording an expense when there is a decrease in future economic benefits related to a decrease in an asset or an increase in a liability in the course of ordinary activities that can be measured reliably. When there is a direct association between the expenses incurred and the generation of revenue, expenses (effort) are matched with revenues (results).
• Income summary A temporary account used in closing revenue and expense accounts.

Income Statement

• Income statement (also known as statement of earnings or statement of profit and loss): A financial statement that presents the revenues and expenses and resulting profit or loss of a company for a specific period of time.
• Statement of changes in equity: A financial statement that summarizes the changes in total shareholders’ equity, as well as each component of shareholders’ equity, for a specific period of time.
• Statement of financial position (also known as balance sheet): A financial statement that reports the assets, liabilities, and shareholders’ equity at a specific date.
• Statement of cash flows: A financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.

Statement of Cash Flow

• Financing activities: Activities that include (1) borrowing (or repaying) cash to lenders, and (2) issuing (or reacquiring) shares or paying dividends to investors.
• Investing activities: Activities that include purchasing and disposing of long-lived assets such as property, plant, and equipment and long-term investments.
• Operating activities: Activities that result from day-to-day operations and include revenues and expenses and related accounts such as receivables, supplies, inventory, and payable.

Forms of Business Organization

• Proprietorship: A business owned by one person.
• Partnership: A business owned by more than one person.
• Corporation: A business organized as a separate legal entity having ownership divided into transferable shares held by shareholders.

Thanks,

Mrs.ET Sopheak

Lecturer in Economics