Glossary BA: Accounting

 

Key Term

Definition

accounting

The recording, classifying, summarising, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.

financial statement

A summary of all the transactions that have occurred over a particular period.

government

The state that regulates and controls the economy.

competitors

Other businesses offering the same or similar products on the market.

bank

An institution that provides financial services to savers and borrowers.

suppliers

Organisations delivering different kinds of input to the business.

employee

An individual working for the business.

consumer

An individual buying the final products of the business.

institution

Different organisations affecting the business.

accounting equation

Assets equal liabilities plus owners' equity.

assets

A firm's economic resources, or items of value that it owns.

liabilities

What the business owes to others.

stockholder‘s equity

Assets minus liabilities.

accounting cycle

The four steps of an accounting system: examining source documents, recording transactions in a journal, posting transactions, and preparing financial statements.

transaction

An activity that transfers money or products from one person to another.

accountancy

The professional group that records and analyses business transactions.

managerial accounting

Accounting used to provide information and analyses to managers within the organisation to assist them in decision making.

financial accounting

Accounting information and analyses prepared for people outside the organisation.

single entry

The concept of writing every transaction in only one place.

double entry

The concept of writing every transaction in two places.

bookkeeping

The recording of business transactions.

account

The unit where similar business transactions are entered into.

cash

Ready money.

debts

Money owed to third parties.

debit

The left side of an account.

credit

The right side of an account.

balance sheet

A financial statement that shows a company's assets (what it owns), liabilities (what it owes), and net worth at a specific point in time.

income statement

The financial statement that shows a firm's profit after costs, expenses, and taxes; it summarises all of the resources that have come into the firm (revenue), all the resources that have left the firm, and the resulting net income.

profit and loss account

A financial report showing the profitability of a firm over a period of time.

journal

A chronological list of transactions in which each is assigned to a particular account.

general ledger

A book or computer file with separate sections for each account.

expenses

Costs involved in operating a business, such as rent, utilities, and salaries.

revenue

The amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold.

debtor

A person who is under a legal obligation to pay a sum of money to another (the creditor).

property

Something that is capable of being owned. A right or interest associated with something that gives the owner the ability to exercise dominion over it.

current assets

Items that can be converted into cash within one year.

fixed assets

Assets that are relatively permanent, such as land, buildings, and equipment.

creditor

A person to whom a debt or legal obligation is owed, and who has the right to enforce payment of that debt or obligation.

common stock

Stock that allows the owner voting rights but no preferential treatment regarding dividends.

depreciation

Reduction in value, quality, and usefulness of a fixed asset (plant or equipment) because of physical deterioration, destruction, or obsolescence resulting from technological development.

profit

The amount of money left over after the business records all its revenues and subtracts all its expenses. (Total revenues minus total expenses.)

loss

When a business's costs and expenses are more than its revenues.

ratio

A number containing information about the organisation's financial health.

ratio analysis

Calculations that measure an organisation's financial health.

liquidity

(1) The ability of a bank or business to meet its current obligations; (2) the quality that makes an asset quickly and readily convertible into cash.

leverage

Raising needed funds through borrowing to increase a firm's rate of return.

cash flow

The movement of cash into, through, and out of a firm.

budget

A financial plan that sets forth management's expectations for revenues and, based on those expectations, allocates the use of specific resources throughout the firm.

cost of goods sold

The amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies.

gross income

Revenues minus the cost of goods sold required to generate the revenues.

net income

The profit (or loss) after all expenses including taxes, have been deducted from revenue.

profitability ratio

Measures of how much operating income or net income a firm is able to generate relative to its assets, owners' equity, and sales.

return on assets (ROA)

Net income divided by assets.

return on equity (ROE)

Net income divided by owners' equity.

liquidity ratios

Measures of the speed with which a company can turn assets into cash to pay off short-term debt.

current ratio

Current assets divided by current liabilities.

quick ratio

A stringent measure of liquidity that eliminates inventory.

per share data

Data used by investors to compare the performance of one company with another on an equal, per share basis.

dividend

Part of a firm's profits that may be distributed to stockholders as either cash payments or additional shares of stock.