401(k) plan An employee contributes a portion of gross earnings to an account in the 401(k) plan and does not pay income tax on the contributed earnings.
account Subdivision under the three sections of the accounting equation used to summarize increases and decreases in assets, liabilities, and owner's equity.
accountant A person who handles a broad range of jobs related to the making of choices and decisions about the design of a business's accounting system and the preparation and explanation of financial reports.
accounting clerk Entry-level job that can vary with the size of the company from specialization in one part of the system to a wide range of recordkeeping tasks.
accounting cycle The accounting period of a business is separated into activities that help the business keep its accounting records in an orderly fashion.
accounting equation The basis for keeping all accounting records in balance. Assets = liabilities + owner's equity
accounting period A period of time covered by an accounting report.
accounting system A systematic process of recording and reporting the financial information resulting from business transactions.
accounts payable The amount of money owed, or payable, to the creditors of a business.
accounts payable subsidiary ledger A separate ledger that contains accounts for all creditors; it is summarized in the Accounts Payable controlling account in the general ledger.
accounts receivable The total amount of money owed to a business.
accounts receivable subsidiary ledger A separate ledger that contains accounts for all charge customers; it is summarized in the Accounts Receivable controlling account in the general ledger.
accumulated depreciation The total amount of depreciation for a plant asset that has been recorded up to a specific point in time.
accumulated earnings The employee's year-to-date gross earnings, or the employee's gross earnings from the beginning of the year through the end of each pay period.
adjustment An amount that is added to or subtracted from an account balance to bring that balance up-to-date.
administrative expenses Costs related to the management of a business (for example, office expenses).
aging of accounts receivable method A method of estimating bad debts expense in which each customer's account is examined and classified by age; the age classifications are multiplied by certain percentages; and the total estimated uncollectible amounts are added to determine the end-of-period balance of Allowance for Uncollectible Accounts.
allowance Reduces the amount of income tax to be withheld.
allowance method A method of accounting for uncollectible accounts in which an estimate is made of the amount of sales on account for which payment will not be received.
assets Property or items of value owned by a business.
authorized capital stock The maximum number of shares of stock a corporation may issue.
balance sheet A report of the balances in all asset, liability, and owner's equity accounts at the end of the period.
bank discount The interest charge deducted in advance on a non-interest-bearing note payable.
bank service charge A fee the bank charges for maintaining bank records and processing bank statement items for the depositor.
bank statement An itemized record of all the transactions in a depositor's account over a given period, usually a month.
bankcard A card issued by a bank that can be used to withdraw cash and to make payments for goods and services at many businesses in place of writing checks.
bankcard fee A fee charged for handling bank card sales slips; it is usually based on the total dollar volume of the bank card sales processed.
base year A year or period that is used for comparison in financial statements analysis.
beginning inventory The merchandise a business has on hand at the beginning of a fiscal period.
board of directors A group of people, elected by the common stockholders, who are responsible for the affairs of a corporation.
book value The value of an asset at a specific point in time. For a plant asset, it equals the initial cost of the plant asset minus the accumulated depreciation.
book value of accounts receivable The amount the business can reasonably expect to receive from all its charge customers.
business entity Exists independently of its owner's personal holdings. The accounting records and reports are maintained separately and contain financial information related only to the business.
business transaction A business event, such as the buying, selling, or exchange of goods, that causes a change in the assets, liabilities, or owner's equity of a business.
calendar year Period for which a business begins on January 1 and ends on December 31.
canceled checks Checks paid by the bank and deducted from the depositor's account.
capital Money supplied by investors, banks, or owners of a business. Refers to the dollar value of assets contributed to the business.
Capital Stock The account that represents the total amount of investment in the corporation by its stockholders (owners).
cash discount The amount a customer can deduct from the amount owed for purchased merchandise if payment is made within a certain time.
cash payments journal A special journal used to record all transactions in which cash is paid out or decreased.
cash receipt The cash received by a business.
cash receipts journal A special journal used to record all transactions in which cash is received.
cash sale A transaction in which the business receives full payment for the merchandise sold at the time of the sale.
certified public accountant A public accountant who has passed the licensing exam on accounting theory, practice, auditing, and business law. (CPA)
change fund An amount of money, consisting of varying denominations of bills and coins, that is used to make change in cash transactions.
charge customer A customer to whom a sale on account is made.
chart of accounts A list of all the accounts and their assigned account numbers, used in journalizing transactions.
charter A legal written permission that gives a corporation certain rights and privileges and spells out the rules under which the corporation is to operate.
check A written order from a depositor telling the bank to pay a stated amount of cash to the person or business named on the check.
check stub A source document that lists the same information that appears on a check and shows the balance in the checking account before and after each check is written.
checking account Allows a person or business to deposit cash in a bank and to write checks against the account balance.
closely held corporation A corporation, often owned by a few people or by a family, that does not offer its stock for sale to the general public.
closing entries Journal entries made to close, or reduce to zero, the balances in the temporary capital accounts and to transfer the net income or net loss for the period to the capital account.
commission An amount paid to an employee based on a percentage of the employee's sales.
common stock The stock issued by a corporation when it is authorized to issue only one class of stock.
comparability The accounting principle that allows the financial information from one period to be compared to that of another period; also, the comparison of financial information of two or more businesses.
compound entry A journal entry with two or more debits or two or more credits.
computerized accounting system A system in which financial information is recorded by entering it into a computer.
conservatism principle Accounting guideline requiring that accountants choose the safer, or more conservative, method when there is a choice of procedures.
consistency principle The consistent use of an inventory costing method helps owners and creditors compare financial reports from one period to another.
contra account An account whose balance is a decrease to another account.
controlling account An account that acts as a control on the accuracy of the accounts in a related subsidiary ledger; its balance must equal the total of all the account balances in the subsidiary ledger.
corporation Business organization that is recognized by law to have a life of its own.
correcting entry An entry made to correct an error in a journal entry discovered after posting.
cost of merchandise The actual cost to the business of the merchandise sold to customers.
credit An agreement to pay for a purchase at a later time; an entry to the right side of a T account. credit cards Cards containing a customer's name and account number presented when buying merchandise on account.
credit memorandum A form that lists the details of a sales return or sales allowance.
credit terms Terms that set out the time allowed for payment for a sale on account.
creditor A person or business that has a claim to the assets of a business; a person or business to which money is owed.
current assets Assets that are either used up or converted to cash during the normal operating cycle of the business, usually one year.
current liabilities Debts of the business that must be paid within the next accounting period.
current ratio The relationship between current assets and current liabilities; calculated by dividing the dollar amount of current assets by the dollar amount of current liabilities.
debit An amount entered on the left side of the T account.
debit memorandum The form a business uses to notify its supplier (creditor) of a return or allowance.
deduction An amount that is subtracted from an employee's gross earnings.
deposit slip A bank form listing the cash and checks to be deposited.
depositor A person or business that has cash on deposit in a bank.
depreciation Allocating the cost of a plant asset over an asset's useful life.
direct deposit The depositing of an employee's net pay directly into her or his personal bank account; usually made through electronic funds transfer.
direct write-off method A procedure in which an uncollectible account is removed from the accounts receivable subsidiary ledger and the controlling account in the general ledger when a business determines that the amount owed is not going to be paid.
discount period The period of time within which an invoice must be paid if a discount is to be taken.
disposal value The estimated value of a plant asset at its replacement time; often called trade-in value or salvage value.
dividend A return on the investments by the stockholders of a corporation; charged against the corporation's retained earnings.
double-entry accounting A financial recordkeeping system in which each transaction affects at least two accounts; for each debit there must be an equal credit.
drawee The bank on which a check is written.
drawer The person who signs a check.
due dates The date by which an invoice must be paid.
horizontal analysis The comparison of the same items on financial statements for two or more accounting periods and the analysis of changes from one period to the next.
income statement A report of the net income or net loss for a fiscal period; sometimes called a "profit and loss" statement.
Income Summary account The account in the general ledger used to summarize the revenue and expenses for the fiscal period.
interest The fee charged for the use of money.
interest rate The fee charged for the use of the principal when a loan is made.
interest-bearing note payable A note that requires the face value plus interest to be paid at maturity.
internal controls Steps a business takes to protect cash (for example, limiting the number of persons handling cash).
inventory The items of merchandise a business has in stock.
investments Those assets owned by a business but not used in the operation of the business.
invoice A bill; a form that lists the quantity, description, unit price, and total cost of the items sold and shipped to a buyer.
issue date The date on which a promissory note is written.
last-in, first-out method An inventory costing method that assumes that the last items purchased are the first items sold.
ledger A book or file containing a separate page for each business account; serves as a permanent record of financial transactions.
ledger account form The accounting stationery used to record financial information about specific accounts.
liabilities Amounts owed to creditors; the claims of creditors to the assets of the business.
lifestyle The way you use your time, energy, and resources.
liquidity ratio The measure of a business's ability to pay its current debts as they become due and to provide for unexpected needs of cash.
long-term liabilities Debts that are not required to be paid within the next accounting period.
loss The result of a company's spending more than it receives in revenue.
on account When a business or individual buys an item on credit.
online The direct link-up of a terminal or cash register to a centralized computer system.
operating expenses The cash spent or assets consumed to earn revenue for a business; operating expenses do not include federal income tax expense.
operating income The taxable income of a corporation.
other expense A non-operating expense; an expense that does not result from the normal operations of the business.
other revenue Non-operating revenue that a business receives from activities outside its normal operations.
outstanding checks Checks that have been written but have not yet been presented to the bank for payment.
outstanding deposits Deposits that have been made and recorded in the checkbook but do not appear on the bank statement.
overtime rate Employers are required to pay overtime when employees covered by these laws work more than 40 hours per week.
owner's equity Owner's claims to the assets of the business.
packing slip A form that lists the items included in the shipment.
Paid-in Capital in Excess of Par The account that represents the amount of cash received by a corporation over the stock's par value.
par value The dollar amount assigned to each share of stock when the corporation's charter is approved; used to determine the amount credited to the capital stock account.
partnership Business owned by two or more persons, called partners, who agree to operate the business as co-owners.
partnership agreement A written document that sets out the terms under which the partnership will operate.
partnership liquidation Ending a partnership involves winding up the affairs of the partnership business.
pay period The amount of time over which an employee is paid.
payee The person or business to whom a check is written or a note is payable.
payroll A list of the employees and the payments due to each employee for a specific pay period.
payroll clerk Responsible for preparing the payroll.
payroll register A form that summarizes information about employees' earnings for each pay period.
Payroll Tax Expense Account where the employer's payroll taxes are recorded.
percentage of net sales method A method of estimating uncollectible debts expense in which a business assumes that a certain percentage of each year's net sales will be uncollectible.
periodic inventory system An inventory system in which the number of items on hand is determined by a physical count.
permanent accounts Accounts that are continuous from one accounting period to the next; balances are carried forward to the next period (for example, assets, liabilities, and owner's capital accounts).
perpetual inventory system An inventory system in which a constant, up-to-date record of the amount of merchandise on hand is maintained.
personal interest tests Tests that uncover personal preferences you can use to research potential careers and determine which ones match your particular interests.
personality A set of unique qualities that makes us different from all other people.
petty cash disbursement A payment made from the petty cash fund.
petty cash fund Cash kept on hand for making small, incidental cash payments.
petty cash register A record of all disbursements made from the petty cash fund.
petty cash requisition A form requesting money to replenish the petty cash fund.
petty cash voucher A form that provides proof of payment from the petty cash fund.
petty cashier The person responsible for maintaining the petty cash fund and for making petty cash disbursements.
physical inventory An actual count of all the merchandise on hand and available for sale.
plant assets Long-lived assets that are used in the production or sale of other assets or services over several accounting periods.
point-of-sale terminal Electronic cash register.
post-closing trial balance Prepared to verify that total debits equal total credits after the closing entries are posted.
posting The process of transferring information from the general journal to individual general ledger accounts, the fourth step in the accounting cycle.
preferred stock Stock whose owners have certain privileges over common stockholders.
premium The amount paid for insurance.
principal The amount of money being borrowed on a promissory note.
proceeds The amount of cash actually received by a borrower on a non-interest-bearing note payable.
processing stamp A stamp placed on a creditor's invoice that outlines the steps to be followed in processing the invoice for payment.
profit The amount of revenue earned above the expenses incurred to operate the business.
profitability ratio Ratios used to evaluate the earnings performance of a business during the accounting period (for example, return on common stockholders' equity).
promissory note A written promise to pay a certain amount of money at a specific future time.
property Items of value that are owned or controlled by a business; economic resources of a business.
property rights Creditors' and owners' financial claims to the assets of a business.
proving cash The process of determining whether the amounts of cash recorded in the accounting records of a business and in its checkbook agree.
proving the ledger Adding all debit balances and all credit balances of ledger accounts and then comparing the two totals to see whether they are equal.
proxy A document that transfers a stockholder's voting rights to someone else.
public accounting Accounting services that range from tax preparation to merger and acquisition consultation; a variety of accounting services offered to businesses.
publicly held corporation A corporation whose stock is widely held, has a large market, and is usually traded on a stock exchange.
purchase order A written offer to a supplier to buy certain items.
purchase requisition A written request that a certain item or items be ordered.
Purchases account The account used to record the cost of merchandise purchased during a fiscal period.
purchases allowances A price reduction given when a business keeps unsatisfactory merchandise it has bought.
purchases discount Term used by the buyer to refer to a cash discount offered for early payment.
purchases journal A special journal used to record all transactions in which items are bought on account.
purchases returns The return to the supplier for full credit of merchandise bought on account.
quick ratio A measure of the relationship between short-term assets and current liabilities.
ratio analysis Involves the comparison of two amounts on a financial statement and the evaluation of the relationship between these amounts.
receipt A form that serves as a record of cash received.
reconciling the bank statement The process of determining any differences between a bank statement balance and a checkbook balance.
relevance A characteristic of accounting requiring that information "make a difference" in reaching a business decision.
reliability A characteristic requiring that accounting information be reasonably free of bias and error.
report form A format for preparing the balance sheet in which the classifications of accounts are listed one under another.
restrictive endorsement A check endorsement that restricts or limits how a check may be handled (for example, "For Deposit Only").
retailer A business that sells to the final user, the consumer.
retained earnings Earnings held by a corporation and not paid to stockholders as a return on their investment.
return on sales The portion of each sales dollar that represents profit. To calculate this ratio, divide net income by sales.
revenue Income earned from the sale of goods and services.
revenue recognition Accounting principle that states that revenue is recognized and recorded on the date it is earned even if cash has not been received.
ruling A single line drawn under a column of figures to signify that the entries above the rule are to be added or subtracted; a double rule under an amount signifies a total.
uncollectible accounts An account receivable that cannot be collected, sometimes called a bad debt.
unemployment taxes Taxes collected to provide funds for workers who are temporarily out of work; usually paid only by the employer.
values Concepts or ideas held important or worthwhile.
vertical analysis A method of analysis that requires the restating of each dollar amount reported on a financial statement as a percentage of a base amount reported on the same statement.
voiding a check Canceling a check by writing the word "Void" across the front in ink.
wage An amount of money paid to an employee at a specified rate per hour worked.
weighted average cost method An inventory costing method in which all purchases of an item are added to the beginning inventory of that item; the total cost is then divided by the total units to obtain the average cost per unit.
wholesaler A business that sells to retailers.
withdrawal The removal of cash or another asset from the business by the owner for personal uuse.
work sheet A working paper used to collect information from ledger accounts for use in completing end-of-fiscal-period work.
working capital The amount by which current assets exceed current liabilities.