Bookkeeping Terms (Internet Sources)

W

e hope that the following list of de•nitions is useful to you. It is by no means a de•nitive list and will probably grow during the history of this site. Most of the terms require far longer statements to explain them fully but we have tried to make them as simple as possible.

GLOSSARY OF BOOKKEEPING TERMS
Accrual An expense due but not yet recorded in the books, such as wages paid in arrears. Advice Note Sent by a supplier to inform that goods will be delivered in response to an order. Asset Property of the company such as buildings, equipment, cash etc Balance Sheet Part of the Final Accounts of a business. Contains assets and liabilities. Bank Reconciliation To compare the bank balance as recorded by the business with that bank statement and explain or correct any differences. Capital Money owed to the owner of a business – Capital invested plus net pro•t. Capital Allowance Effectively depreciation but rules provided by HMRC on how this should be calculated for the purpose of tax returns. Credit Note Issued by the supplier in the instance of some or all of the goods either failing to be delivered or returned due to being faulty. Creditors Parties owed money by a business. Debtors Parties who owe money to the business. Depreciation Shows a reduction in the value of a •xed asset. Shown as an expense to the business and various methods are used. Double Entry Method of bookkeeping believed to have been introduced in the 15th Century. Every transaction affects two account balances and involves two entries (a debit and a credit). Drawings Money withdrawn from the business for the owner’s personal use. Expenses Costs incurred for the purpose of running the business. This does not include the purchase of a •xed asset. Final Accounts The end of year accounts of a company comprising the Trading, Pro•t & Loss Account and the Balance Sheet. Trade Discount A reduction in the price of goods, usually to a regular customer. Not usually recorded in the books. Trading, Pro•t & Loss Account Part of the •nal accounts of a business showing sales, cost of sales and expenses which enable gross and net pro•t to be calculated. Trial Balance Lists the accounts and balances of the business. Debit and credit balances are totalled to ensure that both sides are equal. If they are not, then an error exists in the recording of the transactions. Turnover Amount of business income from sales. Fixed Asset An item expected to be in the company for at least two years such as a building, vehicle etc. Invoice Document issued by a supplier giving details of goods or services sold and the amount charged. Journal Not strictly part of the accounts but used as a diary to give details of purchases of •xed assets, year-end adjustments and error corrections Liability Money owed by a business. Net Pro•t In simple terms, sales minus expenses but there are other items in the equation. Prepayment Payment for a service which covers a period beyond the business year end, such as insurance cover which still has three months to run. Purchase Ledger Contains the accounts of suppliers who sell to the business on credit. Sales Ledger Contains the accounts of customers who buy from the business on credit. Settlement Discount A discount offered on the condition that the bill be paid within a speci•ed period.

Roy Clements AICB CB.Dip PM.Dip

Tel: 01473 463741 Email: [email protected]

Mobile: 07742 146011 Web: www.dalesbookkeeping.co.uk

Practice No. 2181

Basic Bookkeeping Terms and Phrases - For Dummies
Παρασκευή, 28 Φεβρουαρίου 2014 8:50 πµ

Basic Bookkeeping Terms and Phrases By Lita Epstein from Bookkeeping For Dummies 3 of 12 in Series: The Essentials of Accounting Basics Get a firm understanding of key bookkeeping and accounting terms and phrases before you begin work as a bookkeeper. Bookkeepers use specific terms and phrases everyday as they track and record financial transactions — from balance sheets and income statements to accounts payable and receivable. The following sections list bookkeeping terms that you'll use on a daily basis. Balance sheet terminology Here are a few terms you’ll want to know when working with balance sheets: Balance sheet: The financial statement that presents a snapshot of the company’s financial position as of a particular date in time. It’s called a balance sheet because the things owned by the company (assets) must equal the claims against those assets (liabilities and equity). Assets: All the things a company owns in order to successfully run its business, such as cash, buildings, land, tools, equipment, vehicles, and furniture. Liabilities: All the debts the company owes, such as bonds, loans, and unpaid bills. Equity: All the money invested in the company by its owners. In a small business owned by one person or a group of people, the owner’s equity is shown in a Capital account. In a larger business that’s incorporated, owner’s equity is shown in shares of stock. Another key Equity account is Retained Earnings, which tracks all company profits that have been reinvested in the company rather than paid out to the company’s owners. Small businesses track money paid out to owners in a Drawing account, whereas incorporated businesses dole out money to owners by paying dividends. Income statement terminology Here are a few terms related to the income statement that you’ll want to know: Income statement: The financial statement that presents a summary of the company’s financial activity over a certain period of time, such as a month, quarter, or year. The statement starts with Revenue earned, subtracts the Costs of Goods Sold and the Expenses, and ends with the bottom line — Net Profit or Loss. Revenue: All money collected in the process of selling the company’s goods and services. Some companies also collect revenue through other means, such as selling assets the business no longer needs or earning interest by offering short-term loans to employees or other businesses. Costs of goods sold: All money spent to purchase or make the products or services a company plans to sell to its customers. Expenses: All money spent to operate the company that’s not directly related to the sale of individual goods or services. Other common bookkeeping terms Some other common terms used in bookkeeping include the following: Accounting period: The time period for which financial information is being tracked. Most businesses track their financial results on a monthly basis, so each accounting period equals one month. Some businesses choose to do financial reports on a quarterly or annual basis. Businesses that track their financial activities monthly usually also create quarterly and annual reports. Accounts payable: The account used to track all outstanding bills from vendors, contractors, consultants, and any other companies or individuals from whom the company buys goods or services. Accounts receivable: The account used to track all customer sales that are made by store credit. Store credit refers not to credit card sales but rather to sales in which the customer is given credit directly by the store and the store needs to collect payment from the customer at a later date. Depreciation: An accounting method used to track the aging and use of assets. For example, if you own a car, you know that each year you use the car its value is reduced (unless you own one of those classic cars that goes up in value). Every major asset a business owns ages and eventually needs replacement, including buildings, factories, equipment, and other key assets. General Ledger: Where all the company’s accounts are summarized. The General Ledger is the granddaddy of the bookkeeping system. Interest: The money a company needs to pay if it borrows money from a bank or other company. For example, when you buy a car using a car loan, you must pay not only the amount you borrowed but also interest, based on a percent of the amount you borrowed. Inventory: The account that tracks all products that will be sold to customers. Journals: Where bookkeepers keep records (in chronological order) of daily company transactions. Each of the most active accounts — including cash, Accounts Payable, and Accounts Receivable — has its own journal. Payroll: The way a company pays its employees. Managing payroll is a key function of the
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 1

• • • •

•

• • •

•

• • •

• • • • •

• Payroll: The way a company pays its employees. Managing payroll is a key function of the bookkeeper and involves reporting many aspects of payroll to the government, including taxes to be paid on behalf of the employee, unemployment taxes, and workman’s compensation. • Trial balance: How you test to be sure the books are in balance before pulling together information for the financial reports and closing the books for the accounting period. Copyright © 2014 & Trademark by John Wiley & Sons, Inc. All rights reserved. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/basic-bookkeeping-terms-andphrases.html> Accounting Terms Learn Basic Accounting Terms Accounting - process of identifying, measuring, and reporting financial information of an entity Accounting Equation - assets = liabilities + equity Accounts Payable - money owed to creditors, vendors, etc. Accounts Receivable - money owed to a business, i.e. credit sales Accrual Accounting - a method in which income is recorded when it is earned and expenses are recorded when they are incurred, all independent of cash flow Accruals - a list of expenses that have been incurred and expensed, but not paid or a list of sales that have been completed, but not yet billed Amortization – gradual reduction of amounts in an account over time, either assets or liabilities Asset - property with a cash value that is owned by a business or individual Audit Trail – a record of every transaction, when it was done, by whom and where, used by auditors when validating the financial statement Auditors – third party accountants who review an entity’s financial statements for accuracy and provide a statement to that effect Balance Sheet - summary of a company's financial status, including assets, liabilities, and equity Bookkeeping - recording financial information Budgeting – the process of assigning forecasted income and expenses to accounts, which amounts will be compared to actual income and expense for analysis of variances Capital Stock – found in the equity portion of the balance sheet describing the number of shares sold to shareholders at a predetermined value per share, also called “common stock” or “preferred stock” Capital Surplus – found in the equity portion of the balance sheet accounting for the amount shareholders paid that is greater or lesser than the “capital stock” amount Capitalized Expense – expenses that are accumulated, not expensed as incurred, to be amortized over a period of time; i.e. the development cost of a new product Chart of Accounts - a listing of a company's accounts and their corresponding numbers Cash-Basis Accounting - a method in which income and expenses are recorded when they are paid. Cash Flow - a summary of cash received and disbursed showing the beginning and ending amounts Closing the Books/Year End Closing – the process of reversing the income and expense for a fiscal or calendar year and netting the amount into “retained earnings” Cost Accounting - a type of accounting that focuses on recording, defining, and reporting costs associated with specific operating functions Credit - an account entry with a negative value for assets, and positive value for liabilities and equity. Debit - an account entry with a positive value for assets, and negative value for liabilities and equity. Departmental Accounting – separating operating divisions into their own sub entities on the income statement, showing individual income, expenses, and net profit by entity Depreciation - recognizing the decrease in the value of an asset due to age and use Dividends – amounts paid to shareholders out of current or retained earnings Double-Entry Bookkeeping - system of accounting in which every transaction has a corresponding positive and negative entry (debits and credits) Equity - money owed to the owner or owners of a company, also known as "owner's equity" Financial Accounting - accounting focused on reporting an entity's activities to an external party; ie: shareholders Financial Statement - a record containing the balance sheet and the income statement Fixed Asset - long-term tangible property; building, land, computers, etc. General Ledger - a record of all financial transactions within an entity Goodwill – an intangible asset reflecting the value of an entity in excess of its tangible assets Income Statement - a summary of income and expenses Inventory – merchandise purchased for resale at a profit Inventory Valuation – the method to set the book value of unsold inventory: i.e. “LIFO,” last in, first out; “FIFO,” first in, first out; “average,” an average cost over a given period, “last cost,” the cost based on the last purchase; “standard,” a “deemed” amount related to but not tied to a specific purchase, “serialized,” based on a uniquely identifiable serial number or character of each inventory item Invoice – the original billing from the seller to the buyer, outlining what was purchased and the terms of sale, payment, etc.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 2

of sale, payment, etc. Job Costing - system of tracking costs associated with a job or project (labor, equipment, etc) and comparing with forecasted costs Journal - a record where transactions are recorded, also known as an "account" Liability - money owed to creditors, vendors, etc Liquid Asset - cash or other property that can be easily converted to cash Loan - money borrowed from a lender and usually repaid with interest Master Account – an account on the general ledger that subtotals the “subsidiary accounts” assigned to it; i.e. Cash might be the master account for a list of depository accounts at banks Net Income - money remaining after all expenses and taxes have been paid Non Cash Expense - recognizing the decrease in the value of an asset; i.e. depreciation and amortization Non-operating Income - income generated from non-recurring transactions; ie: sale of an old building Note - a written agreement to repay borrowed money; sometimes used in place of "loan" Operating Income - income generated from regular business operations Other Income - income generated from other than regular business operations, i.e. interest, rents, etc. Payroll - a list of employees and their wages Posting – the process of entering then permanently saving or “archiving” accounting data Profit - see "net income" Profit/Loss Statement - see "income statement" Reconciliation – the process of matching one set of data to another; i.e. the bank statement to the check register, the accounts payable journal to the general ledger, etc. Retained Earnings – the amount of net profit retained and not paid out to shareholders over the life of the business Revenue - total income before expenses. Shareholder Equity - the capital and retained earnings in an entity attributed to the shareholders Single-Entry Bookkeeping - system of accounting in which transactions are entered into one account Statement of Account - a summary of amounts owed to a vendor, lender, etc. Subsidiary Accounts – the subaccounts that are totaled on the financial statement under “master accounts;” i.e. “Cash-ABC Bank” might be one of several subsidiary accounts that are subtotaled under “Cash” Supplies – assets purchased to be consumed by the entity Treasury Stock – shares purchased by the entity from shareholders, reducing shareholder equity Write-down/Write-off – an accounting entry that reduces the value of an asset due to an impairment of that asset; i.e. the account receivable from the bankrupt customer © 2014, A-Systems Corp. • All Rights Reserved Έγινε εισαγωγή από <http://www.a-systems.net/accounting-terms.htm> Bookkeeping - Terminology Made Simple By Vikki Allen There is no mystery to the basis of bookkeeping ie: for every debit there must be corresponding credits, but which is what and where does it go? Lets first un-mystify some of the terminology and in future articles we can get down to practicalities. INCOME This can be broken down into 2 groups, 1. Sales - This is the money generated from the sale of goods or services before taking anything off for costs or discounts etc. 2. Other Income - This is any other money received into the business by way of interest, discounts or anything not directly related to the product or service of the enterprise. EXPENDITURE (Expenses) Again this can be broken down into 2 groups, 1. Cost of Sales - anything directly purchased, including labour (wages), to produce the stuff you sell. 2. Expenses - everything else you have to pay for to run the business. Example: Say the business makes wooden boxes, the wood you buy and the carpenters wages are direct costs but the electricity used and the paper used for invoices are not. They are more like support services and therefore expenses. PROFIT & LOSS Gross profit (or loss) is the difference between the sales and cost of sales. Net profit (or Loss) is what's left after taking the expenses off the Gross profit and adding any Other Income. Note: Profit does not necessarily equal money in the bank, your profit is a number on a page that could be represented by stock on the shelf, material in the factory, half completed projects or fixed assets. It is ironic but the business could be in heavy overdraft but still be profitable - this is called a cash flow problem (or 'the cheque is in the mail'). ASSETS These are also broken down into 2 groups.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 3

These are also broken down into 2 groups. 1. Fixed Assets - owned by the business, such as buildings, plant & equipment, vehicles etc. Things that are necessary to generate the income and run the business that are going to be kept for a long time and cannot be easily converted to cash. 2. Current Assets - Things of a short term nature (under 12 months) easily converted to cash and of course cash itself, bank account, short term investments, debtors. LIABILITIES Also broken down into 2 groups. 1. Long term liabilities - any loans, bonds, HP etc to be paid off over a period longer than 12 months. 2. Current liabilities - anything that needs to be paid out within the current financial year (12 months) such as creditors, short term loans and not forgetting the bank account if it is in overdraft. OWNERS EQUITY The first thing to get our head around is that the owner of the business and the business itself must be seen as two separate individual entities, so even if you are the sole owner of your business - you are not the business itself. Once this is understood it is easy to see that Owners Equity is the difference between the Assets and Liabilities and depending which way it swings could either be owed TO the owner or owed BY the owner to the business. DEBTORS Those that owe the business money. CREDITORS Those that the business owes money to. INCOME STATEMENT A record of the day to day income and expenses of the business during the financial year. At the end of each financial year the values on the income statement are brought to zero for the start of the new year and only the profit or loss are carried over to the balance sheet. BALANCE SHEET A snapshot of the status of a business at any point in time made up of the Assets, Liabilities and Owners Equity. These values which change according to movements in the business are carried forward from year to year. DEBITS & CREDITS Note: Not the same as Debtors and Creditors (see above) When recording your transactions you would divide your page into two columns - Debits on the left and Credits on the right (just remember Dogs first, Cats second). Now comes the 'which goes where' Costs & Expenses - Debit Income - Credit Assets - Debit Liabilities - Credit TRIAL BALANCE Once you have sorted everything into your two columns, add each one up and they should balance with each other (if not you have boobed somewhere) - this is your trial balance and it is from here that all information is gathered to make up the Financial Statements of the business. Έγινε εισαγωγή από <http://ezinearticles.com/?Bookkeeping---Terminology-Made-Simple&id= 1417189> Accounting is the method of tracking money transactions in business or for personal use. It monitors income, expenses and assets. An accountant can have a job as simple as a bookkeeper running a one-person office or as a cost and analysis accountant in a large corporation. Accounting has a language all its own, but there are basic terms everyone who uses accounting must know. 1. Ledgers and Subledgers • A ledger is the foundation of the financial records of a business. All money transactions recorded in a ledger are a permanent record. Subledgers are used for tracking items such as accounts payable, accounts receivables, credits and debits. Normally, when one entry is made to one subledger, another one is posted to a different ledger to create a balance. This is called balancing the ledger, just as you would a checkbook ledger. A ledger creates a paper trail for all financial transactions. Debit and Credits • Debits and credits are based on the accounting system that every transaction has two parts. The debit is what you received and is in the form of money, income or other assets. A credit is applied to where you got the item from. For example, you buy a new cell phone using your credit card. Since the cell phone is what you received, it results in a debit to your assets. The credit will be applied to your credit card for the same amount, increasing your liabilities or debt. Determining a credit or a debit is easy if you remember that a debit increases your assets and can be in the form of money, equipment or accounts receivables; and credit will increase liabilities and equity and decrease assets. 2. Assets and Liabilities • Assets are anything you own and include money, investments and items of value and can be anything from land to a car or building you own. Entries into a ledger for assets always post in
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 4

• anything from land to a car or building you own. Entries into a ledger for assets always post in dollars for its value. Liabilities are anything you own such as debts including a car payment or mortgage. Income and Expenses • Income and expenses in simple terms is money earned is income and money spent is an expense. Income can be money that you have earned but not received as well as money you have received. Expenses can be an expense that has not been paid but that you still owe or money you have paid. Accounts Payable and Receivable • Accounts payable and receivable are money you have earned and not yet received or money that has to be paid and that you have not paid yet. Accounts payable is the money you owe but have not yet paid. It can be for anything, such as mortgage payments, health insurance or for any other goods or service. Accounts Receivable is money that is owed to you and not yet received. It can be income, or money from an item you have sold or service that you have provided. Equity • Equity is the amount of ownership value that you have in a home, business or item, such as car or equipment. For example, if you own a home but have a mortgage, the equity is the value of the home, minus your loan amount. • © 1999-2014 Demand Media, Inc. Έγινε εισαγωγή από <http://www.ehow.com/about_5427518_basic-accounting-terminology.html> Accounting & Bookkeeping Terms You may be wondering about accounting or bookkeeping terms that you encountered in conversation with your accountant or CPA, or on reading news. There are some questions in your mind: what is the mean of ...?, what does this mean?, or what is the definition of ....? The accounting and bookkeeping terms are put together here to help you understand basic accounting jargon or buzz words. Account - A systematic arrangement that shows the effect of transactions and other events on a specific element (asset, liability, and so on). Companies keep a separate account for each asset, liability, revenue, and expense, and for capital (owners’ equity). Because the format of an account often resembles the letter T, it is sometimes referred to as a T-account. Accounting - Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the financial statement. Accounts Payable - Accounts payable includes all expenses arising from credit purchases of merchandise or services from vendors or suppliers. As ongoing expenses of your company, they typically are current liabilities due within 12 months of the transaction date. Accounts Receivable - Accounts receivable represents revenue that has been both earned and billed but not yet received. Accrual Basis Accounting - Method of accounting that recognizes revenues when earned, rather than when collected. Expenses are recognized when incurred rather than when paid. Accrued Expense - Accrued expenses, or accrued liabilities, are payment obligations that you will pay in the future for merchandise or services already provided to your company. You recognize accrued liabilities at the end of the accounting period through adjusting entries. Unlike accounts payable, where you've received an invoice, accruals are delays in payment obligations. Accrued Revenue - Accrued revenue is money your company has earned but hasn't yet billed the customer for. It goes on the balance sheet as a current asset. In accrual-basis accounting, companies are allowed to record revenue on their income statement as soon as they have done everything required to earn it. Adjusting Entries - Entries made at the end of an accounting period to bring all accounts up to date on an accrual basis, so that the company can prepare correct financial statements. Balance Sheet - Basic financial statement , usually accompanied by appropriate disclosures that describe the basis of accounting used in its preparation and presentation of a specified date the entity's assets, liabilities and the equity of its owners. Also known as a statement of financial condition./p> Cash Basis - Method of bookkeeping by which revenues and expenditures are recorded when they are received and paid. Closing Entries - The formal process by which the enterprise reduces all nominal accounts to zero and determines and transfers the net income or net loss to an owners’ equity account. Also known as “closing the ledger,” “closing the books,” or merely “closing.” Deferred Revenue - Deferred revenue reflects cash receipts in connection with goods and services that have not yet been delivered or rendered. Deferred revenue is located in the liabilities section of a balance sheet. Financial Statements - Collection, tabulation, and final summarization of the accounting data including balance sheets, income statements, statements of cash flow, and statement of retained earnings that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended. Income Statement - Summary of the effect of revenues and expenses over a period of time. Journal - The “book of original entry” where the company initially records transactions and selected other events. Various amounts are transferred from the book of original entry, the journal, to the ledger. Entering transaction data in the journal is known as journalizing.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 5

ledger. Entering transaction data in the journal is known as journalizing. Ledger - The book (or computer printouts) containing the accounts. A general ledger is a collection of all the asset, liability, owners’ equity, revenue, and expense accounts. A subsidiary ledger contains the details related to a given general ledger account. Nominal Accounts - Nominal (temporary) accounts are revenue, expense, and dividend accounts; except for dividends, they appear on the income statement. Companies periodically close nominal accounts; they do not close real accounts. Posting- The process of transferring the essential facts and figures from the book of original entry to the ledger accounts. Prepaid Expense - Expense paid in advance that applies to a future accounting period. Real Accounts - Real (permanent) accounts are asset, liability, and equity accounts; they appear on the balance sheet. Statement of Cash Flows - A statement of cash flows is one of the basic financial statements that is required as part of a complete set of financial statements prepared in conformity with generally accepted accounting principles. It categorizes net cash provided or used during a period as operating, investing and financing activities, and reconciles beginning and ending cash and cash equivalents. Statement of Retained Earnings - Statement of retained earnings reconciles the balance of the retained earnings account from the beginning to the end of the period. Trial Balance - The list of all open accounts in the ledger and their balances. The trial balance taken immediately after all adjustments have been posted is called an adjusted trial balance. A trial balance taken immediately after closing entries have been posted is called a post-closing (or after-closing) trial balance. Companies may prepare a trial balance at any time. Έγινε εισαγωγή από <http://accounting.pettir.com/resources/terms> When initially dealing with accounting, the terminology can be quite intimidating. accountrain is therefore providing the following definitions (alphabetically) as guidelines to assist you. (We have tried to put the definitions in layman terms for better clarity.) If there are additional words you would like included, contact us and we would be pleased to add them to the ever-growing list. Also, please note for additional definitions most accounting text books include a glossary at the back. Accrual When you hear the word accrual, try and remember the word timing! Basically accrual means we record things as they happen, not when the cash changes hands. As soon as a sale takes place, it is recorded regardless of when the payment is actually received. And on the opposite side of that, when an expense is incurred it is recorded upon receipt with the date of payment being irrelevant. This coincides with one of the GAAP Principles, Matching. Allowance for Doubtful Accounts The Accounts Receivable aged items should be reviewed on a regular basis, at least at year-end. At that time, it may be determined that some of the receivables may not be collectable. To give a clearer picture of the true value of the receivables, it is recommended that you set up an allowance for the items you feel may be uncollectible. This is merely a temporary entry and can be reversed once collected. (and later, if they are deemed truly uncollectible, then they can be changed to an actual write-off (detailed below). The allowance is set up as a contra account and sits directly under the Accounts Receivable account as a negative value. As the two amounts net together, this gives the Balance Sheet a more realistic value. Amortization See Depreciation A/P - Accounts Payable As noted above in the accrual definition, a purchase is recognized when it occurs, and as the payment will take place and be recorded at a later date, it is kept track by entering the transaction into an A/P area (also known as a subledger, or in computerized terms, module). Details of vendor/supplier purchases and payments are maintained in this area, as well as vendor information including: contact, full address and other contact information. All computer systems provide specific reports for both the summary and details of the current Accounts Payable. Most payables are due within 30 days. Some suppliers will offer discounts if paid early or charge interest when paid late. A/R - Accounts Receivable As noted above in the accrual definition, a sale is recognized when it occurs, and the payment will take place and be recorded at a later date, it is kept track of by entering the transaction into the A/R area (also known as a subledger, or in computerized terms, module). Details of customer sales and payments are maintained in this area, as well as customer information including: contact, full address and other contact information. All computer systems provide specific reports for both summary and details of the current Accounts Receivable. An average receivable is 30-60 days but this will vary depending on the industry. It is up to you to decide if you will charge your customers interest on overdue accounts. Asset Something a company "owns". There are three types of assets: Current, Fixed and Intangible. Current assets are liquid meaning they can easily be turned into cash, they would include: Petty Cash, Bank accounts, Investments, Accounts Receivable (A/R) and inventory. Fixed assets, also known as Capital or Tangible Assets are something a company owns and are things you can actually touch. Examples would be computers, equipment, tools, building, land,
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 6

things you can actually touch. Examples would be computers, equipment, tools, building, land, furniture and company vehicles. Intangible assets include items such as goodwill, copyrights and patents. Assets belong on the Balance Sheet. Balance Sheet One of the two Financial Statements. Unfortunately owners and managers often bypass this very important report. As opposed to external readers, they will review the Income Statement, but INSIST on reviewing this report as well. The Balance Sheet consists of three sections: Assets, Liabilities, and Equity (or Capital). (for more information on the three sections of the Balance Sheet, see Assets, Liabilities and Equity.) Unlike the Income Statement, the Balance Sheet lives on from year to year. A good example of this is, just because it is year end the Bank balance does not start at zero. What many readers DON'T know is that the net of the Income Statement must reflect in the Equity section of the Balance Sheet in order for it to balance! External readers are mostly focusing on the ratio between the current assets and current liabilities, as well as the retained earnings and shareholder accounts. Bookkeeping We're often asked the difference between bookkeeping and accounting. Think of bookkeeping as more of the day to day transactions that take place in a business and the maintenance of this data entry. Most bookkeepers should be well versed in the data entry of Vendor bills and preparing cheques, as well as preparing customer invoices and applying the applicable cash receipts. Although some bookkeepers may have experience in the following, these may be tasks for someone with more experience: bank reconciliations, payroll, inventory maintenance, job-costing and all government remittances. (see CA for more information on accounting.) CA CA is the acronym for Chartered Accountant. In Canada this is the only accounting professional that has the authority to sign an audited financial statement. CA's are responsible for the final figures and therefore follow the guidelines of the CICA Handbook closely. Although a CA can perform bookkeeping and other accounting tasks, they have many specialties, ie Tax Consulting & Preparation, including Corporate and US, Auditing, Estate & Succession Planning, Business Valuations, Forensic and Investigative Accounting, Cash Flow Management, Business Planning, etc. and should therefore be used as part of the accounting team focusing on their specialties while leaving the other bookkeeping and accounting tasks for intermediate level accounting staff and / or consultants. CGA - acronym for Certified General Accountant CMA - acronym for Certified Management Accountant (formerly RIA - acronym for Registered Industrial Accountant) The CGA and CMA have become more and more similar over the years. They are both designations usually sought after while working in an accounting position. Individuals with either designation are capable of a variety of accounting functions depending on what level they have achieved in the program as well as the experience they have acquired. When hiring anyone to handle your accounting tasks, although a designation is an asset, also ensure they are experienced for the task at hand and check references whenever possible. CPA - acronym for Certified Public Accountant The accounting designation in the United States. Capital Asset See Asset Capital Contribution When the owner(s) contribute something of value to their business it is considered a contribution. Examples of this may be cash or fixed assets (including a computer, tools, equipment relevant to running the business). The fixed asset is assigned a fair market value so that it can be entered into the accounting records as both an asset and a capital contribution. Chart of Accounts When recording transactions a minimum of two accounts will be affected. For example, when office supplies are purchased on account the Office Supplies expense account and the Accounts Payable accounts are affected. A list of all necessary accounts is called the Chart of Accounts. The list will vary from company to company with some standards ie. Bank, Accounts Receivable, Accounts Payable, Income, Rent, Telecommunications, Office Supplies, etc. The list is always in the same order: Assets, Liabilities, Equity, Revenue and Expense accounts. The list is usually put together by the accountant. Computerized systems include templates including common listings for specific industries. New accounts can be added to the Chart at any time. CICA Handbook This book is published by The Canadian Institute of Chartered Accountants. It contains the Recommendations of the Accounting Research Committee and of the Auditing Standards Committee, and Accounting / Auditing Guidelines. The handbook is available free including revisions. Basically the book is "the accounting bible" covering every aspect of accounting.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 7

Basically the book is "the accounting bible" covering every aspect of accounting. Contra Account A contra account exists when two accounts work together to form a net balance. Contra accounts are always placed one under the one another in your list of accounts. For example Accounts Receivable and Allowance for Doubtful accounts. As well each fixed asset has a contra depreciation account. For example Equipment and Accumulated Depreciation - Equipment. Control Accounts There are several accounts among the "chart of accounts" that act as control accounts, with details of these accounts maintained elsewhere. Examples of this would be Accounts Receivable, Accounts Payable, Payroll accounts and inventory. An example of this is the Accounts Receivable control account states the total of what is due in at a specific time. Whereas, the Accounts Receivable reports provide details of who owes the money, how much and specifically for what invoice(s). The A/R is known as the subsidiary ledger or sub-ledger. Corporation One of the three types of businesses (the other two being a sole-proprietor and partnership). It is the only one that is considered a separate entity. Therefore, a separate income tax return is prepared based on the performance of the corporation. There are many reasons to incorporate a business including to save taxes, for liability reasons, to portrait a larger image, etc. Debits & Credits Debits and credits are the bookkeeping terms used to express how an account is affected by a transaction. Based on the type of account affected, ie Asset, Liability, etc., this will determine if it is a debit or a credit. See the Debit / Credit chart also available on the Tools & Training page. A hint, don't get confused with your bank statement. When you deposit money into your account, in YOUR records the bank is increasing, which is an asset, and when an asset increases, it is a Debit. On the bank statement the deposits show as credits. (That credit represents their books, that money is on loan to them from you, therefore it is a credit to them, so ignore their debit and credit columns). Depreciation Also known as amortization. When large items are purchased, ie company car, new computer, photocopier, etc., they can not be fully expensed in the year they are purchased. This is because they have a life of more than one year. Depending on the type of item, the percentage of depreciation will vary. The cost should therefore be divided over a specific amount of time. These are considered capital assets (also known as fixed or tangible assets). For example equipment has a life of five years and therefore depreciates at 20% per year. A side note - there are different types of depreciations to choose from, an example is declining balance. Another note, the first year, the depreciation is valued at 1/2, therefore equipment would be 10%. Depending on the size of the company depreciation can be calculated monthly, quarterly or once at year end. Deferred Revenue Revenue is money earned which appears on the Income Statement. Deferred revenue represents money received or promised but not recognized as earned because the work hasn't been done yet, and therefore sits on the Balance Sheet under the Liability section. (A liability is money a company owes, this rings true, because if the job is never done, the money is due back!) Once the job is complete (or partially done) the deferred revenue (or a portion of it) is transferred to the appropriate revenue account. An example of this would be in the construction industry, often work is done in stages. You can transfer or recognize the amount earned once a particular phase is complete. Other examples can be deferred memberships or events. Draw When you hear the word "draw" this is referring to the amount on the Balance Sheet that represents any monies drawn from the business for personal use. If there are more than one owner, they will all have their own draw account. (examples of this could be (a) when a lump sum is taken out of the company, or (b) a personal expense is included on the company credit card.) Equity Equity also known as Capital, is the third and final section of the Balance Sheet. The items listed in this section include: Shares, Current and Retained Earnings and shareholder's contributions.. The equity section is the "Company's Worth". Financial Statements This represents two reports, the Balance Sheet and the Income Statement (also known as the Profit and Loss Statement). The two reports work together to give a picture of the company's history as well as its current position. Fiscal Year The twelve month period covering the business year. For sole-proprietors and partnerships, the fiscal year end matches the calendar year. However, the year end for a corporation reflects on it's anniversary date. Please note if a corporation starts mid year and wants another year end, they can shorten their first year end to coincide with the date they want. For example many industries use the industry standard. Another item to note is that a corporation, if they have a specific reason may ask (CRA) for permission to change their yearend. Fixed Asset Also referred to as a Tangible asset, because it is "something you can touch". Examples include,
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 8

Also referred to as a Tangible asset, because it is "something you can touch". Examples include, computer, equipments, tools, building, vehicles and software. GAAP Generally Accepted Accounting Principles are the rules or guidelines set to keep record keeping consistent, conservative and reliable. There are several principles and assumptions that must be considered while maintaining a set of accounting records. It is important to not assume anything and always confirm the bookkeeping practices you are using with an accounting professional. An example of a principle is Consistency, this includes maintaining the same valuation method for calculating inventory and depreciation. Once a method has been chosen, it must stay consistent. There are always exceptions, and the method can change with disclosure, as long as it's not changed continually to suit your needs. General Ledger Also known as the GL, it is a list of each Chart of Account and any activity in that account for a specific period of time ie. a day, a month or the whole year. An example of using this report would occur at month end, a print out of the Bank account for the month would assist in reconciling your bank activity to what has taken place on the bank statement provided by the bank. Income Statement One of the two Financial Statements. This is the report most owners and managers focus on. The Income Statement is also known as the Statement of Profit and Loss, it consists of two sections: Revenue (or Income) and Expenses The Income Statement starts fresh every year. Once the year-end is closed, all the revenue and expense totals are reverted back to a zero balance with the net transferring as Current Earnings to the Balance Sheet. This is how the two reports are connected. The net of the Income Statement must reflect in the Equity section of the Balance Sheet in order for it to balance! Readers can use the Income Statement for comparisons. They can compare their figures to competitors as well as period to period. For example, month to month, quarter to quarter, or last year to this year. Intangible Asset Unlike a tangible asset, this is an asset "you can not touch". Examples would include: Goodwill, Patents and Trademarks. These items are assigned a fair market value and placed in the books as part of the Balance Sheet. An example of this would be when you purchase a business, you may pay for unused leases, the purchase of equipment, etc., as well as for the name and reputation of the business, this is known as Goodwill and as part of the purchase price belongs in the accounting records. Inventory Items purchased for resale. The purchase price is placed on the books and decreases as the items sell. For accounting purposes the inventory can be broken down into specific categories, ie for a retail store: clothing, shoes, toys, etc. (all control accounts), with the details provided in a subledger. The details would breakdown each item by name, price, etc. There are several methods used to track and record inventory, including: LIFO (last in first out) with an example being canned goods in a grocery store. FIFO (first in first out), using the same grocery store scenario, used for perishables, ie milk, eggs, etc). Average, doesn't matter, therefore if several items are purchased over time at different prices, an average value is used for calculations. Specific, a good example would be for big ticket items that can be tracked by details or serial numbers, ie a car dealership. Journal Entry Each transaction affects a minimum of two accounts and is recorded as a journal entry, often assigned a number for reference purposes. Information in the journal entry would include, the source, the date, a description of the entry, what accounts are debited and credited and for what value. If applicable, the entry may also be job-cost ed (this means the revenue and / or expense is allocated to a specific department, job, etc.) Liabilities The opposite of an asset, something a company "owes". There are Current and Long Term Liabilities. Current liabilities include short term loans, A/P, amounts owed to the government (GST, PST, Source deductions, EHT, WSIB, etc.). Long term liabilities run over an extended period of time, for example a mortgage. Liabilities belong on the Balance Sheet. LIFO / FIFO See Inventory Module In accounting the main book of entry is called the General Ledger. This consists of a page for each account detailing all it's activity. For Accounts Receivables and Accounts Payables, the details are maintained in subledgers or modules, with only the figures integrating into the GL. Partnership A type of business when there is more than one owner. The owners do not have to be active with the business dealings and may be contributing in a different way, by supplying cash, equipment, etc. Partners can have the same percentage of ownership or if may vary. For tax purposes all income and expenses are divided as per the pre-determined partner's percentage and these amounts are used when each partner fills out his OWN personal income tax.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 9

when each partner fills out his OWN personal income tax. Prepaid Expenses Items paid for prior to an event, or the product being used are recorded on the Balance Sheet classified as a prepaid until the event takes place or the item is used. At this time the value is recognized and transferred to the Income Statement and categorized as the proper expense type. Examples are: last month's rent (this could sit on the Balance Sheet for 5 years, based on the length of the lease), Insurance covering a one year term, prepayments for travel, courses, etc. Shares All corporations must issue shares. Either common or preferred. At this time it is determined how much a share is worth and how many shares each owner has. The owner's then pay for his/her shares and it is recognized on the Balance Sheet in the Equity section. Once this has been determined there is no reason for this to change unless ownership changes. Any changes must be documented in the corporate minute book. Sole Proprietor Unlike a partnership, a sole proprietor is a business owned and run by one person. For tax purposes any revenues and expenses are recorded on the owner's personal tax return. Subsidiary Ledger Sub ledgers work closely with control accounts. These ledgers contain the details of each subledger. An example of a control account is Accounts Receivable. On the Balance Sheet the AR has one total while the sub-ledger will contain all the details totaling this amount. Details would include: each customers' name as well as the outstanding invoice number(s), date(s) and amount(s) T-Account This is a short cut bookkeepers use to assist in following the activity of several transactions. When using T accounts, a large letter T is drawn on a piece of paper, with the debits represented on the left side and the credits represented on the right side. Each T is assigned a separate account. Transaction In accounting each piece of paper warrants a transaction. For example a customer's invoice, a deposit, a vendor's bill, a cheque, etc. all require it's own accounting transaction, including debits and credits. For bookkeeping purposes the debits and credits should balance in value for every transaction (on a computerized system, the entry will not post if it is not in balance). Write-Off Although the term "I am going to write this off" is often used, in this context it merely means, I am expensing this in my records as an Income Statement item. However, a write off occurs when an Accounts Receivable becomes dated and is determined to be uncollectible. At year-end aged receivables are often reviewed and determined if they are uncollectible. The Receivable is cleared with the other side of the entry becoming an expense known as Bad Debt (expense). A receivable is usually written off if: the client is unable to pay, gone out of business, died or gone bankrupt. If an item is paid once it has been written off, reverse the bad debt expense. Έγινε εισαγωγή από <http://www.accountrain.com/definitions.html> Knowing Your Debits from Your Credits By John A. Tracy from Accounting Workbook For Dummies Accountants and bookkeepers record transactions as debits and credits while keeping the accounting equation constantly in balance. This process is called double-entry bookkeeping. Double-entry bookkeeping records both sides of a transaction — debits and credits — and the accounting equation remains in balance as transactions are recorded. For example, if a transaction decreases cash $25,000, then the other side of the transaction is a $25,000 increase in some other asset, or a $25,000 decrease in a liability, or a $25,000 increase in an expense (to cite three possibilities). This illustration summarizes the basic rules for debits and credits. By long-standing convention, debits are shown on the left and credits on the right. An increase in a liability, owners’ equity, revenue, and income account is recorded as a credit, so the increase side is on the right. The recording of all transactions follows these rules for debits and credits.

Rules for debits and credits. Practically everyone has trouble with the rules of debits and credits. The rules aren’t very intuitive. Learning the rules for debits and credits is a rite of passage for bookkeepers and accountants. The only way to really understand the rules is to make accounting entries — over and over again. After a while, using the rules becomes like tying your shoes — you do it without even thinking about it.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 10

while, using the rules becomes like tying your shoes — you do it without even thinking about it. Notice the horizontal and vertical lines under the accounts in the illustration above. These lines form the letter “T.” Although the actual accounts maintained by a business don’t necessarily look like T accounts, accounts usually have one column for increases and another column for decreases. In other words, an account has a debit column and a credit column. Also an account may have a running balance column to continuously keep track of the account’s balance. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/knowing-your-debits-from-yourcredits.html> The Difference between Bookkeeping and Accounting 1 of 12 in Series: The Essentials of Accounting Basics Every business and not-for-profit entity needs a reliable bookkeeping system based on established accounting principles. Keep in mind that accounting is a much broader term than bookkeeping. Bookkeeping refers mainly to the record-keeping aspects of accounting; it's essentially the process of recording all the information regarding the transactions and financial activities of a business. Defining bookkeeping Bookkeeping is an indispensable subset of accounting. Bookkeeping refers to the process of accumulating, organizing, storing, and accessing the financial information base of an entity, which is needed for two basic purposes: • Facilitating the day-to-day operations of the entity • Preparing financial statements, tax returns, and internal reports to managers Bookkeeping (also called recordkeeping) can be thought of as the financial information infrastructure of an entity. The financial information base should be complete, accurate, and timely. Every recordkeeping system needs quality controls built into it, which are called internal controls. Defining accounting The term accounting is much broader, going into the realm of designing the bookkeeping system, establishing controls to make sure the system is working well, and analyzing and verifying the recorded information. Accountants give orders; bookkeepers follow them. Accounting encompasses the problems in measuring the financial effects of economic activity. Furthermore, accounting includes the function of financial reporting of values and performance measures to those that need the information. Business managers, investors, and many others depend on financial reports for information about the performance and condition of the entity. Accountants design the internal controls for the bookkeeping system, which serve to minimize errors in recording the large number of activities that an entity engages in over the period. The internal controls that accountants design are also relied on to detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds. Accountants prepare reports based on the information accumulated by the bookkeeping process: financial statements, tax returns, and various confidential reports to managers. Measuring profit is a critical task that accountants perform — a task that depends on the accuracy of the information recorded by the bookkeeper. The accountant decides how to measure sales revenue and expenses to determine the profit or loss for the period. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/the-difference-between-bookkeepingand-accounting.html> Bookkeeping Basic: Understanding Account Types By Veechi Curtis and Lynley Averis Part of the Bookkeeping For Dummies Cheat Sheet (Australia/New Zealand Edition) Understanding the difference between account types is the secret to coding transactions correctly. Here’s the cheat’s guide to understanding the difference between assets and liabilities, equity and income, bananas and apples. Current asset: Anything that a business owns that can realistically be converted into cash within the next 12 months Non-current asset: A physical asset such as office equipment, land, buildings, computers or motor vehicles, that isn’t expected to be converted into cash within the next 12 months Current liability: An amount owed by the business that is due within the next 12 months, including scary stuff such as credit cards Non-current liability: Anything you owe that isn’t due to be paid out within the next 12 months, such as hire purchase debts or bank loans Equity: The ‘interest’ that shareholders or an owner has in the business, including both capital contributed and the profit or loss built up over time Income: Money generated from sales to customers or returns on investments Cost of sales: What it costs in raw materials, supplies or production labour to make the goods that you sell (also called cost of goods sold) Expenses: The day-to-day running costs of your business, including things like advertising, bank charges, computer consumables, diamond rings, electricity, exotic perfumes, motor vehicle expenses, rent, telephone expenses and wages

• • • • • • • •

Μη αρχειοθετηµένες σηµειώσεις Σελίδα 11

• • • • •

• • •

3.

4.

rent, telephone expenses and wages Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/bookkeeping-basic-understandingaccount-types.html> Understanding a Bookkeeper’s Chart of Accounts By Lita Epstein from Bookkeeping For Dummies 12 of 12 in Series: The Essentials of Accounting Basics The Chart of Accounts is the roadmap that a business creates to organize its financial transactions. Essentially, this chart lists all the accounts a business has, organized in a specific order; each account has a description that includes the type of account and the types of transactions that should be entered into that account. Every business creates its own Chart of Accounts based on how the business is operated, so you’re unlikely to find two businesses with the exact same Charts of Accounts. However, some basic organizational and structural characteristics are common to all Charts of Accounts. The organization and structure are designed around two key financial reports: the balance sheet, which shows what your business owns and what it owes, and the income statement, which shows how much money your business took in from sales and how much money it spent to generate those sales. The Chart of Accounts starts first with the balance sheet accounts, which include: Current Assets: Includes all accounts that track things the company owns and expects to use in the next 12 months, such as cash, accounts receivable (money collected from customers), and inventory. Long-term Assets: Includes all accounts that tracks things the company owns that have a lifespan of more than 12 months, such as buildings, furniture, and equipment. Current Liabilities: Includes all accounts that track debts the company must pay over the next 12 months, such as accounts payable (bills from vendors, contractors, and consultants), interest payable, and credit cards payable. Long-term Liabilities: Includes all accounts that tracks debts the company must pay over a period of time longer than the next 12 months, such as mortgages payable and bonds payable. Equity: Includes all accounts that tracks the owners of the company and their claims against the company’s assets, which includes any money invested in the company, any money taken out of the company, and any earnings that have been reinvested in the company. The rest of the Chart of Accounts is filled with income statement accounts, which include: Revenue: Includes all accounts that track sales of goods and services as well as revenue generated for the company by other means. Cost of Goods Sold: Includes all accounts that track the direct costs involved in selling the company’s goods or services. Expenses: Includes all accounts that track expenses related to running the businesses that aren’t directly tied to the sale of individual products or services. When developing the Chart of Accounts, you start by listing all the Asset accounts, the Liability accounts, the Equity accounts, the Revenue accounts, and finally, the Expense accounts. All these accounts come from two places: the balance sheet and the income statement. You should develop an account list that makes the most sense for how you’re operating your business and the financial information you want to track. The Chart of Accounts is a money management tool that helps you track your business transactions, so set it up in a way that provides you with the financial information you need to make smart business decisions. You’ll probably tweak the accounts in your chart annually and, if necessary, you may add accounts if you find something for which you want more detailed tracking. You can add accounts during the year, but it’s best not to delete accounts until the end of a 12-month reporting period. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/understanding-a-bookkeepers-chartof-accounts.html> Become familiar with basic accounting terms. If you have ever needed to balance your checkbook, then you have used the principles of bookkeeping and accounting. An understanding of basic accounting and bookkeeping terms will help you to keep your finances under control. It will also help you communicate with your accountant at tax time, so that you understand what you are paying and why you are paying it. Cash Method • The cash method of accounting means that money is only actively entered into the books when it is received in cash or check form. Expenses are not registered until they are paid in full. Accrual Basis • The accrual method of accounting means that as soon as a client commits to an order, it is entered as revenue on the books, whether the money has been physically received or not. Assets • An asset is anything of value that you own outright. Something cannot be an asset until it is paid in full. Liability • A liability is a debt. It can be an installment debt such as a car loan, or it can be the debt on a credit card. Amortization • The amortization of a loan means the amount by which a loan is reduced due to regular installment
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 12

• The amortization of a loan means the amount by which a loan is reduced due to regular installment payments. Those payments usually include interest, principle, taxes and insurance. An amortization schedule helps determine how much you must pay per month in order to eliminate your complete debt over a pre-determined period of time. Bank Reconciliation • The term bank reconciliation is another way of indicating that you balanced your checkbook. A company will do a bank reconciliation by comparing their balance sheet with the bank's balance sheet to make sure the two match and that all funds are accounted for. Debit Receipt • A debit receipt shows the amount of money that was paid in a complete transaction. A debit receipt is only concerned with money that was paid out, and it shows all products or services acquired for that single transaction. Depreciation • The decreased value of an asset over the useful lifetime of the asset. For example, you may purchase a computer for your business and then write it off on your taxes over the course of the next three years at a decreasing value. The amount by which the computer loses value is depreciation. Equity • Equity is the value of an asset after subtracting the costs of owning the asset. For example, the equity on your house is the value of your house minus what is left on your mortgage. That remaining balance is your home equity. Line of Credit • A credit account that can be utilized at any time and for any reason. Companies will normally establish a line of credit with a bank, and private individuals will establish credit in the form of credit card accounts. © 1999-2014 Demand Media, Inc. Έγινε εισαγωγή από <http://www.ehow.com/list_6526001_basic-accounting-bookkeeping-terms.html> Accounting is the language of business, and if you are starting a business, it is important to be able to know your way around the landscape. Learning basic accounting terminology will help you interact with bank personnel, understand your tax requirements, and make you a more competent businessperson. 5. Assets • Assets are resources owned by a company that have future economic benefit. Common assets include cash, accounts receivable, inventory, land, property and intangible assets, such as goodwill and patents. When a company purchases goods and records the asset in the company's records, the company is said to have "capitalized" the asset. Liabilities • Liabilities are present obligations of the company that have occurred as a result of past events. These obligations are expected to result in a future asset outflow of the company. Common liabilities include accounts payable, loans payable, leases, warranty claims payable and accrued expenses. 6. Revenues • A company's revenue is defined as the income a company receives as part of normal and ongoing operations. When revenue is recorded in the financial records, it is said that revenue has been "recognized." In financial accounting, the rules for recognizing revenue can be complex. In general, revenue can be recorded only when realized or realizable and earned, but for public companies and companies in some industries, the determination of whether revenue can be recognized requires complicated analysis. Expenses • An expense is an outflow of assets, usually cash, external to the company that at the time of expense recognition does not have future benefit to the company. In accounting, expenditure and expense have difference meanings. An expenditure is a cash outflow that could relate to the purchase of an asset or the payment of and expense, while it would be inappropriate to consider the payment for an asset to be an expense at the time of purchase. Equity • Equity is the owner's interest in the company. In the accounting equation, assets are always equal to liabilities plus equity. It is important to remember that when an owner conducts a transaction with his own company, this is an equity transaction and not an expense. © 1999-2014 Demand Media, Inc. Έγινε εισαγωγή από <http://www.ehow.com/info_8567578_accounting-terms-terminology.html> Financial terminology can be confusing to people with no accounting background. As with any profession, there are certain technical terms that are typical of the accounting world that may not be familiar to others. Accounting, also known as the language of business, employs certain words that have a certain meaning in your daily life, but may mean something else in the financial area. 7. Debit • A debit in accounting doesn't mean that something was decreased. In your daily life, a debit in your checking account decreases your bank balance. In accounting, a debit could increase or decrease
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 13

• checking account decreases your bank balance. In accounting, a debit could increase or decrease an account. Accounts, like buckets that accumulate information, can be classified as debit or credit accounts. A debit increases a debit account balance and decreases a credit account balance. Cash is a debit account and to increase it, you debit it. Credit • Credit is the other side of a debit. It doesn't necessarily mean that an account has increased. Credit accounts are increased by credits; debit accounts are decreased by credits. If you want to increase a liability, you credit that account -- because liabilities are credit accounts. On the other hand, you credit a cash account when you want to decrease cash. If you hear about accounts being credited, ask if they are being increased or decreased, so that you understand the information. Journal Entry • Journal entries are mechanisms to change information on accounts. If you want to increase or decrease an account, you use a journal entry -- there is no other way. Computerized systems may not show you the entries, but they happen in the background. Journal entries have at least one debit and one credit entry. Both sides of the entry must balance, i.e. debits must equal credits. For example, the journal entry to pay rent could be a debit to rent expense for $500 and a credit to cash for the same amount. You cannot have only one-sided entry to rent and nothing else. The double-entry accounting system requires two entries in every journal entry. Έγινε εισαγωγή από <http://www.ehow.com/list_7362291_basic-accounting-terms.html> Accounting is the science of collecting, recording and compiling financial information so that it might be read and understood by its users. Managers use accounting information to monitor and optimize business operations , shareholders use accounting information to keep watch on managers and thus protect their investments, polities use accounting information to collect taxes and administer services, while private individuals use accounting information for all of these purposes and more besides. Purpose • Accounting is intended to provide users with the knowledge needed to make informed decisions about their economic options, meaning that this knowledge must be faithful in its depiction of what is real, accurate about what it depicts, and depict it in a timely manner. Despite it not being entirely possible to reduce complex entities into one or two pages of print in time so that it can be used in decision-making, accountants strive to paint as detailed and as accurate a picture of financial circumstances as they can. Governance • Although nations can and do regulate accounting for legal purposes, independent private organizations exist in many nations to oversee the profession. One such example is the Financial Accounting Standards Board or FASB in the United States, which is responsible for introducing generally accepted accounting principles or GAAP in that country. GAAP helps accountants improve the usefulness of their work for their users through providing guidelines and recommendations derived through past experience and consensus. FASB stands out because it does not cleave as closely to the International Accounting Standards Board or IASB as other, similar organizations in other countries. Branches • Accounting can be divided into different branches based on who its intended user is and what its intended use is. Financial accounting concerns itself with the basic collecting, recording and compiling of financial transactions in order to present useful financial reports. Cost accounting is used to determine both present and future costs incurred by separate processes and departments so that they might be controlled by management. Managerial accounting is designed to assist managers by providing them with the information needed to search out and control business processes. Importance • Accounting is important because it is the most efficient and effective method of communicating economic information. It is the language used to record economic transactions, without which social organizations could not operate and private individuals could not engage in transactions with any degree of reliability. Έγινε εισαγωγή από <http://www.ehow.com/info_8036267_accounting-simple-terms.html> Understanding accounting terms and facts is crucial to decision making. Knowledge of what accounting terms mean will help you understand financial reports you may encounter. Profit • Gross profit is sales minus the cost of the goods sold. Net profit is gross profit minus all other business expenses. Accounts • Each business transaction is recorded in an account. Each account is either an asset account, a liability account or an equity account. Debit and Credit • Each account receives debits and credits. Depending on the specific account, a debit may increase or decrease the account balance. The same is true for credits. Equity
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 14

8.

9.

10.

11.

12.

Equity • Equity is what would be left if all the assets of a business were sold and all the debt was paid off. Depreciation • Assets depreciate over time. Accountants depreciate assets to reflect the decline in value over time. A brand new machine is worth more when it is first purchased than 5 years later. Έγινε εισαγωγή από <http://www.ehow.com/facts_4923570_accounting-terms-facts.html> Accounting is the basic process that an individual or an organization uses to record information about the property that the individual or organization owns, as well as the property or services that the individual or organization owes. This information is typically used to help individuals or organizations make decisions related to the individual's or the organization's finances. However, there are some basic accounting terms that an individual must understand in order to use this information. 13. Assets • An asset is something of value that an individual or an organization owns. Assets may include buildings, furniture, land and the money that an individual or organization is expecting to receive ("accounts receivable"). Liabilities • A liability is something of value that an individual or an organization owes to another individual or organization. Liabilities may include equipment costs, mortgage payments, payroll costs and taxes. 14. Equity • Equity refers to the value of the assets that an individual or organization will have after they pay all of their liabilities. Equity is also known as capital, owner's equity, partner's equity or shareholder's equity. Balance Sheet • A balance sheet is an accounting document that provides information about the assets, liabilities and equity that a particular individual or organization has on a specific date. Credit • A credit is an entry in an accounting ledger that indicates a decrease in the value of an asset or an increase in the value of a liability. Debit • A debit is an entry in an accounting ledger that indicates an increase in the value of an asset or a decrease in the value of a liability. Έγινε εισαγωγή από <http://www.ehow.com/facts_4966745_definitions-accounting-terms.html> The Difference between Bookkeeping and Accounting 1 of 12 in Series: The Essentials of Accounting Basics Every business and not-for-profit entity needs a reliable bookkeeping system based on established accounting principles. Keep in mind that accounting is a much broader term than bookkeeping. Bookkeeping refers mainly to the record-keeping aspects of accounting; it's essentially the process of recording all the information regarding the transactions and financial activities of a business. Defining bookkeeping Bookkeeping is an indispensable subset of accounting. Bookkeeping refers to the process of accumulating, organizing, storing, and accessing the financial information base of an entity, which is needed for two basic purposes: • Facilitating the day-to-day operations of the entity • Preparing financial statements, tax returns, and internal reports to managers Bookkeeping (also called recordkeeping) can be thought of as the financial information infrastructure of an entity. The financial information base should be complete, accurate, and timely. Every recordkeeping system needs quality controls built into it, which are called internal controls. Defining accounting The term accounting is much broader, going into the realm of designing the bookkeeping system, establishing controls to make sure the system is working well, and analyzing and verifying the recorded information. Accountants give orders; bookkeepers follow them. Accounting encompasses the problems in measuring the financial effects of economic activity. Furthermore, accounting includes the function of financial reporting of values and performance measures to those that need the information. Business managers, investors, and many others depend on financial reports for information about the performance and condition of the entity. Accountants design the internal controls for the bookkeeping system, which serve to minimize errors in recording the large number of activities that an entity engages in over the period. The internal controls that accountants design are also relied on to detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds. Accountants prepare reports based on the information accumulated by the bookkeeping process: financial statements, tax returns, and various confidential reports to managers. Measuring profit is a critical task that accountants perform — a task that depends on the accuracy of the information recorded by the bookkeeper. The accountant decides how to measure sales revenue and expenses to determine the profit or loss for the period.

Μη αρχειοθετηµένες σηµειώσεις Σελίδα 15

determine the profit or loss for the period. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/the-difference-between-bookkeepingand-accounting.seriesId-258044.html> Bookkeeping and Its Basic Purpose By Lita Epstein from Bookkeeping For Dummies 2 of 12 in Series: The Essentials of Accounting Basics Bookkeeping, when done properly, gives you an excellent gauge of how well your business is doing. Bookkeeping also provides financial information throughout the year so you can test the success of your business strategies and make course corrections to ensure that you reach your year-end profit goals. Bookkeeping can become your best system for managing your financial assets and testing your business strategies, so don’t shortchange it. Take the time to develop your bookkeeping system with your accountant before you even open your business’s doors and make your first sale. Choosing your accounting method The two basic accounting methods you have to choose from are cash-basis accounting (also called just cash accounting) and accrual accounting. The key difference between these two accounting methods is the point at which you record sales and purchases in your books: • If you use cash accounting, you record transactions only when cash changes hands. For example, you don’t record a purchase from a vendor until you actually lay out the cash to the vendor. • If you use accrual accounting, you record a transaction when it’s completed, even if cash doesn’t change hands. For example, you record a purchase from a vendor when you receive the products, and you also record the future debt in an account called Accounts Payable. Understanding assets, liabilities, and equity Every business has three key financial parts that must be kept in balance: • Assets include everything the company owns, such as cash, inventory, buildings, equipment, and vehicles. • Liabilities include everything the company owes to others, such as vendor bills, credit card balances, and bank loans. • Equity includes the claims owners have on the assets based on their portion of ownership in the company. The formula for keeping your books in balance involves these three elements: Assets = Liabilities + Equity Introducing debits and credits To keep the books for your business, you need to revise your thinking about two common financial terms: debits and credits. Most non-bookkeepers and non-accountants think of debits as subtractions from their bank accounts. The opposite is true with credits — people usually see these as additions to their accounts, in most cases in the form of refunds or corrections in favor of the account holders. Debits and credits are totally different animals in the world of bookkeeping. Because keeping the books involves a method called double-entry bookkeeping, you have to make a least two entries — a debit and a credit — into your bookkeeping system for every transaction. Whether that debit or credit adds or subtracts from an account depends solely upon the type of account. You can’t just enter transactions in the books willy-nilly. You need to know where exactly those transactions fit into the larger bookkeeping system. That’s where your Chart of Accounts comes in; it’s essentially a list of all the accounts your business has and what types of transactions go into each one. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/bookkeeping-and-its-basicpurpose.seriesId-258044.html> Basic Bookkeeping Terms and Phrases By Lita Epstein from Bookkeeping For Dummies 3 of 12 in Series: The Essentials of Accounting Basics Get a firm understanding of key bookkeeping and accounting terms and phrases before you begin work as a bookkeeper. Bookkeepers use specific terms and phrases everyday as they track and record financial transactions — from balance sheets and income statements to accounts payable and receivable. The following sections list bookkeeping terms that you'll use on a daily basis. Balance sheet terminology Here are a few terms you’ll want to know when working with balance sheets: Balance sheet: The financial statement that presents a snapshot of the company’s financial position as of a particular date in time. It’s called a balance sheet because the things owned by the company (assets) must equal the claims against those assets (liabilities and equity). Assets: All the things a company owns in order to successfully run its business, such as cash, buildings, land, tools, equipment, vehicles, and furniture. Liabilities: All the debts the company owes, such as bonds, loans, and unpaid bills. Equity: All the money invested in the company by its owners. In a small business owned by one person or a group of people, the owner’s equity is shown in a Capital account. In a larger business that’s incorporated, owner’s equity is shown in shares of stock.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 16

• • • •

that’s incorporated, owner’s equity is shown in shares of stock. Another key Equity account is Retained Earnings, which tracks all company profits that have been reinvested in the company rather than paid out to the company’s owners. Small businesses track money paid out to owners in a Drawing account, whereas incorporated businesses dole out money to owners by paying dividends. Income statement terminology Here are a few terms related to the income statement that you’ll want to know: Income statement: The financial statement that presents a summary of the company’s financial activity over a certain period of time, such as a month, quarter, or year. The statement starts with Revenue earned, subtracts the Costs of Goods Sold and the Expenses, and ends with the bottom line — Net Profit or Loss. Revenue: All money collected in the process of selling the company’s goods and services. Some companies also collect revenue through other means, such as selling assets the business no longer needs or earning interest by offering short-term loans to employees or other businesses. Costs of goods sold: All money spent to purchase or make the products or services a company plans to sell to its customers. Expenses: All money spent to operate the company that’s not directly related to the sale of individual goods or services. Other common bookkeeping terms Some other common terms used in bookkeeping include the following: Accounting period: The time period for which financial information is being tracked. Most businesses track their financial results on a monthly basis, so each accounting period equals one month. Some businesses choose to do financial reports on a quarterly or annual basis. Businesses that track their financial activities monthly usually also create quarterly and annual reports. Accounts payable: The account used to track all outstanding bills from vendors, contractors, consultants, and any other companies or individuals from whom the company buys goods or services. Accounts receivable: The account used to track all customer sales that are made by store credit. Store credit refers not to credit card sales but rather to sales in which the customer is given credit directly by the store and the store needs to collect payment from the customer at a later date. Depreciation: An accounting method used to track the aging and use of assets. For example, if you own a car, you know that each year you use the car its value is reduced (unless you own one of those classic cars that goes up in value). Every major asset a business owns ages and eventually needs replacement, including buildings, factories, equipment, and other key assets. General Ledger: Where all the company’s accounts are summarized. The General Ledger is the granddaddy of the bookkeeping system. Interest: The money a company needs to pay if it borrows money from a bank or other company. For example, when you buy a car using a car loan, you must pay not only the amount you borrowed but also interest, based on a percent of the amount you borrowed. Inventory: The account that tracks all products that will be sold to customers. Journals: Where bookkeepers keep records (in chronological order) of daily company transactions. Each of the most active accounts — including cash, Accounts Payable, and Accounts Receivable — has its own journal. Payroll: The way a company pays its employees. Managing payroll is a key function of the bookkeeper and involves reporting many aspects of payroll to the government, including taxes to be paid on behalf of the employee, unemployment taxes, and workman’s compensation. Trial balance: How you test to be sure the books are in balance before pulling together information for the financial reports and closing the books for the accounting period. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/basic-bookkeeping-terms-andphrases.seriesId-258044.html> Organizing Bookkeeping Records for Your Business By Lita Epstein from Bookkeeping Workbook For Dummies 4 of 12 in Series: The Essentials of Accounting Basics Staying organized is critical to efficient and accurate bookkeeping. Organize your bookkeeping records by deciding what to keep, and how to find information quickly when you need it. Everything you do in your business generates paperwork that can easily become overwhelming if you don't keep it under control. If you computerize your accounting you may not need to keep as much paper, but you still want a paper trail in case something happens to your computer records or you need the backup information for a transaction that is questioned at a later date. Obviously, file cabinets are where you’ll store most of your records for the current year and the prior year. Older files you may store in boxes in a warehouse or store-room if you don’t have room in your file cabinets. How you set up the files can be critical to your ability to find something when you need it. Bookkeeping storage methods Many bookkeepers use four different methods to store accounting information:
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 17

•

• • •

•

• • •

• • • • • •

Many bookkeepers use four different methods to store accounting information: • File folders: these are used for filing invoice, payment, and contract information about vendors; information about individual employees, such as payroll related forms and data; and information about individual customer accounts. • Three-ring binders: Your Chart of Accounts, General Ledger, and Journals are usually kept in threering binders. Even if you do use a computerized accounting system, it’s a good idea to keep a copy of this for the month most recently closed and the current month in hard copy in case your computer system goes down and you need to quickly check information. • Expandable files: These types of files are good for managing outstanding bills and vendor activity. You can get alphabetical expandable files for managing pending vendor invoices and purchase orders. You can use 30-day and 12-month expandable files for managing outstanding bills. As bills come in you can place them in the 12-month file for the month they are due. Then move the current month’s bills to the 30-day file by the day they are due. You may be able to avoid using these files if you are using a computerized bookkeeping system and set up the bill pay reminder system in your accounting program. • Media for storing backup computer data: If you are keeping the books on computer, be certain you make at least one backup copy of all your data daily and store it in a safe place — a place where the data won’t be destroyed if there is a fire. A good alternative could be a small fire safe if your business does not have a built-in safe. When to keep or discard paperwork You’ll find it doesn’t take long to build up lots of paper and not have room to store it all. Luckily not everything has to be kept forever. Generally anything related to tax returns has to be kept for at least three years, but once you’re past three years the IRS can’t audit you unless it suspects fraud. So you can get rid of most of your paperwork once it is four years old. Some exceptions include employees. Those records you must keep until the employee has left the employment of the company for at least three years. The statute of limitations for most actions that can be filed by an ex-employee is three years after they left. In the fourth year, you will be able to get rid of most of your paperwork, but you may want to keep certain sensitive data longer. Any information about assets that are still held by the company should be kept. You also should keep any information about pending legal issues. Check with your attorney and your accountant before destroying old paperwork and be certain you are not tossing something that could be needed. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/organizing-bookkeeping-records-foryour-business.seriesId-258044.html> Responsibilities of an Accounting Department 5 of 12 in Series: The Essentials of Accounting Basics Most people don’t realize the importance of the accounting department in keeping a business operating without hitches and delays. That’s probably because accountants oversee many of the backoffice functions in a business — as opposed to sales, for example, which is front-line activity, out in the open and in the line of fire. Folks may not think much about these back-office activities, but they would sure notice if those activities didn’t get done. On payday, a business had better not tell its employees, “Sorry, but the accounting department is running a little late this month; you’ll get your checks later.” Typically, the accounting department is responsible for the following: • Payroll: The total wages and salaries earned by every employee every pay period, which are called gross wages or gross earnings, have to be calculated. Based on detailed private information in personnel files and earnings-to-date information, the correct amounts of income tax, social security tax, and other deductions from gross wages have to be determined. Stubs, which report various information to employees each pay period, have to be attached to payroll checks. The total amounts of withheld income tax and social security taxes, plus the employment taxes imposed on the employer, have to be paid to federal and state government agencies on time. Retirement, vacation, sick pay, and other benefits earned by the employees have to be updated every pay period. In short, payroll is a complex and critical function that the accounting department performs. Many businesses outsource payroll functions to companies that specialize in this area. • Cash collections: All cash received from sales and from all other sources has to be carefully identified and recorded, not only in the cash account but also in the appropriate account for the source of the cash received. The accounting department makes sure that the cash is deposited in the appropriate checking accounts of the business and that an adequate amount of coin and currency is kept on hand for making change for customers. Accountants balance the checkbook of the business and control who has access to incoming cash receipts. (In larger organizations, the treasurer may be responsible for some of these cash flow and cash-handling functions.) • Cash payments (disbursements): In addition to payroll checks, a business writes many other checks during the course of a year — to pay for a wide variety of purchases, to pay property taxes, to pay on loans, and to distribute some of its profit to the owners of the business. The accounting department prepares all these checks for the signatures of the business officers who
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 18

The accounting department prepares all these checks for the signatures of the business officers who are authorized to sign checks. The accounting department keeps all the supporting business documents and files to know when the checks should be paid, makes sure that the amount to be paid is correct, and forwards the checks for signature. • Procurement and inventory: Accounting departments usually are responsible for keeping track of all purchase orders that have been placed for inventory (products to be sold by the business) and all other assets and services that the business buys — from postage to forklifts. A typical business makes many purchases during the course of a year, many of them on credit, which means that the items bought are received today but paid for later. So this area of responsibility includes keeping files on all liabilities that arise from purchases on credit so that cash payments can be processed on time. The accounting department also keeps detailed records on all products held for sale by the business and, when the products are sold, records the cost of the goods sold. • Property accounting: A typical business owns many substantial long-term assets called property, plant, and equipment — including office furniture and equipment, retail display cabinets, computers, machinery and tools, vehicles (autos and trucks), buildings, and land. Except for small-cost items, such as screwdrivers and pencil sharpeners, a business maintains detailed records of its property, both for controlling the use of the assets and for determining personal property and real estate taxes. The accounting department keeps these records. The accounting department may be assigned other functions as well, but this list gives you a pretty clear idea of the back-office functions that the accounting department performs. Quite literally, a business could not operate if the accounting department did not do these functions efficiently and on time. To do these back-office functions well, the accounting department must design a good bookkeeping system and make sure that it is accurate, complete, and timely. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/responsibilities-of-an-accountingdepartment.seriesId-258044.html>
How Accounting Focuses on Transactions

6 of 12 in Series: The Essentials of Accounting Basics Business accounting focuses on transactions. A good bookkeeping system unfailingly captures and records every transaction that takes place. Understanding accounting, to a large extent, means understanding how accountants record the financial effects of transactions. They also record events that have an economic impact on a business.
Counting on transactions

The immediate and future financial effects of some transactions can be difficult to determine. A business carries on economic exchanges with six basic types of persons or entities:

• • • • • •

Its customers, who buy the products and services that the business sells. Its employees, who provide services to the business and are paid wages and salaries and provided with benefits, such as a retirement plan, medical insurance, workers’ compensation, and unemployment insurance. Its suppliers and vendors, who sell a wide range of things to the business, such as legal advice, products for resale, electricity and gas, telephone service, computers, vehicles, tools and equipment, furniture, and even audits. Its debt sources of capital who loan money to the business, charge interest on the amount loaned, and are due to be repaid at definite dates in the future. Its equity sources of capital, the individuals and financial institutions that invest money in the business and expect the business to earn profit on the capital they invest. The government, or the federal, state, and local agencies that collect income taxes, sales taxes, payroll taxes, and property taxes from the business. Here's a look at the interactions between a business and the other parties in its economic exchanges.

Transactions between a business and the parties it deals with.
Accounting for events

Even a relatively small business generates a surprisingly large number of transactions, and all transactions have to be recorded. Certain other events that have a financial impact on the business have to be recorded, as well. These are called events because they’re not based on give-and-take bargaining — unlike the something-given-for-something-received nature of economic exchanges. Events such as the following have an economic impact on a business and are recorded:

Μη αρχειοθετηµένες σηµειώσεις Σελίδα 19

Events such as the following have an economic impact on a business and are recorded:

• • •

A business may lose a lawsuit and be ordered to pay damages. The liability to pay the damages is recorded. A business may suffer a flood loss that is uninsured. The waterlogged assets may have to be written down, meaning that the recorded values of the assets are reduced to zero if they no longer have any value to the business. For example, products that were being held for sale to customers (until they floated down the river) must be removed from the inventory asset account. A business may decide to abandon a major product line and downsize its workforce, requiring that severance compensation be paid to the laid-off employees. At the end of the year, the accountant makes a special survey to make sure that all events and developments during the year that should be recorded have been recorded, so that the financial statements and tax returns for the year are complete and correct.
Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/how-accounting-focuses-on-transactions.seriesId-258044.html>

Balance Sheet Basics and the Accounting Equation 7 of 12 in Series: The Essentials of Accounting Basics One type of accounting report is a balance sheet, which is based on the accounting equation: Assets = Liabilities + Owners’ Equity. The balance sheet — also called a statement of financial condition — is a “Where do we stand at the end of the period?” type of report. The header of a balance sheet lists the date that it was prepared. Balance sheet fundamentals A balance sheet shows two sides of the business, which you could think of as the financial yin and yang of the business: • Assets: On one side of the balance sheet the assets of the business are listed, which are the economic resources owned and being used in the business. The asset values reported in the balance sheet are the amounts recorded when the assets were originally acquired. An asset is written down below its historical cost when the asset has suffered a loss in value. Some assets are written up to their current fair values. Some assets have been on the books only a few weeks or a few months, so their reported historical values are current. The values for other assets are their costs when they were acquired many years ago. • Sources of assets: On the other side of the balance sheet is a breakdown of where the assets came from, or their sources. Assets come from two basically different sources: creditors and owners. Businesses borrow money in the form of interest-bearing loans that have to be paid back at a later date, and they buy things on credit that are paid for later. So, part of total assets can be traced to creditors, which are the liabilities of a business. Every business needs to have owners invest capital (usually money) in the business. Also, businesses retain part or all of the annual profits they make, and profit increases the total assets of the business. The total of invested capital and retained profit is called owners’ equity. An accounting equation example Suppose a business reports $2.5 million in total assets. The total of its liabilities, plus the capital invested by its owners, plus its retained profit, adds up to $2.5 million. Otherwise, its books would be out of balance, which means there are bookkeeping errors. Continuing with this example, suppose that the total amount of the liabilities of the business is $1.0 million. This means that the total amount of owners’ equity in the business is $1.5 million, which equals total assets less total liabilities. The total owners’ equity may be traceable to capital invested by the owners in the business as well as profit retained in the business. The total of these two sources of owners’ equity is $1.5 million. The financial condition of the business in this example is summarized in the following accounting equation (in millions): $2.5 assets = $1.0 liabilities + $1.5 owners’ equity Looking at the accounting equation, you can see why the statement of financial condition is called the balance sheet; the equal sign means the two sides balance. Double-entry bookkeeping is based on the accounting equation — the fact that the total of assets on the one side is counterbalanced by the total of liabilities, invested capital, and retained profit on the other side. Double-entry bookkeeping means that both sides of transactions are recorded. For example, if one asset goes up, another asset goes down — or, alternatively, either a liability or owners’ equity goes up. This is the economic nature of transactions. Double-entry means two-sided, not that the transactions are recorded twice. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/balance-sheet-basics-and-theaccounting-equation.seriesId-258044.html> The Eight Steps of the Accounting Cycle By Lita Epstein from Bookkeeping For Dummies 8 of 12 in Series: The Essentials of Accounting Basics As a bookkeeper, you complete your work by completing the tasks of the accounting cycle. It’s called a cycle because the accounting workflow is circular: entering transactions, manipulating the transactions through the accounting cycle, closing the books at the end of the accounting period, and then starting the entire cycle again for the next accounting period. The accounting cycle has eight basic steps, which you can see in the following illustration. These steps are described in the list below.

Μη αρχειοθετηµένες σηµειώσεις Σελίδα 20

15. Transactions Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company’s assets, the establishment or payoff of a debt, or the deposit from or payout of money to the company’s owners. 16. Journal entries The transaction is listed in the appropriate journal, maintaining the journal’s chronological order of transactions. The journal is also known as the “book of original entry” and is the first place a transaction is listed. 17. Posting The transactions are posted to the account that it impacts. These accounts are part of the General Ledger, where you can find a summary of all the business’s accounts. 18. Trial balance At the end of the accounting period (which may be a month, quarter, or year depending on a business’s practices), you calculate a trial balance. 19. Worksheet Unfortunately, many times your first calculation of the trial balance shows that the books aren’t in balance. If that’s the case, you look for errors and make corrections called adjustments, which are tracked on a worksheet. Adjustments are also made to account for the depreciation of assets and to adjust for one-time payments (such as insurance) that should be allocated on a monthly basis to more accurately match monthly expenses with monthly revenues. After you make and record adjustments, you take another trial balance to be sure the accounts are in balance. 20. Adjusting journal entries You post any corrections needed to the affected accounts once your trial balance shows the accounts will be balanced once the adjustments needed are made to the accounts. You don’t need to make adjusting entries until the trial balance process is completed and all needed corrections and adjustments have been identified. 21. Financial statements You prepare the balance sheet and income statement using the corrected account balances. 22. Closing the books You close the books for the revenue and expense accounts and begin the entire cycle again with zero balances in those accounts. As a businessperson, you want to be able to gauge your profit or loss on month by month, quarter by quarter, and year by year bases. To do that, Revenue and Expense accounts must start with a zero balance at the beginning of each accounting period. In contrast, you carry over Asset, Liability, and Equity account balances from cycle to cycle. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/the-eight-steps-of-the-accountingcycle.seriesId-258044.html> Choosing an Accounting Method for Your Business By John A. Tracy from Accounting Workbook For Dummies 9 of 12 in Series: The Essentials of Accounting Basics Different businesses make different accounting decisions. Some businesses choose conservative accounting methods while others choose liberal accounting methods. Accounting is more than just reading the facts or interpreting the financial outcomes of business transactions. Accounting also requires accountants to choose between alternative accounting methods. Similar to the conservative states and liberal states addressed in politics, accounting has: • Conservative accounting methods: These accounting methods delay the recording of revenue and accelerate the recording of expenses. Profit is reported slowly. • Liberal accounting methods: These accounting methods accelerate the recording of revenue and delay the recording of expenses. Profit is reported quickly.
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 21

• delay the recording of expenses. Profit is reported quickly. In general terms, conservative accounting methods are pessimistic, and liberal methods are optimistic. The choice of accounting methods also affects the values reported for assets, liabilities, and owners’ equities in the balance sheet. Accounting methods must stay within the boundaries of Generally Accepted Accounting Principles (GAAP). A business can’t conjure up accounting methods out of thin air. GAAP isn’t a straitjacket; it leaves plenty of wiggle room, but the one fundamental constraint is that a business must stick with its accounting method when it makes a choice. Consistency is the rule; the same accounting methods must be used year after year. The Internal Revenue Service (IRS) allows businesses to change their accounting methods once in a while, but the justification has to be persuasive. A new business with no accounting history has to make accounting decisions such as the following, for the first time: • If the business sells products, it has to select which cost of goods sold expense method to use. • If the business owns fixed assets, it has to select which depreciation method to use. • If the business makes sales on credit, it has to decide which bad debts expense method to use. The choices of accounting methods for these three expenses — cost of goods sold, depreciation, and bad debts — can make a sizable difference in the amount of profit or loss recorded for the year. Choosing conservative accounting methods for these three expenses can cause profit for the year to be lower by a relatively large percent compared with using liberal accounting methods for the expenses. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/choosing-an-accounting-method-foryour-business.seriesId-258044.html> The Basics of Double-Entry Bookkeeping By Lita Epstein from Bookkeeping For Dummies 10 of 12 in Series: The Essentials of Accounting Basics All businesses, whether they use the cash-basis accounting method or the accrual accounting method, use double-entry bookkeeping to keep their books. A practice that helps minimize errors and increase the chance that your books balance, double-entry bookkeeping gets its name because you enter all transactions twice. When it comes to double-entry bookkeeping, the key formula for the balance sheet (Assets = Liabilities + Equity) plays a major role. In order to adjust the balance of accounts in the bookkeeping world, you use a combination of debits and credits. You may think of a debit as a subtraction because you’ve found that debits usually mean a decrease in your bank balance. And, you’ve probably found unexpected credits in your bank or credit card account that mean more money has been added in your favor. Now forget what you’ve learned about debits or credits. In bookkeeping, their meanings aren’t so simple. The only definite thing when it comes to debits and credits in the bookkeeping world is that a debit is on the left side of a transaction and a credit is on the right side of a transaction. Transaction #1: Purchasing an item with cash Here’s an example of the practice in action. Suppose you purchase a new desk that costs $1,500 for your office. This transaction actually has two parts: You spend an asset — cash — to buy another asset — furniture. So, you must adjust two accounts in your company’s books: the Cash account and the Furniture account. Here’s what the transaction looks like in a bookkeeping entry: Account Debit Credit Furniture $1,500 Cash $1,500 Purchasing a New Office Desk In this transaction, you record the accounts impacted by the transaction. The debit increases the value of the Furniture account, and the credit decreases the value of the Cash account. For this transaction, both accounts impacted are asset accounts, so, looking at how the balance sheet is affected, you can see that the only changes are to the asset side of the balance sheet equation: Assets = Liabilities + Equity Furniture increase = No change to this side of the equation Cash decrease In this case, the books stay in balance because the exact dollar amount that increases the value of your Furniture account decreases the value of your Cash account. At the bottom of any journal entry, you should include a brief description that explains the purpose for the entry. Transaction #2: Purchasing items on credit To show you how you record a transaction if it impacts both sides of the balance sheet equation, here’s an example that shows how to record the purchase of inventory. Suppose that you purchase $5,000 worth of widgets on credit. These new widgets add value to your Inventory Asset account and they also add to your Accounts Payable account. (Remember, the Accounts Payable account is a Liability account where you track bills that need to be paid at some point in the future.) Here’s how the bookkeeping transaction for your
Μη αρχειοθετηµένες σηµειώσεις Σελίδα 22

•

• • • • • •

bills that need to be paid at some point in the future.) Here’s how the bookkeeping transaction for your widget purchase looks: Account Debit Credit Inventory $5,000 Accounts Payable $5,000 Purchasing Widgets for Sale to Customers Here’s how this transaction affects the balance sheet equation: Assets = Liabilities + Equity Inventory increases = Accounts Payable increases + No change In this case, the books stay in balance because both sides of the equation increase by $5,000. You can see from the two example transactions how double-entry bookkeeping helps to keep your books in balance — as long as you make sure each entry into the books is balanced. Balancing your entries may look simple here, but sometimes bookkeeping entries can get very complex when more than two accounts are impacted by the transaction. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/the-basics-of-doubleentrybookkeeping.seriesId-258044.html> Key Basic Accounts for Balance Sheets and Income Statements By Lita Epstein from Bookkeeping Workbook For Dummies 11 of 12 in Series: The Essentials of Accounting Basics A bookkeeper tracks all the financial transactions of a business and is responsible for identifying the account in which each transaction should be recorded. Accounting provides the structure you must use to organize these transactions, as well as the procedures you must use to record, classify, and report information about your business. In most cases, the accounting system will be set up with the help of an accountant to be sure the information generated by that system will be useable and meets the requirements of solid accounting principles. A bookkeeping system is designed based on the data needed for the two key financial reports — the balance sheet and the income statement. The balance sheet gives you a snapshot of a business as of a particular date. The income statement gives you a summary of all transactions during a particular period of time, usually a month, a quarter, or a year. The key balance sheet accounts include: Assets: Everything the business owns in order to operate successfully is considered an asset. This includes cash, buildings, land, tools, equipment, vehicles, and furniture. Each type of asset has a separate account. Another asset is the Accounts Receivable account (money due from customers who bought on credit). Inventory: Products on hand that the business plans to sell. Liabilities: All the money the company owes to others are considered liabilities. This includes unpaid bills (called Accounts Payable account), loans, and bonds. Each type of liability will have a separate account. Equity: All the money invested in the company by the owners or stock holders is considered equity. Each type of equity, and possibly each owner in a small business, will have a separate account. The key income statement accounts include: Revenue: All the money a business receives in selling its products or services is called revenue or sales and tracked in these accounts. Cost of goods sold: All money the company must spend to buy or manufacture the goods or services it sells to customers is tracked in these accounts. An account called Purchases is used to track goods purchased. Expenses: All money that is spent to run the company that is not related specifically to a product or service being sold is tracked in expense accounts. For example, Office Supplies, Advertising, Salaries, and Wages are all types of expense accounts. Έγινε εισαγωγή από <http://www.dummies.com/how-to/content/key-basic-accounts-for-balancesheets-and-income-s.seriesId-258044.html>

Μη αρχειοθετηµένες σηµειώσεις Σελίδα 23