Other Bookkeeping Terms
While the major terms are critical to understanding bookkeeping and accounting, some other terms and concepts also need to be understood.
Single Entry-Type of “informal” accounting/bookkeeping system where a user of this system makes only one entry to enter a business financial transaction. It generally includes a daily summary of cash receipts and a monthly record of receipts and disbursements (worksheets).
Cash Method (Basis) of Accounting-method of accounting that recognizes revenues (earnings) in the period the cash is received and expenses in the period when the cash payments are made.
Posting -Process of transferring balances from bookkeeping records called journals to a “final” bookkeeping record called the general ledger.
T-Account -a skeleton outline of an account which provides the same basic data as a formal ledger account. Used as a teaching aid.
Contra Account-an account which offsets and reduces or offsets the balance of another account.
A contra-asset account has a credit balance and offsets and decreases the debit balance of the related asset account. An example account is Accumulated Depreciation which reduces the equipment account to arrive at the equipment’s net value.
A contra-liability account has a debit balance and offsets and decreases the credit balance of the related liability account. An example accounts is the bond discount account that reduces the bonds payable account to arrive at the bond’s net value.
Balance Sheet Account -a type of account that is included in the Balance Sheet; namely the Assets, Liabilities, and permanent Equity Accounts.
Permanent or Real Account -another term used to refer to the balance sheet accounts.
Income Statement Account -a type of account that is included in the Income Statement;
namely the Revenue and Expense Accounts.
Temporary Account -another term used to refer to the income statement accounts. The accounts are called temporary due to the fact that their balances are set to zero when the books are closed.
Closing the Books -process of transferring the balances from the temporary income statement accounts (revenues and expenses) to the permanent balance sheet equity account(s).
Profit -amount a business’s revenues exceed (greater than) expenses. In other words, the amounts we earned were greater than our expenses.
Loss -amount a business’s expenses exceed (greater than) revenues. In other words, we earned less than we spent.
Property -is another term for assets. In future lessons the term property and assets both mean the same thing-all the good stuff a business has.
Current Asset-cash and other assets normally expected to be converted to cash or used up usually within a year.
Current Liability-amounts owed (liabilities) that need to be paid or settled usually within a year.
Working Capital-net difference between current assets and current liabilities.
Working Capital = Current Assets – Current Liabilities
Cost Of Goods Sold- the accumulated total of all costs used to create a product or service, which has been sold.
Accounting Cycle is the name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements.
Let's briefly discuss Financial Statements.