Fme Accounting Terminology Checklist

UNDERSTANDING ACCOUNTING  TERMINOLOGY  CHECKLIST  An essential skill skill for any manager manager is to have a clear clear and accurate accurate understanding understanding of accounting terminology terminology and the process involved in the compilation of the key financial statements an organization must produce. There are two types of accounting processes processes that record the financial transactions of an organization:  

Financial Accounting Management Accounting FINANCIAL ACCOUNTING

Show what has happened historically over a period, usually a year, providing its readers with an accurate assessment of an organizations organizations financial f inancial status. #istoric review of financial performance. performance. $sers:      

!nvestors % Shareholders Shareholders &otential 'uyers Management (ompetitors Ta) Ta) Authorities Authorit ies (onsumers

&roduces the financial statements:   

&rofit % oss accounts 'alance Sheet (ash Flow Statement

MANAGEMENT  ACCOUNTING

!s used "y management to assist with forward planning and aid controlling and analyzing analyzing an organizations efficiency of its operations. Focuses on forward planning % is used internally as an aid in the decision making process. $sers:   

&roduces financial outputs such as:    

Their production must meet legal re-uirements imposed on an organization.

*wners Management +mployees

Financial Forecast 'udgets % (osting (ontri"ution (ontri"ution Statements 'reak +ven (harts

&rocesses are defined "y the organization organization to meet their operational re-uirements. re-uirements.

ACCOUNTING  CONCEPTS:

 All accounts are produced "y adhering adhering to four fundamental fundamental concepts: concepts:  





oing (oncern / the future operation of the organization is assumed.  Accruals or Matching Matching principle principle / revenues and and costs are recognized recognized in the period period they occur. &rudence or (onservatism / provides an o"0ective financial view "y acknowledging acknowledging e)penses % losses as they "ecome known and realizing revenue when it "ecomes 1real. (onsistency / is applied to cost allocation and asset valuation so that comparisons can "e made.

CONVENTIONS

WITHIN  ACCOUNTING :

There are five "asic conventions the accounting world has adopted over time, These conventions are:     

*"0ectivity Separate entity Money measurement #istorical cost 2ou"le entry

3ou should ensure that you are familiar with your countrys set of legal % professional standards. ©

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ALPHABETICAL DEFINITION OF ACCOUNTING  TERMS ACCOUNTS PAYABLE

9epresents those amounts owed to creditors.

ACCOUNTS RECEIVABLE

2etails de"ts that are owed to the organization.

ACCRUALS

!s an allowance for costs that have not yet "een invoiced.

ACCRUED PAYROLL

9epresents the amount earned "y employees, "ut which has yet to "e given paid, as most people are paid in arrears.

ACCUMULATED

 Allows an organization to depreciate its assets in a controlled and uniform way.

DEPRECIATION

ADJUSTMENTS .

These are all the operating items that had an impact on cash that were not included in the income statement / depreciation, accounts receiva"le, prepaid e)penses, inventory and accounts paya"le

AMORTIZATION

2efined as spreading payments over multiple periods for loans and intangi"le assets, such as patents and intellectual property.

ASSETS

2escri"es items such as stockinventory, "uildings, e-uipment, and money owed to the organization

BAD DEBT

(an "e descri"ed as a de"t that all reasona"le means to collect have "een tried and they have failed to get payment. This amount is written off as a loss and "ecomes categorized as an e)pense ;reducing net income< on an income statement.

BAD DEBT RESERVE

 Assigns a percentage of total sales as a "ad de"t e)pense. The percentage is calculated from the historical proportion of sales that were never paid.

BALANCE SHEET

 An itemized financial statement that summarizes the assets and lia"ilities of the organization at a given date.

BALANCE SHEET INSOLVENCY

!nvolves having negative net assets. That is when an organization owes others more than it has in assets, including the money that it is owed.

BANKRUPTCY

!t is a determination of insolvency made "y a court of law with resulting legal orders intended to resolve the insolvency. ;!t is not the same as insolvency<

BOOK VALUE OF AN ASSET

*riginal purchase price of an asset.

CAPITAL EMPLOYED

The net amount invested in an organization "y its investors or owners. !t is taken from the "alance sheet

CAPITAL EXPENDITURES

The amount spent for all fi)ed assets that are not charged to e)pense when purchased "ut are recorded on the organization=s "alance sheet.

CAPITAL STOCK AND CONTRIBUTED CAPITAL

(apital stock is the amount paid into the organization "y investors to purchase stock at some nominal amount per share

CASH

9efers to those current assets that are immediately, or as soon as, turned into currency. &redicting and anticipated the cash flow of an organization is essential to its survival.

CASH FLOW FORECAST

!s an internal document produced on an ad hoc "asis, usually monthly, to help with "udgeting and planning.

CASH FLOW INSOLVENCY

9efers to a lack of funds to pay de"ts as they fall due.

COMMON -SIZE FINANCIAL STATEMENT.

+)presses the income statement in percentages only and allows one to compare different sized organizations

COST OF GOODS SOLD

This is the purchase cost of 1goods that were su"se-uently sold to

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customers.

CREDITOR

Someone whom the "usiness owes money to, e.g. a supplier, landlord, or utility organization.

CURRENT ASSETS

 Are those assets with the value availa"le entirely in the short4term> a period of less than a year and can "e -uickly li-uidated. !t includes cash and cash e-uivalents, short4term investments, accounts receiva"le, and "ad de"t provision.

CURRENT LIABILITIES

Those items that will "ecome due, or must "e paid, within one year. ia"ilities include paya"les such as wages, accounts, ta)es, and accounts paya"le, unearned revenue when ad0usting entries, portions of long4term "onds to "e paid this year, and short4term o"ligations ;e.g. from purchase of e-uipment