Useful Accounting words meaning part 1

 A

Accounting - It is a system that collects, processes, analyzes, measures, and records financial information of a firm and reports that information to decision-makers.

Accounting fraud - It is the intentional misrepresentation and abuse of accounting information including sales, revenues, expenses, assets, or liabilities to inflate earnings, stock values, obtain more loans, or avoid debt commitments.

Accounts receivables - They are promises to receive

money from customers and are generally classified as current assets.

Accrual accounting/ Accruals - It is the accounting principle that recognizes revenue when earned and associated expenses when incurred, not when money is received/paid.

Annual report - It is a document used by most companies to disclose the corporate information to their shareholders. It includes an opening letter from the CEO, financial data, results of operations, market segment information, new product plans, subsidiary activities, and research and development activities on future programs.

B

Bad debt - Bad debts occur when debtors do not pay. Bad debts reduce the number of accounts receivable on the balance sheet and create a loss in the income statement.

Balance sheet - It reports the number of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time.

Building financial statements - It is the process of recording transactions and sorting them to form a balance sheet, income statement, and cash flow statement.

C

Cash accounting - It is the accounting principle that recognizes revenue when cash is received and recognizes expenses when cash is paid.

Cash discounts - They are discounts given over sale price if the customer pays in a certain time period to encourage early payment.

Cash flows statement - It is the financial statement showing how the cash of a firm changes in a certain period.

Conservatism - Revenues/profits are recorded only when earned but provision is made for all known losses, even when the amount is only the best estimate on the basis of available information.

Consistency - Consistency of accounting treatment of like items within each accounting period and from one period to the next.

Contingent liability - A potential liability that has arisen as the result of a past event; it is not a liability until some future event occurs.

Creditors - Creditors lend money to a company for a specific length of time.

D

Deferrals - Receipts of assets/cash in advance before goods or services are delivered.

F

FIFO - It assumes that the first units purchased or manufactured are the first units sold. This means that early purchases are expensed against revenues and recent costs are included in the inventory.