Computerized Accounting With
PEACHTREE® 2012
GLOSSARY
accelerated cost recovery system (ACRS) A depreciation method used for federal
income tax purposes that is applied to assets placed in service between 1981 and 1986.
accelerated method A method in which more depreciation is taken in the early years of
an asset’s useful life and less in the later years.
accounting The process of recording, summarizing, analyzing, and interpreting financial
activities.
accounting period The period of time covered by a firm’s financial statements.
accounts payable The amounts that a business owes to its creditors for goods or services
purchased on credit.
accounts payable ledger A subsidiary ledger that contains accounts for vendors.
accounts receivable The amounts owed to a business by its customers for goods or
services sold on credit.
accounts receivable ledger A subsidiary ledger that contains accounts for credit
customers.
accrual basis An accounting method in which a firm recognizes revenue when it is
earned and recognizes expenses when they are incurred.
adjusting entries Entries that are used to bring the general ledger accounts up to date so
that they include previously unrecorded items that relate to the period.
allowance method A method in which the expense from uncollectible accounts is
estimated at the end of each accounting period and recorded by means of an adjusting
entry.
amortization The process of allocating the cost of an intangible asset to operations
during its estimated useful life.
authorized stock The maximum number of shares of stock permitted by the corporate
charter.
average cost method Inventory costing method in which the value of the ending
inventory is based on a single cost (the average cost) assigned to all units available for
sale.
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balance sheet A report of a firm’s assets, liabilities, and owner’s equity as of a specific
date.
bank reconciliation Bringing the ending balances of the bank statement and the firm’s
own cash records into agreement.
bank statement A listing of all transactions recorded by the bank that occurred in a
checking account during a month and the beginning and ending balances.
board of directors Individuals elected by stockholders to establish policies for a
corporation and hire managers.
book value The difference between the cost of a fixed asset and its accumulated
depreciation.
bylaws A set of rules by which a corporation will operate.
cash The funds that a business has on hand and on deposit in banks.
cash basis An accounting method in which a firm recognizes revenue when cash is
received and recognizes expenses when cash is paid.
charter A legal document issued by a state that permits a corporation to operate.
chart of accounts A listing of all the accounts used by a business.
closely held corporation A corporation owned by just a few stockholders.
common stock Stock that provides the right to vote and to receive dividends if the board
of directors declares them.
compound entry A journal entry that involves more than two accounts.
continuous life A corporation can exist forever. Its life is not affected by changes in
ownership.
contra asset account An account with a balance opposite to the normal balance of an
asset account.
controlling account A general ledger account that summarizes the balances of all the
accounts in a subsidiary ledger.
corporation A business owned by stockholders or shareholders.
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credit memo A form issued to a customer to show the credit granted for a return of
goods.
current assets Assets that will be converted into cash within one year or used up within
one year.
current liabilities Debts due for payment within one year.
depletion The process of allocating the cost of natural resources to operations during its
estimated useful life.
depreciation The process of allocating the cost of a fixed asset to operations during its
estimated useful life.
direct write-off method A method in which the expense from uncollectible accounts is
recorded when the accounts actually become bad debts.
dividend A distribution of part of a corporation’s earnings to stockholders.
double declining-balance A method that allocates depreciation at twice the straight-line
rate method.
double-entry accounting A method of accounting in which equal debits and credits are
recorded for each transaction.
double taxation As a legal entity, a corporation pays income tax on its earnings. When
the stockholders receive part of the earnings in the form of dividends, they also pay
income tax.
earned capital A term often used to describe retained earnings.
estimated salvage value The amount that a business expects a fixed asset to be worth at
the end of its useful life.
estimated useful life The number of years that a business expects a fixed asset to be
used in its operations.
FIFO method Inventory costing method in which the value of the ending inventory is
based on the assumption that the first items purchased are the first ones sold.
fiscal year An accounting period of one year.
fixed assets Assets that have an expected life of more than one year, used in the
business, and are tangible.
fixed asset ledger A subsidiary ledger that contains records for individual fixed assets.
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general journal A journal in which all kinds of financial transactions can be recorded.
general ledger The main ledger of a business.
half-year convention An approach used by ACRS and MACRS that allocates
depreciation for half a year during the first year an asset is owned.
income statement A report of a firm’s revenue, expenses, and net income or net loss for
an accounting period.
intangible assets Assets that have no physical substance.
inventory The stock of goods that a merchandising business has on hand for resale to
consumers.
inventory costing methods Methods used to determine the dollar value of the ending
inventory.
invoice A bill for goods or services sold to a customer.
issued stock The number of shares of stock actually sold by a corporation.
job costing Tracking of all costs associated with a job and totaling those costs at the end
of the project.
job costs The costs of the materials, labor, and other items required for completion of a
job.
journal A record in which transactions are listed in order by date.
ledger A group of related accounts.
LIFO method Inventory costing method in which the value of the ending inventory is
based on the assumption that the last items purchased are the first ones sold.
limited liability The stockholders of a corporation are not personally liable for the debts
of the business.
limited life A partnership ends when an existing partner dies or withdraws or when a
new partner is admitted.
long-term liabilities Debts that extend for more than one year.
manufacturing businesses Firms that produce products from raw materials and sell
those products to wholesalers or end-users.
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market value The amount that a buyer is willing to pay for stock.
merchandising businesses Firms that buy goods and resell them to consumers.
modified accelerated cost recovery system (MACRS) A depreciation method used for
federal income tax purposes that is applied to assets placed in service after 1986.
mutual agency rule Rule that allows a single partner to enter into a contract that is
binding on all other partners with or without their consent.
natural resources Long-term assets that are removed from the ground.
net income or net loss The difference between revenue and expenses.
net pay The amount received by employees after deductions are made from their gross
pay.
outstanding stock The number of shares of stock actually held by investors.
paid-in capital The amount of capital received from stockholders through their
purchases of stock.
partnership A business owned by two or more people.
partnership agreement A written contract that specifies the terms of a partnership such
as the division of profits and losses.
par value An arbitrary amount that some states require corporations to assign to each
share of stock for legal and accounting purposes.
pay plan The method used to calculate an employee’s earnings.
payroll period The time period for which earnings and deductions are calculated.
periodic inventory system A system in which a firm’s inventory is counted at regular
intervals.
perpetual inventory system A system in which a firm maintains a running balance for
all inventory items.
posting The transfer of information about transactions to ledger accounts.
preferred stock Stock that usually does not carry the right to vote but provides a fixed
dividend.
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publicly held corporation A corporation whose stock can be purchased by the public.
retained earnings The accumulated profits of a corporation from past operations less
dividends.
sales order A form that a business may prepare to record the details of a customer’s
order.
sales quotation A form that shows the prices a business will charge for specified goods.
service businesses Firms that provide services to consumers.
sole proprietorship A business owned by one person.
source documents Business papers that provide evidence of transactions.
special journal A journal that is used to record a single type of transaction.
statement of account A form that a business sends each month to show all transactions
with a customer and the balance owed by the customer.
statement of cash flow A report of the inflows and outflows of cash from operating
activities, investing activities, and financing activities for a period.
statement of changes in financial position A report of a firm’s sources and uses of
working capital for a period.
statement of retained earnings A financial statement that shows the changes in a
corporation’s retained earnings during an accounting period.
stockholders or shareholders The owners of a corporation.
straight-line method A method in which an equal amount of depreciation is taken each
year.
subsidiary ledger A ledger that contains detailed information for a single general ledger
account.
sum-of-the-years’-digits method A method that allocates depreciation on the basis of a
fraction that changes each year.
tangible assets Assets that have a physical substance.
transactions Financial events that change a firm’s assets, liabilities, or owner’s equity.
treasury stock The shares a corporation buys back from its investors.
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trial balance A proof that the general ledger is in balance.
units-of-production method A method that allocates depreciation on the basis of how
much work an asset produces.
unlimited liability Personal responsibility for the debts of a business by a sole proprietor
or partner.
vendors The businesses or individuals to whom accounts payable are owed.
working capital The excess of current assets over current liabilities.
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