Master Vocabulary Terms & Definitions
1/17/2014 3:25:00 AM
ACCOUNTING: the process of planning, recording, analyzing and interpreting
financial information
FINANCIAL STATEMENTS: financial reports that summarize the financial
condition and operations of a business
NET WORTH STATEMENT: a formal report that shows what an individual
owns, owes and the difference between the two
ASSET: anything of value that is owned
LIABILITY: amount that is owed
PERSONAL NET WORTH: the difference between personal assets and
personal liabilities
EQUITY: the difference between assets and liabilities
Total assets – Total liabilities = Net worth, also known as equity
SERVICE BUSINESS: a business that performs an activity for a fee
PROPRIETORSHIP: a business owned by one person
BUSINESS PLAN: a formal written document that describes the nature of a
business and how it will operate
GAAP: “generally accepted accounting principles”; standards and rules that
accountants follow while recording and reporting financial activities
OWNER’S EQUITY: the amount remaining after the value of all liabilities is
subtracted from the value of all assets
ACCOUNTING EQUATION: Assets = Liabilities + Owner’s Equity (both sides
must equal each other)
TRANSACTION: any business activity that changes assets, liabilities, or
owner’s equity
ACCOUNT: a record that summarizes all the transactions pertaining to a
single item (Cash)
ACCOUNT TITLE: the name given to an account
ACCOUNT BALANCE: the difference between the increases and decreases in
an account
CAPITAL ACCOUNT: an account used to summarize the owner’s equity in a
business
CREDITOR: a person or business to whom a liability is owed
REVENUE: an increase in equity resulting from the sale of goods or services
EXPENSE: the cost of goods or services used to operate a business
SALE ON ACCOUNT: a sale for which payment will be received at a later date
WITHDRAWAL: assets taken from the business for the owner’s personal use
T ACCOUNT: an accounting device used to analyze transactions
DEBIT: an amount recorded on the left side of an account
CREDIT: an amount recorded on the right side of an account
NORMAL BALANCE: the side of an account that is increased
CHART OF ACCOUNTS: a list of accounts used by a business
ACCOUNTS PAYABLE: amounts to be paid in the future for goods or services
already acquired
ACCOUNTS RECEIVABLE: amounts to be received in the future due to the
sale of goods or services
JOURNAL: a form for recording transactions in chronological order
JOURNALIZING: recording transactions in a journal
SOURCE DOCUMENT: a business paper from which information is obtained
for a journal entry
SOURCE DOCUMENT ABBREVIATIONS:
ENTRY: information for each transaction recorded in a journal
DOUBLE ENTRY ACCOUNTING: the recording of debit and credit parts of a
transaction
CHECK: a business form ordering a bank to pay cash from a bank account
SALES INVOICE: an invoice used as a source document for recording a sale
on account
RECEIPT: a business form giving written acknowledgement for cash received
MEMORANDUM: a form on which a brief message is written to describe a
transaction
BALANCE-RULED ACCOUNT FORM: a form containing columns for the debit
and credit balance
LEDGER: a group of accounts
GENERAL LEDGER: a ledger that contains all accounts needed to prepare
financial statements
ACCOUNT NUMBER: the number assigned to an account
FILE MAINTENANCE: the procedure for arranging accounts in a general
ledger, assigning account numbers, and keeping records current
CHART OF ACCOUNTS: a list of account titles and numbers showing the
location of each account in a ledger
OPENING AN ACCOUNT (2 STEPS): (1) record the account title (2) record
the account number
POSTING: transferring information from a journal entry to a ledger account
PROVING CASH: determining that the amount of cash agrees with the
balance of the cash in the account records
1/17/2014 3:25:00 AM
1/17/2014 3:25:00 AM