This compilation of basic accounting terms provide readers with brief definitions and examples of words or phrases that describe or denote transactions, documents, events or conditions commonly used and related to balance sheet accounts and transactions. Certain terminologies are broad and tend to be all encompassing; hence, this glossary of accounting terms serves as a definitive guide for their appropriate meanings.
Abandonment – To voluntarily give up one’s legal claim, rights, or title to a property or asset and without naming a new owner but not necessarily providing relief from any liabilities that may be attached to the property that was deserted or disposed.
Acceleration Clause – Refers to that provision in a written agreement that gives the creditor, mortgagor, or bondholder the legal right to demand full payment of the obligation or liability, in cases where the debtor, mortgagee, or the bond issuer fails to meet the payment of installment, amortization, interests payments or such other conditions essential to the fulfillment of the contract.
Account – This commonly refers to the item classification of an asset, liability, equity, income and expense as they are individually presented in the pages of the general ledger books for bookkeeping purposes.
In accounting for banking transactions, the term “account” refers to the type of banking service or tool furnished to bank clients, like savings, demand deposits, CDs, escrow, fiduciary, loan, or trust.
Account Form – This refers to balance sheet presentation in which the asset components are placed on the left side while the liabilities and capital/stockholders’ equity is presented on the right side.
Accountable Forms – These are pre-numbered company forms and documents, the issuances of which is controlled by adhering to its numerical order.
Accountant – The person in charge of overseeing the general bookkeeping transactions of a business organization.
Accounting Cycle – Refers to the entire accounting procedures observed, which commences from the recording of a transaction and the changes it undergoes through the year-end closing procedure and preparation of financial statements.
Accounting Equation – It is the basic Assets = Liabilities + Equity formula used as a guide for keeping the debit and credit entries in a double-entry bookkeeping system balanced.
Accounting Period – This refers to the length of time covered by the accounting cycle, usually for the twelve-month period of a calendar year. The accounting period may also commence according to the months by which a business begins and ends its operations–in which case, the 12-month period is called the fiscal year.
Accounting Policies –These are the GAAP-prescribed valuation and recording rules that serve as guidelines for calculating, assigning, and maintaining accounting records that will be summarized in financial statement forms.
Accounting Principles – The theoretical views and concepts that are used as guidelines for determining the accounting treatment of business transactions to ensure fair and accurate financial reporting.
Accounts Payable – This is the general ledger account, which carries all business transactions pertaining to debts or liabilities that were acquired in the course of procuring or obtaining business assets.
Accounts Receivable – This is the general ledger account, which contains all credit sales transactions extended to selected business customers, usually as a means of promoting goodwill and long-term business relationships.
Accounts Receivable Discounted – This refers to a receivable, usually in default, sold to a third party at a lesser value than that of the outstanding balance.
Accretion – This term is used to denote the increased value of assets, which was achieved by way of investment growth, expansion, appreciation, merger, or acquisition.
Accrual Method of Accounting – This refers to a system of recording business expenses that are considered as incurred as far as the present period is concerned but are yet to be paid at an appointed time beyond the accounting period being observed. This accounting method makes use of the accrued expenses and assets accounts.
Accumulated Depreciation – This refers to the general ledger account which contains a summary of all depreciation expenses as a means to allocate the cost of a fixed-asset throughout its estimated useful life.
Accumulated Earnings or Accumulated Income – This refers to the cumulative profits lodged in the retained earnings account, as they remain intact and have not been declared or distributed as dividends.
This glossary of basic accounting terms for balance sheet accounts & transactions is continued on the next page.
Basic Accounting Terms: A, continued
Acquired Surplus – Refers to that portion of an acquired company’s net worth not included in the acquisition costs nor recognized by the buying company as part of the capital stock but still recognized as assets upon the merger of the two companies.
Acquisition Cost – This denotes the purchase price paid in exchange for goods or services that becomes the historical cost of an asset. This may include the incidental costs related to its purchase or delivery to make possible the physical, practical, and legal ownership over the property.
Additional Paid-in Capital – This is the capital account used for recording the excess amount realized after selling the company’s shares of stock at a price greater than the par value.
Adjusting Entry/Entries – These are the accounting entries made as part of the year-end closing procedures in order to bring the balance of the books of account to their most accurate valuations by taking up the accrued expenses and earnings before the general ledger accounts are closed.
Adverse Opinion – This is the negative type of audit report submitted by the external auditor, after reviewing and determining that the accounting procedures and standards applied by a company to record and report the results of its business operation for the year were not in accordance with the generally accepted accounting principles.
Aging of Accounts Receivable - This is the procedure performed to determine the length of time or the duration that the receivable accounts have remained uncollected. It is used as a tool for measuring the credit and collection efficiency of the company. Its importance is likewise related in determining the underlying quality of the company’s assets or net worth.
Allowance for Bad Debts – The amount set-up to recognize the possibility that a certain portion of the business entity’s accounts receivable will not be recovered or collected.
Appraisal Value- This refers to the valuation of a real estate property at its current fair market value or for purposes of determining the price that a willing buyer would buy the property if put up for sale.
Arrears – The term applied to denote defaulted payments or amortizations, often linked to long-term borrowings.
Assessment – This is the term used to evaluate the worth of an asset or liability used for determining the true financial condition of a company in terms of liquidity. For taxation purposes, the act of assessment pertains to the IRS’s determination if the taxable income reported as the basis for tax due was properly computed.
Asset/Assets – Refers to the tangible and intangible resources actually owned by the company that are used for sustaining the entire operations and transactions of the business in its quest to generate profits.
At Par – Purchased or quoted based on the amount stated on the face of a security or commodity that was traded.
Audit – This refers to the systematic review and examination of the accounting source documents and the methods applied for recording and summarizing them. The objective of the audit is to determine if all procedures used were in accordance with the generally accepted accounting principles and the internal control policies of the company.
Audit Report – Audit reports are prepared and submitted to provide in detail the results of audit examinations that were performed by a qualified examiner, as a means to disclose compliance or deviations in the observance of the GAAP rules and internal control policies.
Audit Trail – This terminology refers to the traceability of past accounting activities, from the account balances reflected on the financial reports back to its original entry in the books of accounts.
Backup Withholding – This refers to a certain percentage of withholding tax (currently 28%) taken from an employee’s salary, whose Taxpayer Identification Number (TIN) or Social Security number has not yet been supplied or is yet to be corrected, or earned by an employee’s investment income such as dividends or capital gains distributions. This is to ensure that federal taxes have been paid before the earnings or income is received by the employee.
Balance – The net debit and net credit amounts reflected as the residual amounts of the general ledger accounts.
Balance Sheet Accounts – These are the assets, liabilities and capital or stockholders’ equity accounts whose balances originate from the time the business was set up, and they carry the summarization of all transactions that increase or decrease the net worth of the business.
Find on the next page the continuation of this Glossary of Basic Accounting Terms for Balance Sheet Accounts & Transactions beginning with the letter B.
Basic Accounting Terms, B Continued
Bank Balance – This amount refers to the cash or monies deposited in a bank whether in the form of savings, current or certificates of deposit accounts and are periodically reconciled against the cash-in-bank balance carried in the entity’s general ledger.
Bank Reconciliation – The accounting procedure performed to establish the correct cash-in-bank balance per general ledger by comparing and checking if all debit and credit entries appearing on the bank statements or passbooks are all for the company’s account or have been recorded in the company’s general ledger books.
Bank Statement – The monthly report of all credit and debit transactions taken-up by the bank against the company’s current or checking account, used as a basis for bank reconciliation procedures.
Bankruptcy – This is the term used to describe the financial condition of an individual or an entity that no longer has the resources or capacity to pay its maturing debts.
Base Period – This denotes the term or inclusive dates used as a basis for calculations or comparisons or as reference for a cut-off period when performing a specific accounting function.
Bearer Bond – These are investments described as such because the bonds held as proofs of ownership are not registered under any name and whoever presents them for payment or negotiates the instruments shall be presumed the owner.
Beginning Inventory – This refers to the dollar values of the stocks on hand that were physically inventoried at the end of the accounting period and were carried forward to the succeeding accounting period as the beginning balances of goods held on hand.
Blue Chip – This description is often used to describe an investment as safe and high yielding, primarily based on the reputation of its issuer as a high income earner.
Bond – A form of investment tool in which the money invested is considered as a debt of the fund recipient who pays interest in advance or periodically, along with an obligation to pay off the principal amount periodically or on a fixed and specific date.
Call Price – This is the stipulated price, usually higher than the face value of a bond or preferred stock, that the issuer or the recipient of the investment must pay if the instrument will be redeemed or paid prior to its maturity. For preferred stocks, the call price is paid upon its redemption date.
Callable Bond – This term describes a type of investment bond that the issuer may redeem or pay off anytime prior to its maturity or redemption date at the agreed call price.
Capital – This is the amount of money initially infused by an entrepreneur to start up his business as the means to purchase and mobilize the resources he will need to operate the business as a going concern.
Capital Account – This refers to the accounts used to present the amount infused by the owner as funds dedicated for business operations. Its balance carries the results ( net income or net loss) of the business operations from start-up point through the present.
Capital Intensive – This is used to describe a business venture that requires a large amount of funds to be used as capital or start-up funds and to maintain the operations of the business.
Capital Market –The commercial venue where lenders and borrowers or fund users and fund providers meet to exchange long-term securities in the form of stocks and bonds.
Capital Stock – The company’s authorized shares of stock fully subscribed and paid-up by the company’s incorporators or founders and cannot be withdrawn, as they are intended to sustain the operations of the business.
Capital Stock Subscribed – This refers to that portion of authorized capital stock already issued and considered as subscribed by way of installment payments.
Carryover –The balance of an account forwarded to the succeeding accounting period, usually for the asset, liability or capital, accounts in order to keep track of the balances from the business’s start-up date through the present.
Cash – This item is also known as money in its basic term and considered as the most liquid type of asset as it can be readily used to pay for goods, services, or dividends.
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Basic Accounting Terms - C, continued
Cash Basis Accounting – A type of accounting method in which income and expenses are recognized upon receipt or payment of actual monies or cash. As an accounting method, this is not supported by GAAP rules because it does not conform to the principle of matching of cost and revenues.
Cash Discount – Amount of price reduction offered as an incentive for buyers to purchase goods on cash terms instead of credit or on installment basis.
Cash Dividend – The amount declared by a company as returns or yields of shares of stocks, paid in cash.
Cash Flow – This represents the amount of cash that is actually coming in by way of business operations, and its sufficiency enables the company to sustain routine business expenditures.
Cash Overage/Shortage – Either of these two conditions is the result of a cash count procedure performed, which reveals the cash custodian’s mishandling of the money entrusted.
Cash Surrender Value – This represents the amount of money that an insurance company commits to pay to the holder of a life insurance policy, in the event that the policy is canceled by the insured during his life time and after a specific period of time.
Cashier’s Check – Another term for this is Manager’s Check, which is a bank-guaranteed form of payment in lieu of the personal check issued by the buyer.
CD or Certificate of Deposit – A form of bank deposit evidenced by a certificate, usually considered as an alternative to a savings account as it earns higher yields if not withdrawn prior to the maturity date indicated on the face of the certificate.
Debenture – Money loaned out as capital infusion to earn high yields that will have first preference over common stocks, in the event that the company is liquidated
Debenture Capital – This is the portion of a company’s capital account received as a form of loan and evidenced by a bond issued to the capital provider.
Debit – The left side column of a general ledger page; increases in assets and expenses fall under this column, while reductions in liability and capital accounts make use of this column.
Debt – The amount owed or borrowed from a financing institution; this is different from payables as the latter denotes liabilities for purchases of goods for resale or for remittances of federal taxes.
Debt Financing – Business ventures undertaken by using borrowed funds coming from financial institutions; the latter usually grants this loan if the venture financed is deemed as potentially self-liquidating
Debt Restructuring – This is a financing recourse for long-term debts that have become past due as a result of payment defaults, to which considerable amounts of past due interests and penalty charges have been added. Restructuring a loan means that the additional charges will be added to the principal balance and the sum will be the basis of a new loan, for which the proceeds will be used to technically pay off the past-due obligation. The effect makes the past-due loan current, while the accretion of past-due charges and penalties will cease.
Debt Service Fund – This represents a reserve account or funds earmarked for the settlement of long-term financing obligations.
Default – This denotes a failure to meet or pay an obligation on its maturity date, resulting in additional charges in the form of penalties or surcharges.
Deficiency – A lack or insufficiency not only in terms of monetary value but also in terms of internal control or regulatory compliance.
Delinquent/Delinquency – Term used to describe the failure to pay at least two amortization payments.
Delivery – The physical transfer of good(s) purchased by the customer to the address stated as point of delivery.
Demand Deposit – A bank deposit account also known as checking or current account, in which withdrawals are evidenced by check issuances that are presented to the depository bank either as a clearinghouse item or as an over-the-counter withdrawal.
Deposit in Transit – Represents cash or check item already deposited and recorded in an organization’s general ledger book but not yet reflected in the bank statement or passbook due to the difference of cut-off time observed by banks for transaction recognition.
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Basic Accounting Terms - D, continued
Depreciable Asset – This refers to a fixed asset of which the usefulness will benefit future years, which gives rise to the need for cost allocation by way of annual depreciation expenses, throughout the estimated useful life of the fixed asset.
Depreciable Life -- This refers to the estimated useful life of the fixed asset.
Derive – To obtain additional funds from a specific source, which, in accounting, usually refers to income from business operations, capital markets, or financing institutions.
Detailed Audit – A type of audit commonly conducted for investigative purposes as the procedures used are more focused and detailed as opposed to the random sampling methods used by internal auditors.
Direct Write-Off – The portion of allowance for doubtful account deemed as no longer collectible and, thus, removed from the accounts receivable balance by recognizing them as losses. The allowance for doubtful accounts will likewise be adjusted.
Disclosure – This refers to the act of providing information by way of a duly acknowledged written document, which contains pertinent information about the transaction or a value reported.
Discount – A reduction of the face value amount or purchase price, as a condition or as an offer of incentive for immediate payment.
Dividend Yield – This is the amount paid-put to stock investors as returns on their investments in proportion to the number of shares owned.
Double-Entry Bookkeeping – An accounting method of recording a transaction in which a debit entry shall have a corresponding credit entry, in accordance with the basic accounting formula of asset = liabilities + capital.
Draft – This refers to an order for payment of money, using a payment instrument recognized by the custodian of the account from which the money will be derived.
Drawing Account – Component of the capital account used for summarizing the business owner’s withdrawals for personal expenses instead of charging them against business expenses.
Economic Life – This is the estimated period of time that a fixed asset can be expected to perform and contribute to the business operation and gain financial benefits from its use.
Embezzlement – A fraudulent act involving misappropriation of cash and/or other forms of valuable assets as a means to enrich one’s self. It is considered a statutory offense punishable by fines, restitutions, and incarceration, for which the length of time will depend on the state’s law.
Entity – A concept of being that may or may not have physical existence but can achieve a legal identity as a real being for having a separate and legal identity, to render it capable of entering into a contract to which any obligations it assumes shall inure to the individuals who have caused its existence to become legal.
Equity – A concept in accounting and finance that denotes different types of ownership in a particular property:
(a) In a mortgage property, it denotes the equivalent amount already paid by the borrower as settlement for the loan that was used to buy the property held as collateral.
(b) In a corporation, it represents multiple ownership prorated according to the number of shareholdings; while,
(c) In a single proprietorship, this is the residual amount of the business assets after deducting all business liabilities.
Equity Financing – A form of corporate borrowing using stock issuance as collateral or guarantee for the funds borrowed.
Face Value – The value stated on the face of a debt or investment instrument, used as the base amount by which yields or reductions are calculated.
Fair Market Value – This is the price of a commodity in the market that buyers would willingly pay to acquire ownership of the product or property.
Fidelity Bond – It is an assurance-coverage against possible losses that may be sustained from an employee’s act of thievery, burglary, or embezzlement.
Fiduciary Account – Usually a savings account handled and administered by a court-appointed trustee or conservator on behalf of the person who actually owns the funds. It is classified as a fiduciary account by the depository bank as a distinction from the regular savings account to ensure proper fund appropriation.
Financial Statements – These are the summaries of the account balances in the entity’s general ledger book wherein underlying data have been treated, recorded, and assigned with values using the generally accepted accounting methods, procedures, and principles.
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Basic Accounting Terms - F, continued
Fixed Asset –The non-current and depreciable assets in the form of real estate property, building constructed, and equipment owned and used by the company for carrying out the business’s day-to-day operations.
Fixture – This refers to an object that is permanently affixed or attached to the building, regardless if the property is leased or owned, but considered as a necessary appendage to make the area usable for business purposes.
Flipping – This term is commonly used to describe a method of investing funds by buying a foreclosed property, refurbishing, or renovating the improvements erected on the property and then put it up for sale on the market at its fair market value.
Floating – This term is used to refer to the currency exchange rate by which world currency conversions are based. The increase or decrease of floating-exchange rate depends largely on the performance of the currency in terms of global trading.
Forfeiture – The legal right to take away a privilege or to cut short the exercise of one’s right to benefit from a stipulated feature due to one’s failure to comply with the terms and conditions previously made known to the person whose rights were forfeited.
Free Cash Flow – A free cash flow is the actual cash available to the company without taking into consideration the depreciation, amortization, tax liabilities, and the interest on deposited fund. The term “free” denotes that there are no other restrictions that would make the funds unavailable for use as payment of current concerns and obligations.
Furniture and Fixtures - This term collectively refers to the office furnishings, appliances, and appendages that the business entity owns.
GAAP – the Generally Accepted Accounting Principles to which every business entity adheres for the recording and reporting of the entire business transaction and the results thereof, for a particular business cycle.
General Ledger – This is a business entity’s official compilation of accounts in book form, used as a medium for the entries that summarize the daily accounting transactions via debit and credit entries, to be completed and closed at the end of the accounting cycle.
Going Concern – This is an accounting principle observed in managing the finances of the company. A business entity should be operated in such a way that the results of its operations will generate sufficient funds to meet its operational costs with the process resulting in a residual amount that will be recognized as net profit or net income.
Going Public – This term refers to that event in a for-profit corporation’s life in which its shares of stock are offered to the public as a medium for investment. This event is also known as the Initial Public Offering or IPO.
Goodwill – The essence of goodwill, albeit intangible as an asset, is based on the presumption that the rights to use a patented invention or copyrighted material are worth buying for a certain price as they can bring additional revenues to the company. Its cost can be allocated over a reasonable number of years by way of annual amortizations and shall be recognized as an asset because it was acquired in exchange for a specific amount or at an equivalent value.
Insolvency – The lack of financial capacity to pay maturing debts with adequate resources even if the all the assets owned by an individual or company is sequestered, sold, or foreclosed, inasmuch as the amount owed exceeds the value of the assets owned.
Intangible Asset – These are assets that have no physical existence but merely stem from a value assigned as the acquisition cost for the purchase of a legal and or intellectual right. Examples of intangible assets include the right to use an invention, trademark, reputation, copyright,or patents. Only the purchasing party can book such rights or non-physical resources as intangible assets for value that was actually paid.
Invoice – This is the seller’s official bill or list of items or services sold or rendered and indicates the price for which the goods or services were sold and the terms and conditions for payment, whether as COD or on credit. This does not serve as official acknowledgement that payment has been received in exchange for said goods or services.
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Basic Accounting Terms - I, continued
Involuntary Bankruptcy – A condition in which a company is forced to declare bankruptcy because its creditors sought the court’s assistance in forcing the company to liquidate some of its assets in order to recover, even in part, the money owed to them.
Issued capital stock – This represents capital stock that has been previously issued but with the ownership reverted to the issuing company and classified either as treasury stock or retired from the company’s outstanding stocks, thereby excluding it from all calculations of earnings per share.
Journal Entry/Voucher – This terminology formally refers to the accounting entries posted in the general ledger books. The accounting ticket or voucher is called a journal voucher.
Jumbo Mortgage – Loans considered as “non-conforming” primarily because the amount of loan granted to the borrower exceeds the limit of that set by government- backed financing companies. Currently, the loan limit for a single family home is $417,000.
Junk Bonds – These are high-yield bonds considered high-risks investments and are rated as below Baaa/BBB, inasmuch as they were issued by companies with low credit ratings.
Land Improvements – Improvements on land refers to the edifices, houses, or building structures erected on lands, walkways, driveways, fences, and parking lots.
Lapping – A type of white-collar fraud involving misuse of funds by a person entrusted to handle cash transactions who conceals his misdemeanor by not reporting the transaction until such time that funds coming from another source will be used to cover for the previously misused funds. The cycle continues until such time that the felon is discovered.
Lapse - This word if used in accounting may denote an error or oversight or a time period that may have passed.
Lease/ Leasehold – To lease is to let or rent out a property for a specific period of time and covered by a contract while a leasehold denotes the right to occupy the property by virtue of the contract held as proof of authorization.
Leaseback – A lease arrangement wherein the seller’s ownership to the property will be reduced to a lessee status after selling the property to a buyer–in which case the seller becomes the occupant who pays periodic rental payments.
Ledger – This refers to the type of book used as an official record for summarizing accounting entries; its physical description is characterized by multiple columns. The number and size of columns depends on the accounting purpose for which the ledger is being used.
Lessee – The lessee is the party who is granted the right to occupy or use a property or equipment in exchange for monetary considerations.
Lessor – The lessor, on the other hand, is the owner of the property or asset being leased who receives monetary considerations in return for the authority given to the renter or lessee.
Liability – This refers to the amount owed or due as payments to parties external to the business.
Materiality – As an accounting principle, materiality denotes a substantial or significant effect of a particular amount to the outcome of the business’s financial condition. An accounting error is material if the resulting financial condition will mislead the users into forming an opinion that is contrary to what could have been formed had the financial statements been presented without any material errors.
Maturity/Value/Date – The term “maturity” in accounting means that an account such as a liability or a certificate of investment has reached the due date specified on the face of the corresponding instrument. The amount due is called the maturity value, which is the face value plus any unpaid interest, while the due date is referred to as the maturity date.
Merchandise Inventory – This is the term used to refer to the goods on hand and available for resale.
Money – The legal form of tender in any country or region which can be used to pay for goods or services; the term “cash” is commonly used for accounting entries.
Mortgage – This refers to a form of financing or loan granted in which the proceeds will be used to purchase a real estate property.
This Glossary of Basic Accounting Terms for Balance Sheet Accounts & Transactions continues on the next page with N.
Basic Accounting Terms - N
No-Par-Value Capital Stock – A no-par-value stock is one that has no specific amount assigned as value on the face of the instrument that serves as evidence of shareholding.
Non-Profit Organization – This refers to an entity incorporated for a civic or non-commercial purpose with no intention whatsoever to generate profits since the funds to be used in carrying out its projects will be derived from donations, dues, or voluntary contributions.
Note Receivable – A debt instrument held by the lender to serve as proof that a specific amount of money or value of goods were transferred or delivered to the borrower or buyer, on the condition that the amount due will be paid on its maturity date for a certain rate of interest.
Note Receivable Discounted –See accounts receivable discounted
Obligation – In the accounting sense, this term refers to a liability or responsibility in terms of money due to be paid on its maturity date.
Off-Balance Sheet Transactions/Activities – The balance sheet item that this term denotes is the liability account, in which a substantial amount of debt was not reflected as such but was covered up by means of off-balance sheet activities. The latter refers to bogus companies used as conduits for money laundering. They act as receiver of a loan’s proceeds and then act as the trader who will use the loan proceeds as payment for bogus deals. Money then becomes clean or becomes suitable for the purpose of the fraudulent company.
Offset – The act of using an equivalent amount or account to absorb its effect, although this is not encouraged as a regular practice in accounting entries due to its susceptibility to manipulations.
On Account – A phrase used to denote that actual payment for goods or services has not been collected but instead, the amount due is added to the outstanding balance of the buyer’s approved charge account or accounts receivable.
Originate a Loan – This aspect is established once a lending institution grants a loan.
Outstanding – This describes an amount that is still unpaid or a check issued by the company that has not yet been charged against the demand deposit account of the issuing company.
Over-the-Counter – This is a basic banking term to denote that the checks were presented for payment to the depository bank’s tellers
Overdraft – An account is said to be overdraft if the amount of clearing items received as transactions against an account, resulted to a negative balance,
Overdue – An account that has not been paid or an installment payment that has remained unpaid on the pre-agreed due date.
Owner’s Equity – See Equity: Item (c)
Partnership – In business, the term partnership refers to a mutual agreement by two or more parties to pool their resources to form a business organization, whereby each partner’s interest is determined by the proportion of his share over the total amount pooled.
Par Value –The stated value on the face of an instrument; par value is commonly used to refer to the face value of the stock.
Past Due – See definition for Overdue.
Patent – This refers to a document which serves as evidence of ownership and exclusive rights to the use, sale and disposition of an invention.
Payable –A debt or liability borne out of routine or regulatory transactions.
Payee – The person stated on the voucher or check as the recipient of the check being issued or the money being disbursed.
Payer – The issuer of the draft or check used as payment or settlement of an obligation of transaction.
Performance Bond – An assurance given by a surety or insurance company as protection of a service buyer that the services contracted shall be completed according to the specifications stated in the contract.
Personal Check – A check issued by a non-corporate entity which usually does not qualify as an acceptable form of payment for official business transactions unless there is proof that the issuer of the check is also the owner of the business.
Find the continuation of this Glossary of Basic Accounting Terms for Balance Sheet Accounts & Transactions beginning with the letter P, on the next page.
Basic Accounting Terms - P
Petty Cash – This is a small fund set up to meet the miscellaneous expenses of an office unit to avoid the use of cash derived from collections as a means to pay for incidental expenses.
Predatory Lending –The acts of lenders who take advantage of a borrower’s dire need for funds by charging exorbitant or excessive fees and unreasonably high interest rates and unwarranted charges.
Prepayment – Expense paid in advance but not yet recognized as an expenditure in view of the matching of cost and revenue principle; the prepayment is temporarily recognized as an asset and recognition is deferred once the accounting process of closing the books for the year is performed.
Principal Balance – The outstanding amount of money owed or granted as loan or as credit purchase sans the interest and charges.
Promissory Note – A contract executed by a lender and a borrower which basically contains the borrower’s promise to pay a certain sum of money for a specific rate of interest at a fixed or specific period in accordance with the terms and conditions specified by the lender, which are fully disclosed and discussed with the borrower.
Proprietary Account – This term is also known as real accounts or the accounts presented in the balance sheet since they represent the assets owned and the debts owed by the business or its owner.
Proprietorship – The ownership of a business that is not incorporated but is registered under the name of the individual who is presumed to have provided the capital to set up a business operation.
Qualified Opinion – An audit report issued by the external auditor, who cannot fully certify that the underlying elements of the financial statements that have been audited conform to the generally accepted accounting procedures, based on examinations made by way of the generally accepted auditing standards and procedures.
Quick Assets – The most liquid of an entity’s current assets, in the sense that they are money items or those that are readily convertible into cash. As book accounts, they are the first three items presented in the Balance Sheet as Cash, Accounts Receivable, and Investments in Marketable Securities.
Quick Ratio – This refers to the proportion of the current assets less the inventory against current liabilities, which is measured to determine the entity’s ability to pay its maturing debts. It is also known as quick-assets ratio or quick-acid test ratio, expressed by way of this formula: (Cash less Inventory) / Current Liabilities.
Quit Claim – A document that serves as proof of a person’s relinquishment of his rights to claim or perform any actions to claim his interests or title to a property, which gives the holder of the deed relief or release from any responsibility or liability or the right to exercise a claim if so stated.
Quote/Quoted – The use of this term in business and for accounting purposes refers to a statement of the price of a commodity or security as valuation reference for trading activities.
Random Sampling – The method of evaluating a selection or a representative or an example of a group or sector by using a scientifically established method of choosing, which allows a greater possibility for all elements of the group to be represented.
Rate – The percentage by which amounts are calculated as interest or as surcharges and are calculated in accordance with the terms and conditions known to both parties of a contract or agreement.
Real Account – See Proprietary Account or Balance Sheet Account
Rebate – This represents a reduction of price by way of discounts granted as incentive or as refund following a purchase.
Receipt – Document used to acknowledge that cash or money or anything of value was received, usually as payment or in exchange for something that is also with value.
Recession – A state of condition of decline or regression or drawback usually in an economic situation or to signify the opposite of progression.
Recourse – An alternative plan of action deemed as the only solution left.
Recover – To get back or reclaim a value that has been used or invested.
Red Flag – A warning signal that something is amiss or not right.
Find more of this Glossary of Basic Accounting Terms, continuing with R, on the next page.
Basic Accounting Terms - R, continued
Redeem / Redemption – To restore or to buy back something usually with a condition that it will yield back an additional amount to compensate for the time that the amount was exposed to some form of risk.
Refinancing – See Debt Restructuring
Refund – Payment that is returned, usually in the form of money, due to a defect or incompleteness of the goods or services for which the money was given as payment.
Regulation – A condition or principle observed or implemented as a rule with the intention of controlling a particular action to maintain legality or uniformity.
Reimbursement – To pay back an expense that should have been incurred by another person or entity but was shouldered by another using the latter’s own money.
Remittance – Payment or sending-out of money that is expected by a person or an organization by depositing it to an authorized receiving unit.
Remuneration – Financial reward given as a form of compensation, wage, or salary.
Rent – A form of payment, usually paid periodically in exchange for the use of an establishment, equipment, or tool.
Reserve/Reserve Account – Refers to a fund that is held back or kept restricted and will be used only for the purpose for which it was set up and set aside.
Residual – The portion that remains or what is left of a whole after charges or withdrawals have been applied.
Retail – A method of selling by the smallest measurable and practicable unit at a higher price than if bought in bulk or a larger measure of quantity.
Retained Earnings – The component of a company’s stockholders’ equity account where the results of the company’s yearly operations, whether as net income or loss, are in accumulation.
Returned Check – A check issued to serve as payment but returned by the depository bank to the presenter because the balance of the account from which the funds should be drawn is insufficient or is already closed; or a technicality on the face of the check must be corrected.
Return on Investment (ROI) –A cost-to-benefit analysis, in which the amount yielded by a cash outlay will be evaluated as investment worthy by considering other purposes where the money to be used will have an equal chance of gaining fewer yields but at lesser risks.
Risk – A hazard or threat that presents future losses inherent to a property, condition, or proposition.
Rollover – A deposit or investment is re-invested, and the principal and the yield earned become the new face amount of the instrument or certificate.
Roth IRA – A retirement fund distinguished from all other forms of pension fund as it adheres to the proposal of Sen. William Roth, in which the contribution made by the employee is not taxed unless pre-withdrawn before the age of official retirement. IRA stands for Individual Retirement Fund.
Safeguarding of Assets – This is the primary objective for implementing internal control systems within the organization.
Salvage Value – See Residual
Sarbanes Oxley Act (SOX) – Also known as the Public Company Accounting Reform and Investor Protection Act authored by Senator Paul Sarbanes and Representative Michael Oxley, promulgated as an offshoot of the 2002 stock market crashes brought about by the discovery of a series of white-collar fraud.
Schedule – A list detailing the important aspects of a particular account to be used as reference or to control an inventory or to provide a breakdown.
Scope – The extent or parameters by which a particular action is applied, which may refer to inclusive dates or specific area.
Scrap Value – See Residual
Share/Shareholder – Refers to the proportion held as form of ownership measured by the number of stocks subscribed and fully-paid up by the holder.
Sinking Fund – A reserve fund set aside for the sole purpose of redeeming a bond or debt instrument.
Sole Proprietor – The single owner of a business entity to which all assets and all liabilities of the business are for his account alone.
Source Document – The official record used as a basis for determining if the transaction will be included in the company’s financial records by way of accounting entries.
Statement – A report or document showing the balance of a particular account after all increases and decreases have been reflected, to show a current condition or value for a given period.
Find more of Basic Accounting Terms continuing with the letter S on the next page.
Basic Accounting Terms - S, continued
Stock Certificate – The document that serves as evidence that the holder has placed a certain amount of funds as a form of investment, which gives him the right to receive a share of the profits earned by its business in proportion to the number of stock certificates that he owns.
Stock Dividend – Representing a yield on stock investments but paid in the form of stocks.
Stock Option – A privilege granted to trade stocks at a designated price and period, usually as a form of benefit awarded by a company to its employee.
Stock Register – A book used to record all issuances in sequential and chronological order as a form of internal control measure; thus providing all details of the release or issuances.
Stockholders’ Equity – The component of a company’s balance sheet that contains the details of how much of the company’s authorized shares of stocks are fully subscribed and paid, plus the increments and reductions as a result of the business operation, summarized in the Retained Earning account
Subscribed Stock - A condition in which the company’s shares of stock are sold on an installment plan.
Subscription – The price paid to gain a right or privilege to own or use a security, commodity, facility, or service.
Subsidiary Account – It is a minor account which serves as a breakdown-unit of a mother or major account; it is maintained to properly monitor the balance of each unit.
Subsidiary Ledger – The record used for monitoring the transactions and balances of each breakdown-unit.
Substantial – An amount or value that is considered as significant or material since its effect can create a major change or alter the flow of events.
Surplus – An excess or additional value.
Suspense Account – This is a temporary account used for recording the discrepancy between the total debits and total credits, until such time that the errors have been pinpointed and adjustments have been made.
Syndicated – This denotes that a certain facility like a loan is serviced by multiple organizations or financing institutions as a means to raise a large amount of funds to be used by a single borrower; hence the borrower will also be indebted to multiple creditors for the same terms of payment, including its maturity date.
T Account – This is an accounting tool which simulates the features of a general ledger page in order to make a rough presentation of the debit and credit effects of a particular account.
Tangible Asset – Any property owned that has physical form and is used for business operations.
Template – A document which is generic in form or a spreadsheet that may have a pre-set formula imputed in each cell, used as a tool for carrying out an act or duty for purposes of expediency or to ensure compliance with the standard form.
Term Loan – An interest-bearing loan that is set to be paid within a specific period and at a specific maturity date.
Time Deposit – A bank deposit account evidenced by a certificate that is subject to interest penalty if withdrawn before the end of its term or the maturity date specified on the face of the certificate.
Treasury Bill – A government-issued certificate of indebtedness in the form of a short-term bond to earn a certain yield during its term; considered as a zero-risk investment albeit with lower yield than those traded on the capital market.
Treasury Stock – Stocks already subscribed and paid but of which the issuing company purchase and will be retired from trading. transactions.
Trial Balance – An accounting format simulating a large T-account used for testing the equality of the debit and credit balances carried in the general ledger. A resulting discrepancy denotes an imbalanced book of accounts for which transactions have to be reviewed in order to trace the cause of the discrepancy and bring the book to a balance.
Trust Fund – See Fiduciary Account
Find more of this Glossary of Basic Accounting Terms for Balance Sheet Accounts & Transactions concluding on the next page.
Basic Accounting Terms - U Through Z
Unadjusted Trial Balance – A trial balance already proven for the equality of the debit and credit balances but still incomplete as far as year-end adjusting entries are concerned.
Unencumbered – An asset owned by the company is considered unencumbered if free of any liens or deeds that attach the company’s title of ownership. Cash is unencumbered if there is no order of garnishment against the owner of the funds maintained as deposit.
Unsecured Loan – A loan is unsecured if there is no collateral requirement or if there is no deed that specifies an asset is held as collateral to serve as guarantee for the repayment of the loan.
Useful Life – It is the estimated period that an asset can be expected to serve the purpose for which it was fabricated or procured.
Valuation Account - This is the account used to summarize the accumulated cost allocations of a capitalized asset. An example of a valuation account is the accumulated depreciation, which is classified as a contra-asset account and presented in the Balance Sheet report.
Value – The worth or monetary equivalent of a product, asset, investment, or cost.
Venture Capital – Money that has been pooled and contributed by different investors to be used for investment purposes wherein the yield is expected to be high due to the largeness of the amount that was pooled.
Working Papers – A set of worksheets comprising schedules, calculations, and trial balances usually prepared during the year-end closing procedure.
Worksheet – A document containing columns and rows to allow for proper alignment of amounts for calculations; its electronic counterpart is the Excel spreadsheet.
Working Capital – The portion of the company’s available cash dedicated for business operations purposes and maintained at a specific balance.
Write-Off – A procedure that recognizes as expense the value of a particular account, already deemed as a loss because it can no longer be recovered.
Year-End Closing Procedure – The procedural accounting functions performed in connection with the closing of the current year’s general ledger, in which the nominal accounts will be zeroed-out while the proprietary accounts will be transferred to the new books.
Yield – The gain or interest expected from an investment instrument or a deposit account.
Zero – A value that is nil or without any equivalent whatsoever.
Zeroed-Out – The end-balance reflected after an accounting entry is made to offset or absorb whatever balance is reflected in the account.