Glossary
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B
Balance Sheet
— A permanent document
that is used to record what you own (assets),
what you owe (liabilities) and what you are
worth (net worth/equity) on a specific date.
Bank Overdraft
—The cash available in the
bank account is negative.
Bank Reconciliation
— A schedule that
compares, reconciles, and explains the
difference between a company’s bank statement
and its own cash accounting records.
Base-Figure
— A dollar amount that is used
for comparison when performing a vertical
analysis. It is usually total assets on the balance
sheet or revenue on the income statement.
Base-Year
— A year that is used for
comparison when performing a horizontal
analysis.
Business Entity Assumption
—The
business entity assumption states that
accounting for a business must be kept
separate from the personal affairs of its owner
or any other business.
C
Capital
— Any non-revenue transaction that
increases net worth.This is used in calculating
ending net worth.
Cash Discounts
— Discounts offered to
encourage prompt payment from customers
by offering a percentage off the final bill for
paying early.
Cash Equivalents
— A short-term
investment, usually shorter than three months
(or 90 days).They are highly liquid and can
be quickly converted into cash when needed.
Cash Flow
— Cash flowing into and out of
the bank account, which is not necessarily
directly connected to net worth.
Cash Flow Statement
— A statement
prepared to show how cash was generated
and how was used within the business.
Cash Payments Journal
—This journal is
used to record all cash payments made by
the business (e.g. rent and wages expense)
including payments made to suppliers.
Cash Receipts Journal
—This journal is
used to record all cash deposits (e.g. cash
sales) and collections from outstanding
accounts receivable.
Cash-Based Accounting
— Revenue and
expenses are recorded only when the cash is
received or paid.
Chart of Accounts
—The list of all the
accounts in the general ledger.
Classified Multistep Income Statement
—
Classified multistep income statements are a
variation of the multistep income statements
where expenses are divided into categories
such as administrative and selling expenses.
Closing Entries
— Journal entries made
to close revenues, expenses and drawings to
owner’s capital at the end of an accounting
period.
Closing the Books
—The process to update
owner’s capital and starts a new income
statement for the next accounting period.
Common Shares
— Shares of a corporation
that give ownership and the right to vote for
directors executives.
Comparability
— Comparability means that
the financial statements of a company must
be prepared in a similar way year after year, or
between accounting periods.
