Business / Accounting Glossary

Above The Line: This term can be applied to many aspects of accounting. It means transactions, assets etc., that are associated with the everyday running of a business. See below the line .

Account: A section in a ledger devoted to a single aspect of a business (eg. a Bank account, Wages account, Office expenses account).

Account Payable: An amount owed to a supplier for good or services purchased on credit: payment is due within a short time period, usually 30 days or less.

Account Receivable: A current asset representing money due for services performed or merchandise sold on credit.

Account Receivable Turnover: A measure used to determine a company's average collection period for receivables: computed by dividing net sales (or net credit sales) by average accounts receivable.

Accounting: A service activity designed to accumulate, measure, and communicate financial information about economic entities for decision-making purposes.

Accounting Cycle: This covers everything from opening the books at the start of the year to closing them at the end. In other words, everything you need to do in one accounting year accounting wise.

Accounting Equation: The formula used to prepare a balance sheet: assets = liability + equity .

Accounting Model: The basic accounting assumptions, concepts, principles, and procedures that determine the manner of recording, measuring, and reporting an entity's transactions.

Accounting System: The set of manual and computerized procedures and controls that provide for identifying relevant transactions or events: preparing accurate source documents, entering data into the accountin . . . View Full Definition

Accounts Payable: An account in the nominal ledger which contains the overall balance of the Purchase Ledger.

Accounts Payable Ledger: A subsidiary ledger which holds the accounts of a business's suppliers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the purcha . . . View Full Definition

Accounts Receivable: An account in the nominal ledger which contains the overall balance of the Sales Ledger.

Accounts Receivable Ledger: A subsidiary ledger which holds the accounts of a business's customers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the sales ledger.

Accretive: If a company acquires another and says the deal is 'accretive to earnings', it means that the resulting PE ratio (price/earnings) of the acquired company is less than the acquiring company. . . . View Full Definition

Accrual Basis: Gross income is recognized when earned.

Accrual Method Of Accounting: Most businesses use the accrual method of accounting (because it is usually required by law). When you issue an invoice on credit (ie. regardless of whether it is paid or not), it is treated . . . View Full Definition

Accrual-Basis Accounting: A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.

Accruals: If during the course of a business certain charges are incurred but no invoice is received then these charges are referred to as accruals (they 'accrue' or increase in value). A typical exam . . . View Full Definition

Accrued Expenses: Expenses that arise through adjusting entries when accounting for unrecorded expenses.

Accrued Liabilities: Liabilities that arise through adjusting entries when accounting for unrecorded liabilities.

Accumulated Depreciation: The total depreciation recorded on an asset since its acquisition: a contra account deducted from the original cost of an asset on the balance sheet.

Accumulated Depreciation Account: This is an account held in the nominal ledger which holds the depreciation of a fixed asset until the end of the asset's useful life (either because it has been scrapped or sold). It is cred . . . View Full Definition

Acid-Test Ratio (Or Quick Ratio): A measure of a firm's ability to meet current liabilities: more restrictive than the current ratio, it is computed by dividing net quick assets (all current assets, except inventories and pr . . . View Full Definition

Adjusted Gross Income: An individual taxpayer's total income minus deductions (adjustments) for individual retirement plan contributions and alimony paid.

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