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ABOVE THE LINE - in accounting, denotes revenue and
expense items that enter fully and directly into the calculation
of periodic net income, in contrast to below the line items that
affect capital accounts directly and net income only indirectly.

ACCOUNT - is the detailed record of a particular asset,
liability, owners' equity, revenue or expense.

ACCOUNTING EQUATION - is a mathematical expression
used to describe the relationship between the assets,
liabilities and owner's equity of the business model. The basic
accounting equation states that assets equal liabilities and
owner's equity, but can be modified by operations applied to
both sides of the equation, e.g., assets minus liabilities equal
owner's equity.

ACCOUNTING PERIOD - is the time period for which
accounts are prepared, usually one year.

ACCOUNTS PAYABLE (AP) - are trade accounts of
businesses representing obligations to pay for goods and
services received.

ACCOUNTS RECEIVABLE - is a current asset representing
money due for services performed or merchandise sold on
credit.

ACCRUAL - is the recognition of revenue when earned or
expenses when incurred regardless of when cash is received
or disbursed.

ACCRUED EXPENSES - are expenses incurred during an
accounting period for which payment is postponed.

ADJUSTING ENTRIES - are special accounting entries that
must be made when you close the books at the end of an
accounting period. Adjusting entries are necessary to update
your accounts for items that are not recorded in your daily
transactions.

BAD DEBT - is an open account balance or loan receivable
that has proven to be uncollectible and is written off.

BALANCE SHEET - is an itemized statement that lists the total
assets and the total liabilities of a given business to portray its
net worth at a given moment of time. The amounts shown on a
balance sheet are generally the historic cost of items and not
their current values.

BANK RECONCILIATION - is the verification of a bank
statement balance and the depositor’s checkbook balance.

BELOW THE LINE - in accounting, denotes credits or debits
affecting balance sheet accounts rather than the income
statement. Extraordinary items may also appear below the net
profit line in the income statement, but accounting standards-
setters have increasingly favored reflecting most such items in
periodic net income.

CAPITAL ASSET - is a long-term asset that is not purchased
or sold in the normal course of business. Generally, it
includes fixed assets, e.g., land, buildings, furniture,
equipment, fixtures and furniture.

CAPITALIZED COSTS - are business expenses that are
written off or deducted over a period of time through
depreciation or amortization schedules.

CASH - is money, in the form of notes and coins, which
constitutes payment for goods at the time of purchase.

CASH BASIS OF ACCOUNTING - is the accounting basis in
which revenue and expenses are recorded in the period they
are actually received or expended in cash. Use of the cash
basis generally is not considered to be in conformity with
generally accepted accounting principles (GAAP) and is
therefore used only in selected situations, such as for very
small businesses and (when permitted) for income tax
reporting.

CHART OF ACCOUNTS - is a list of ledger account names
and associated numbers arranged in the order in which they
normally appear in the financial statements. The Chart of
Accounts are customarily arranged in the following order:
Assets, Liabilities, Owners' Equity (Stockholders' Equity for a
corporation), Revenue, and Expenses.

CLOSING ENTRY - is a journal entry at the end of a period to
transfer the net effect of revenue and expense items from the
income statement to owners' equity.

CREDIT - in accounting, is an accounting entry system that
either decreases assets or increases liabilities; in general, it is
an arrangement for deferred payment for goods and services.

DEBIT - is a record of an indebtedness; specifically : an entry
on the left-hand side of an account constituting an addition to
an expense or asset account or a deduction from a revenue,
net worth, or liability account.

DEPRECIATION - is the amount of expense charged against
earnings by a company to write off the cost of a plant or
machine over its useful live, giving consideration to wear and
tear, obsolescence, and salvage value. If the expense is
assumed to be incurred in equal amounts in each business
period over the life of the asset, the depreciation method
used is straight line (SL). If the expense is assumed to be
incurred in decreasing amounts in each business period over
the life of the asset, the method used is said to be
accelerated. Two commonly used variations of the
accelerated method of depreciating an asset are the sum-of-
years digits (SYD) and the double-declining balance (DDB)
methods. Frequently, accelerated depreciation is chosen for a
business' tax expense but straight line is chosen for its
financial reporting purposes.

DOUBLE-ENTRY ACCOUNTING - is a system of recording
transactions in a way that maintains the equality of the
accounting equation. The accounting technique records each
transaction as both a credit and a debit. Double-entry
bookkeeping (DEB) or accounting was developed during the
fifteenth century and was first recorded in 1494 as a system
by the Italian mathematician Luca Pacioli.

EARNED INCOME - is that income realized by the
provisioning of goods and services.

EFFECTIVE INTEREST RATE - is the cost of credit on a
yearly basis expressed as a percentage. Includes up-front
costs paid to obtain the loan, and is, therefore, usually a
higher amount than the interest rate stipulated in the note.

EQUITY - is, normally, ownership or percentage of ownership
in a company or items of value.

FIFO (first-in, first-out) - is an inventory cost flow whereby
the first goods purchased are assumed to be the first goods
sold so that the ending inventory consists of the most recently
purchased goods.

FINISHED GOODS INVENTORY - is that portion of goods in
inventory which have completed manufacture and are
available for sale.

FISCAL YEAR - is the declared accounting year for a
company, but it is not necessarily in conformance to a
calendar year (January through December). However, it does
cover twelve months, 52 weeks, 365 days.

FIXED ASSETS - are those assets of a permanent nature
required for the normal conduct of a business, and which will
not normally be converted into cash during the ensuring fiscal
period. For example, furniture, fixtures, land, and buildings
are all fixed assets. However, accounts receivable and
inventory are not. Sometimes called PLANT.

GENERAL LEDGER - is the record of all account entries.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP) - is a recognized common set of accounting
principles, standards, and procedures. GAAP is a combination
of accepted methods of doing accounting and policy board
set authoritative standards.

GROSS PROFIT - is net sales minus cost of sales.

GROSS SALES - is the total revenue at invoice value prior to
any discounts or allowances.

HISTORICAL COST ACCOUNTING - is an accounting
principle requiring all financial statement items to be based on
original cost. It is usually based upon the dollar amount
originally exchanged in an arm's-length transaction; an
amount assumed to reflect the fair market value of an item at
the transaction date.

INCOME - is money received by a person or organization
because of effort (work), or from return on investments.

INTANGIBLE ASSET - is an asset that is not physical in
nature. Examples are things like copyrights, patents,
intellectual property, or goodwill. An intangible asset is the
opposite of tangible asset.

INTEREST EXPENSE - is the cost of borrowing funds in the
current period. It is shown as a financial expense item within
the income statement.

INVENTORY - for companies: includes raw materials, items
available for sale or in the process of being made ready for
sale (work in process); for securities: it is securities bought
and held by a broker or dealer for resale.

INVOICE - is a detailed list of goods shipped or services
rendered, with an account of all costs; an itemized bill.

JOB COSTING - generally, it is the allocation of all time,
material and expenses to an individual project or job;
specifically, JOB COSTING is normally software based and
provides for budgeting, forecasting, collecting and reporting
on the expenditure and revenue associated with specific
projects or jobs.

JOURNAL ENTRY - is the beginning of the accounting cycle.
Journal entries are the logging of business transactions and
their monetary value into the t-accounts of the accounting
journal as either debits or credits. Journal entries are usually
backed up with a piece of paper; a receipt, a bill, an invoice,
or some other direct record of the transaction; making them
easy to record and to maintain traceability for each
transaction.

LEDGER - is a book of accounts in which data from
transactions recorded in journals are posted and thereby
classified and summarized.

LIABILITY - in accounting, is a loan, expense, or any other
form of claim on the assets of an entity that must be paid or
otherwise honored by that entity.

LIFO (last-in, first-out) - is an inventory cost flow whereby
the last goods purchased are assumed to be the first goods
sold so that the ending inventory consists of the first goods
purchased.

LONG-TERM LIABILITIES - are liabilities of a business that
are due in more than one year. An example of a long-term
liability would be a mortgage payable.

MARKUP - is the amount added to the cost of goods in order
to produce the desired profit.

MISCELLANEOUS INCOME - is that income realized that is
not directly related to the sale of standard products and
services.

NET BOOK VALUE - is the current book value of an asset or
liability; i.e., its original book value net of any accounting
adjustments such as depreciation.

NET INCOME - is the difference between a businesses total
revenue and its total expenses. This caption and amount is
usually found at the bottom of a company's Profit and Loss
statement. Same as Net Profit.

NOTES PAYABLE - are all note obligations, including bank
and commercial paper. Does not include trade notes payable.

NOTES RECEIVABLE - is a debt due from borrowers
evidenced by a written promise of payment. Note receivable,
an entry on the asset side of many corporate balance sheets,
indicates the dollar amount of loans due to be repaid by
borrowers.

OPENING BALANCE - is the balance of an account at the
start of an accounting period.

OPERATING EXPENSES - is all selling and general &
administrative expenses. Includes depreciation, but not
interest expense.

OPERATING INCOME - is revenue less cost of goods sold
and related operating expenses that are applied to the day-to-
day operating activities of the company. It excludes financial
related items (i.e., interest income, dividend income, and
interest expense), extraordinary items, and taxes.

OTHER INCOME - is income from activities that are not
undertaken in the ordinary course of an entity's business.

OVERHEAD - is the costs associated with providing and
maintaining a manufacturing or working environment. For
example: renting the building, heating and lighting the work
area, supervision costs and maintenance of the facilities.
Includes indirect labor and indirect material.

OVERHEAD RATE - is calculated by totaling all your expenses
for one year, excluding labor and materials, and then divide
this number by your total cost of labor and materials.

PERPETUAL INVENTORY - is an inventory accounting
system whereby book inventory is kept in continuous
agreement with stock on hand. A daily record is maintained of
the dollar amount and physical quantity. There are periodic
physical inventories taken to reconcile at short intervals.

PETTY CASH - normally, is an account and location where
tangible cash is stored for usage in purchasing or the
reimbursing of inexpensive out-of-pocket expenditures.

PHYSICAL INVENTORY - is the counting of all merchandise
or equipment on hand.

PREPAID EXPENSES - are amounts that are paid in advance
to a vender or creditor for goods and services. Typically,
insurance premiums are paid in advance of the coverage
contained in the policy. Prepaid Expenses is a Current Asset
for your business. This is because you have paid for
something and someone owes you the service or the goods
for which you prepaid.

PROFIT AND LOSS STATEMENT (P&L) - is also known as an
income statement. It shows your business revenue and
expenses for a specific period of time. The difference between
the total revenue and the total expense is your business net
income. A key element of this statement, and one that
distinguishes it from a balance sheet, is that the amounts
shown on the statement represent transactions over a period
of time while the items represented on the balance sheet
show information as of a specific date (or point in time).

RECONCILIATION - is the adjusting of the difference between
two items (e.g., balances, amounts, statements, or accounts)
so that the figures are in agreement.

RETAINED EARNINGS - are profits of the business that have
not been paid out to the owners as of the balance sheet date.
The earnings have been "retained" for use in the business
(Retained Earnings is an account in the equity section of the
balance sheet). It is comprised of the balance, either debit or
credit, of appropriated or unappropriated earnings of an entity
that are retained in the business. NOTE: Appropriated
earnings are not available for dividends, but may be used to
reduce a deficit or may be transferred to stated capital. Other
appropriations of profits require a vote of the shareholders.

REVENUE - is the inflows of assets from selling goods and
providing services to customers; including the reduction of
liabilities from selling goods and providing services to
customers.

SHORT TERM ASSET - is an asset expected to be converted
into cash within the normal operating cycle (usually one year),
e.g. accounts receivable and inventory.

SHORT TERM LIABILITY - is a liability that will come due
within one year or less.

SUSPENSE ACCOUNT - in accounting, is an account that is
used on a temporary basis for receipts, disbursements, or
discrepancies until such time as the analysis is complete and
they can be properly classified.

T-ACCOUNT - is the basis for journal entry in accounting. T-
accounts have three basic elements. A title, a left side (debit
side) and a right side (credit side). To make an entry in a t-
account, put the currency (dollar, pound, etc.) amount on the
appropriate side (debit or credit). There are five basic types
of accounts: assets, liabilities, equity, revenue and expenses.
Assets, liabilities and equity are the balance sheet accounts.

TRANSACTION - is an event or happening that changes
financial position and/or earnings.

TRIAL BALANCE - is a listing of the accounts in your general
ledger and their balances as of a specified date. A trial
balance is usually prepared at the end of an accounting
period and is used to see if additional adjustments are
required to any of the balances. Since the basic accounting
system relies on double-entry bookkeeping, a trial balance will
have the same total debit amount as it has total credit
amounts.

UNREALIZED INCOME - (paper profit) is profit which has
been made but not yet realized or collected through a
transaction, such as a stock which has risen in value but is
still being held. also called unrealized gain or unrealized profit
or paper gain or book profit.

VARIABLE COSTS - are those costs associated with
production that changes directly with the amount of
production, e.g.,the direct material or labor required to
complete the build or manufacturing of a product.

VARIANCE -, in accounting, is the difference between a
projected number and the actual number, e.g. 1. a budget
variance is spending either more or less from the amount that
was budgeted; and 2. a cost variance is the difference
between actual cost and standard cost in the categories of
direct material, direct labor, and direct overhead.

WRITE-DOWN - is the reduction in the book value of an asset.

ZERO BASED BUDGET - is where the expenses or costs of
the prior year are not taken into consideration when
establishing expense or budgetary levels looking forward.
Each expense category starts from zero. All expenses or cost
levels within the budget must be justified or re-justified as
being necessary; thus “zero-base”.