Glossary
Account Payable - Amount owed to a creditor for delivered goods or completed services.
Account Receivable - Claim against a debtor for an uncollected amount, generally from a completed transaction of sales or services rendered.
Accounting - Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the financial statements.
Accrual Basis - Method of accounting that recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid.
Budget - Financial plan that serves as an estimate of future costs and revenues.
Cash Basis - Method of bookkeeping by which revenues and expenditures are recorded when they are received and paid.
Creditor - Party that loans money or other assets to another party.
Current Asset - Asset that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, or within a year if more than one cycle is completed each year.
Current Liability - Obligation whose liquidation is expected to require the use of existing resources classified as current assets, or the creation of other current liabilities.
Debt - General name for money, notes, bonds, goods or services which represent amounts owed.
Debtor - Party owing money or other assets to a creditor.
Double-Entry Bookkeeping - Method of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting. Total debits must equal total credits.
Equity - Residual interest in the assets of an entity that remains after deducting its liabilities.
Expenditure – Payment to a vendor, either in cash, by assuming a liability, or by surrendering assets.
Expenses - The daily costs incurred in running a business.
Fair Market Value - Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.
Fiscal Year - Period of 12 consecutive months chosen by an entity as its accounting period which may or may not be a calendar year.
Generally Accepted Accounting Principles (GAAP) - Conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. The highest levels of such principles are set by the Financial Accounting Standards Board (FASB).
Gross Income – Total income before any expenses are subtracted.
Income - Inflow of revenue during a period of time.
Interest - Payment for the use or forbearance of money.
Inventory - Tangible property held for sale, or materials used in a production process to make a product.
Investment - Expenditure used to purchase goods or services that could produce a return to the investor.
Liability - Debts or obligations owed by one entity (Debtor) to another entity (Creditor) payable in money, goods, or services.
Loss - Excess of expenditures over revenue for a period or activity.
Net Assets - Excess of the value of cash, securities owned, receivables, and other assets over the liabilities of the company.
Net Income - Excess of revenues and gains compared with total expenses and losses for an accounting period.
Repairs - Expenditures which are made in order to keep property in good condition but that do not appreciably prolong the life of or increase the value of the property.
Revenues - Sales of products, merchandise, and services; and earnings from interest, dividends, rents.
Self Employment Tax - Most individuals that are in business for themselves, such as sole proprietors, partners or independent contractor, are subject to self employment taxes. The taxes provide coverage for the self employed individual for social security and Medicare benefits similar to the taxes withheld by employers from wages paid to employees.
Sole Proprietorship – A business entity owned by an individual or married couple.
Tangible Asset - Assets having a physical existence, such as cash, land, buildings, machinery, or claims on property, investments or goods in process.