Accelerated Depreciation

Method that records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years
and less depreciation than straight-line in the later years of an ASSET'S HOLDING PERIOD.

Account

Formal record that represents, in words, money or other unit of measurement, certain resources,
claims to such resources, transactions or other events that result in changes to those resources and
claims.

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.

Accountable Plan

Any reimbursement or other expense allowance arrangement of an employer that meets all of the
following requirements (therefore excluding it from gross w-2 EARNED INCOME and tax): (1) it
provides reimbursements advances or allowances including per diem and meals, to employees for
any job related deductible business expense; (2) employees must be able to substantiate expenses
covered in the plan; (3) employee must return any excess advances or payments.

Accountant

Person skilled in the recording and reporting of financial transactions.

Accountants' Report

Formal document that communicates an independent accountant's: (1) expression of limited

assurance on FINANCIAL STATEMENTS as a result of performing inquiry and analytic procedures
(REVIEW REPORT); (2) results of procedures performed (AGREED-UPON PROCEDURES REPORT); (3)
non-expression of opinion or any form of assurance on a presentation in the form of financial
statements information that is the representation of management (COMPILATION REPORT); or (4)
an opinion on an assertion made by management in accordance with the Statements on Standards
for Attestation Engagements (ATTESTATION REPORT). An accountants' report does not result from
the performance of an AUDIT.

Accounting

Recording and reporting of financial transactions, including the origination of the transaction, its
recognition, processing, and summarization in the FINANCIAL STATEMENTS.
Accounting Change

Change in (1) an accounting principle; (2) an accounting estimate; or (3) the reporting entity that
necessitates DISCLOSURE and explanation in published financial reports.

Accounting Cycle

The sequence of steps followed in the accounting process to measure business transactions and
transform the measurements into FINANCIAL STATEMENTS for a specific period.

Accounting Principles Board (APB)

Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

(AICPA) which issued pronouncements on accounting principles from 1959-1973. The APB was
replaced by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Accounts Payable Subsidiary Ledger

A financial record of an individual ACCOUNT PAYABLE in which entries can be made daily.

Accounts Receivable Turnover

Used to measure a company’s ability to collect cash from credit customers. Found by dividing net
sales by average net ACCOUNT RECEIVABLE.

Accrual

The recognition of an expense or revenue that has occurred but has not yet been recorded.

Accrual Accounting

The attempt to record the financial effects of transactions and other events in the periods in which
those transactions or events occur rather than only in the periods in which cash is received or paid
by the business, using all the techniques developed by accountants to apply the MATCHING
PRINCIPLE.

Accrual Basis

Method of ACCOUNTING that recognizes REVENUE when earned, rather than when collected.
Expenses are recognized when incurred rather than when paid.

Accrued Expense

An expense that has occurred but is not recognized in the accounts.

Accrued Interest
INTEREST that has accumulated between the most recent payment and the sale of a BOND or other
fixed-income security.

Accumulated Depreciation

Total DEPRECIATION pertaining to an ASSET or group of assets from the time the assets were placed
in services until the date of the FINANCIAL STATEMENT or tax return. This total is the CONTRA
ACCOUNT to the related asset account.

Accumulation

Profits that are not paid out as DIVIDENDS but are instead added to the company’s capital base.

Acid-Test Ratio

The relationship of a company’s current assets that can be converted into cash to its current
liabilities. It is determined by dividing QUICK ASSETS by current liabilities.

Acquisition

One company taking over controlling interest in another company.

Actuary

Mathematician employed by an insurance company to calculate PREMIUMS,

RESERVES, DIVIDENDS, and insurance, PENSION, and ANNUITY rates, using risk factors obtained
from experience tables.

Additional Paid in Capital

Amounts paid for stock in excess of its PAR VALUE or STATED VALUE. Also, other amounts paid by
stockholders and charged to EQUITY ACCOUNTS other than CAPITAL STOCK.

Adjusted Basis

After a taxpayer's basis in property is determined, it must be adjusted upward to include any
additions of capital to the property and reduced by any returns of capital to the taxpayer. Additions
might include improvements to the property and subtractions may
include depreciation or depletion. A taxpayer's adjusted basis in property is deducted from the
amount realized to find the gain or loss on sale or disposition.

Adjusted Gross Income

Gross income reduced by business and other specified expenses of individual taxpayers. The
amount of adjusted gross income affects the extent to which medical expenses, non business
casualty and theft losses and charitable contributions may be deductible. It is also an important
figure in the basis of many other individual planning issues as well as a key line item on
the IRS form 1040 and required state forms.
Adjusted Trial Balance

A trial balance prepared after all adjusting entries have been recorded and posted to the accounts.
Should have equal credit and debit totals.

Adjusting Journal Entry

An accounting entry made into a subsidiary ledger called the General journal to account for a
periods changes, omissions or other financial data required to be reported "in the books" but not
usually posted to the journals used for typical period transactions (the cash receipts
journal, cash disbursements journal, the payroll journal, sales journal and so on) the entry is posted
to the general ledger accounts directly and usually will be numbered itself, dated and have an
explanation. Example: AJE# 1 12-31-2003, debit Cash in bank $1,000. Credit interest income $1,000,
to record interest income on business bank account at year end, not recorded in cash receipts
journal but credited by the bank. (Cross-reference bank reconciliation and account where it was
found)

ADR

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership.

Adverse Opinion

Expression of an opinion in an AUDITORS' REPORT which states that FINANCIAL STATEMENTS do

not fairly present the financial position, results of operations and cash flows in conformity
with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Affiliated Company

Company, or other organization related through common ownership, common control

of management or owners, or through some other control mechanism, such as a long-term LEASE.

Agency Fund

Fund consisting of ASSETS where the holder agrees to remit the assets, income from the assets, or
both, to a specified beneficiary in due course or at a specified time.

AICPA

National professional membership organization that represents practicing CERTIFIED PUBLIC

ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards
for other services performed by its members. Through committees, it develops guidance for
specialized industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD
(FASB) and the GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting
principles.

Allocate

To set aside for a specific reason.

Allowance for Doubtful Accounts

A contra-asset account used to reduce ACCOUNTS RECEIVABLE to the amount that is expected to be
collected in cash.

Alternative Dispute Resolution

An alternative to formal litigation which includes techniques such as arbitration, mediation, and a
non-binding summary jury trial.

Alternative Minimum Tax (AMT)

Tax imposed to back up the regular income tax imposed on CORPORATION and individuals to
assure that taxpayers with economically measured income exceeding certain thresholds pay at
least some income tax.

American Depository Receipt (ADR)

Receipts for shares of foreign company stock maintained by an intermediary indicating ownership.

American Institute of Certified Public Accountants (AICPA)

National professional membership organization that represents practicing CERTIFIED PUBLIC

ACCOUNTANTS (CPAs). The AICPA establishes ethical and auditing standards as well as standards
for other services performed by its members. Through committees, it develops guidance for
specialized industries. It participates with the FINANCIAL ACCOUNTING STANDARDS BOARD
(FASB) and the GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB) in establishing accounting
principles.

Amortization

Gradual and periodic reduction of any amount, such as the periodic writedown of
a BOND premium, the cost of an intangible ASSET or periodic payment Of MORTGAGES or
other DEBT.

AMT

Tax imposed to back up the regular income tax imposed on CORPORATION and individuals to
assure that taxpayers with economically measured income exceeding certain thresholds pay at
least some income tax.

Analyst

Person in a brokerage house, bank trust dept., or mutual fund group who studies a number of
companies and makes buy or sell recommendations on the securities of particular companies and
industry groups.

Analytical Procedures
Substantive tests of financial information which examine relationships among data as a means of
obtaining evidence. Such procedures include: (1) comparison of financial information with
information of comparable prior periods; (2) comparison of financial information with anticipated
results (e.g., forecasts); (3) study of relationships between elements of financial information that
should conform to predictable patterns based on the entity's experience; (4) comparison of
financial information with industry norms.

Annual Report

Report to the stockholders of a company which includes the company's annual,

audited BALANCE SHEET and related statements of earnings, stockholders' or
owners' equity and cash flows, as well as other financial and business information.

Annuity

Series of payments, usually payable at specified time intervals.

Anti-Dilution

Condition that may increase the computation of EARNINGS PER SHARE (EPS) or decrease loss per
share solely because of the inclusion of COMMON STOCK equivalents, such as STOCK OPTIONS,
WARRANTS, convertible DEBT or convertible PREFERRED STOCK, nomination or selection of the
independent AUDITORs.

APB

Senior technical committee of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

(AICPA) which issued pronouncements on accounting principles from 1959-1973. The APB was
replaced by the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB).

Appreciation

Increase in the value of an ASSET such as a stock, BOND, commodity, or real estate.

Assembly of Financial Statements

The providing of various accounting or data-processing services by an accountant, the output of

which is in the form of financial statements ostensibly to be used solely for
internal management purposes.

Assertion

Explicit or implicit representations by an entity's management that are embodied in

financial statement components and for which the AUDITOR obtains and evaluates evidential
matter when forming his or her opinion on the entity's financial statements.

Asset
An economic resource that is expected to be of benefit in the future. Probable future economic
benefits obtained as a result of past transactions or events. Anything of value to which the firm has
a legal claim. Any owned tangible or intangible object having economic value useful to the owner.

Asset Turnover

A way of measuring how profitably and efficiently assets are being used to produce sales. This is
determined by dividing net sales by average total assets.

At Par

At a price equal to the face, or nominal, value of a security.

Audit

A professional examination of a company’s financial statement by a professional accountant or

group to determine that the statement has been presented fairly and prepared using GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

Audit Documentation

The written record of the basis for the AUDITOR's conclusions that provides the support for the
auditor's representations, whether those representations are contained in the auditor's report or
otherwise. (May be referred to as work papers or working papers).

Audit Engagement

Agreement between a CPA firm and its client to perform an AUDIT.

Audit Risk

The risk that the AUDITOR may unknowingly fail to modify appropriately his or her opinion
on financial statements that are materially misstated.

Audit Sampling

Application of an AUDIT procedure to less than 100% of the items within an account BALANCE or
class of transactions for the purpose of evaluating some characteristic of the balance or class.

Auditing Standards

Guidelines to which an AUDITOR adheres. Auditing standards encompass the auditor's professional
qualities, as well as his or her judgment in performing an AUDIT and in preparing the AUDITORS'
REPORT. Audits conducted by independent CERTIFIED PUBLIC ACCOUNTANT (CPA) usually in
accordance with GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), which consist of standards
approved and adopted by the membership of the AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS (AICPA).
Auditor

Person who AUDITS financial accounts and records kept by others. Includes both
public accounting firms registered with the PCAOB and associated persons thereof.

Auditors' Report

Written communication issued by an independent CERTIFIED PUBLIC ACCOUNTANT

(CPA) describing the character of his or her work and the degree of responsibility taken.
An auditors' report includes a statement that the AUDIT was conducted in accordance
with GENERALLY ACCEPTED AUDITING STANDARDS (GAAS), which require that the AUDITOR plan
and perform the audit to obtain reasonable assurance about whether the FINANCIAL
STATEMENTS are free of material misstatement, as well as a statement that the auditor believes
the audit provides a reasonable basis for his or her opinion.

Authorized Shares

Maximum number of shares of any class a company may legally create under the terms of its
articles of incorporation.

Average Days’ Inventory On-Hand

The average number of days required to sell the current inventory of products available for sale. It
is found by dividing the number of days in a year by inventory turnover.

Average Days’ Sales Uncollected

A ratio that shows the average length of time it takes a company to receive payment
for credit sales.

Average-Cost Method

A way of arriving at the cost of inventory that computes the average cost of all goods available for
sale during a fixed period in order to determine the value of inventory.

Backup Withholding

Payors of interest, dividends and other reportable payments must withhold income tax equal at a
rate equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id # or if
they fail to certify that they are not subject to it.

Bad Debt

All or portion of an ACCOUNT, loan, or note receivable considered to be uncollectible.

Balance
Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the
basis of ACCOUNTING used in its preparation and presentation of a specified date the entity's
ASSETS, LIABILITIES and the EQUITY of its owners. Also known as a STATEMENT OF FINANCIAL
CONDITION.

Bank Reconciliation

A process by which an accountant determines whether and why there is a difference between
the balance shown on the bank statement and the balance of the cash account in the
firm’s GENERAL LEDGER.

Bank Statement

A periodic statement, usually monthly, that a bank sends to the holder of a

checking account showing the balance in the account at the beginning of the month, during, and at
the end of the month.

Bankruptcy

Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are
liquidated after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS.
During bankruptcy, the debtor's assets are held and managed by a court appointed TRUSTEE.

Base Market Value

Average market price of a group of securities at a given time.

Beginning Inventory

The quantity of merchandise available for sale at the beginning of an ACCOUNTING period.

Bequest

Legal process, governed by federal statute, whereby the DEBTS of an insolvent person are
liquidated after being satisfied to the greatest extent possible by the DEBTOR'S ASSETS.
During bankruptcy, the debtor's assets are held and managed by a court appointed TRUSTEE.

Beta Coefficient

Measure of a stock’s relative volatility. The beta is the covariance of a stock in relation to the rest of
the stock market.

Bid and Asked

Bid is the highest price a prospective buyer is prepared to pay at a particular time for a
trading unit of a given SECURITY; asked is the lowest price acceptable to a prospective seller of the
same security. The difference between the prices is the SPREAD.
Blue Sky Laws

State laws that regulate the ISSUANCE of SECURITIES. These laws are coordinated with federal acts.

Board of Directors

Individuals responsible for overseeing the affairs of an entity, including the election of its officers.
The board of a CORPORATION that issues stock is elected by stockholders.

Bond

One type of long-term PROMISSORY NOTE, frequently issued to the public as a SECURITY regulated
under federal securities laws or state BLUE SKY LAWS. Bonds can either be registered in the owner's
name or are issued as bearer instruments.

Bond Discount

The amount below PAR VALUE that a BOND sells for.

Bond Indenture

An additional agreement to a BOND issue that defines the rights, privileges, and limitations of
BONDHOLDERS.

Bondholder

A person who owns a BOND certificate issued by a government or CORPORATION.

Book Value

Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE
SHEET of acompany. Also known as CARRYING VALUE.

Bookkeeping

The process of recording financial transactions and keeping financial records.

Boot

The non technical term used by some to describe any cash or other property that is received in
exchange of property that would be otherwise nontaxable.

Bottom Line

The line in a FINANCIAL STATEMENT that shows NET INCOME or LOSS.

Break-Even Point

The point at which TOTAL REVENUES equals TOTAL COSTS.

Break-Even Units

The number of units of a product that must be sold before a company makes enough money to pay
for direct and indirect costs of making the product.

Budget

Financial plan that serves as an estimate of future cost, REVENUES or both.

Burden Rate

Standard rate multiplied by a level of activity to determine the OVERHEAD cost of that activity.
Activity measures include LABOR or machine hours.

Business Combinations

Combining of two entities. Under the PURCHASE METHOD OF ACCOUNTING, one entity is deemed
to acquire another and there is a new basis of accounting for the ASSETS and LIABILITIES of the
acquired company. In a POOLING OF INTERESTS, two entities merge through an exchange
of COMMON STOCK and there is no change in the CARRYING VALUE of the assets or liabilities.

Business Segment

Any division of an organization authorized to operate, within prescribed or otherwise established

limitations, under substantial control by its own management.

Buyout

Purchase of at least a controlling percentage of a company’s stock to take over its ASSETS and
operations.

Bylaws

Collection of formal, written rules governing the conduct of a CORPORATION'S affairs (such as what
officers it will have, what their responsibilities are, and how they are to be chosen). Bylaws are
approved by a corporation's stockholders, if a stock corporation, or other owners, if a non-stock
corporation.

Cafeteria Plan

A benefit plan maintained by an employer for the benefit of the employees under which each
participant has the opportunity to select the benefits they desire. Certain minimum choices and
nondiscriminatory rules apply.

Call Loan

Loan repayable on demand. Also known as DEMAND LOAN.

Call Price

A specified price, usually above face value, at which a CORPORATION may, at its option, buy back
and retire BONDS before maturity.

Callable

Redeemable by the issuer before the scheduled maturity.

Callable Instrument

BOND which accords an issuer the right to redemption before it is due.

Capital Asset Pricing Model (CAPM)

Sophisticated model of the relationship between expected risk and expected return.

Capital Expenditure

Outlay of money to acquire or improve capital assets such as buildings and machinery.

Capital Gain

Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not
taxed as ORDINARY INCOME. Capital gains have historically been taxed at a lower rate than
ordinary income.

Capital Projects Funds

Funds used by a not-for-profit organization to account for all resources used for the development of
a land improvement or building addition or renovation.

Capital Stock

Ownership shares of a CORPORATION authorized by its ARTICLES OF INCORPORATION. The

money valueassigned to a corporation's issued shares. The BALANCE SHEET account with the
aggregate amount of the PAR VALUE or STATED VALUE of all stock issued by a corporation.

Capitalize

Convert a schedule of INCOME into a principal amount, called capitalized value, by dividing by a
rate of INTEREST.

Capitalized Cost

Expenditure identified with goods or services acquired and measured by the amount of cash paid
or the market value of other property, CAPITAL STOCK, or services surrendered. Expenditures that
are written off during two or more accounting periods.
Capitalized Interest

INTEREST cost incurred during the time necessary to bring an ASSET to the condition and location
for its intended use and included as part of the HISTORICAL COST of acquiring the asset.

Capitalized Lease

LEASE recorded as an ASSET acquisition accompanied by a corresponding LIABILITY by the LESSEE.

CAPM

Sophisticated model of the relationship between expected risk and expected return.

Carrying Value

Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE
SHEET of a company. Also known as BOOK VALUE.

Carryovers

Provision of tax law that allows current losses or certain tax credits to be utilized in the tax returns
of future periods..

Cash

ASSET account on a balance sheet representing paper currency and coins, negotiable money orders
and checks, bank balances, and certain short-term government securities.

Cash Account

Brokerage firm account whose transactions are settled on a cash basis.

Cash Basis

Method of bookkeeping by which REVENUES and

Accrued Income Journal Entries

As accrued income pertains to the current accounting period, therefore it must be considered as
current year income.

Following journal entries can be made:

Accrued Income A/c Dr.

To Income A/c

(For recording of accrued income)

Accrued income A/c is positioned on the asset side of a balance sheet. During the preparation of
Trading and Profit and Loss account, this accrued income is added to the particular income.
Accrued Income Examples

Accrued income concept can be explained better with the following example.

A company ABC supplies solar power to a locality and charges each household ₹6000 per 6 months.
While the company receives no payment for six months, the company still reports ₹1000 debit to
accumulated profit and ₹1000 revenue credit per month.

When payment in cash is received for the service after six months, a ₹6000 credit in the amount of
the full payment is made to accrued income and a ₹6000 debit is made to cash. The accrued
income balance returns to zero for the customer.

This was all about the concept of Accrued Income, which is considered an important topic of
Accountancy for Commerce students. For more such interesting topics, stay tuned to BYJU’S.

Understanding Accrued Expenses

Accrued expenses or liabilities occur when expenses take place before the cash is paid. The expenses
are recorded on an income statement, with a corresponding liability on the balance sheet. Accrued
expenses are usually current liabilities since the payments are generally due within one year from the
transaction date.

Some typical cases of accrued expenses include:

• Goods and services have been consumed, but bills have not yet been received.

• The utility is consumed in one month, and the bill is received in the next month.

• Salaries are not paid to employees until the end of the payment period.

At the end of each recording period, a company should properly estimate the dollar amount for each
of its accrued expenses, and then record it as an expense account with a corresponding
payable/accrued expense liability.

The format of the journal entry is shown below:

Accrued expenses example

For example, a company consumes $5,000 utility in February. The expense for the utility consumed
remains unpaid on the balance day (February 28). The company then receives its bill for the utility
consumption on March 05 and makes the payment on March 25.