In accounting, to journalize means to record financial transactions in a journal, such as the general journal, as a part of the accounting process.
A judgment sample is a determination by an auditor, based on personal experience and familiarity with the client, of the number of items, as well as the particular items, to be examined in a population. This function allows the accountant to maintain objectivity and thoroughness in testing the sampled items for accuracy.
Judgment sampling is a non-statistical method where an auditor selects a sample based on experience and assessment, rather than using statistical techniques. While practical, it doesn't allow inferences for the larger population.
Last In, First Out (LIFO) is a method used in inventory management and accounting that prioritizes the most recently added inventory for distribution or recording first.
A method of valuing units of raw material or finished goods issued from stock by using the latest unit value for pricing the issues until all the quantity of stock received at that price is used up.
A ledger is a collection of accounts of a similar type, traditionally maintained in a large book or, in modern systems, as computer records. Common types of ledgers include the nominal ledger, debtors' ledger, and creditors' ledger.
A ledger account is a record in a ledger where all the financial transactions pertaining to a specific person, item, or activity (such as a debtor or stock item) are documented.
A liability is an obligation that a company needs to settle in the future, generally in the form of economic benefits such as money. Liabilities often result from past transactions and play a crucial role in a company's financial health by representing what it owes.
LIFO (Last-In-First-Out) is an inventory valuation method where the most recently produced items are considered sold first.
Linear depreciation involves writing off a constant amount of an asset's value every year, resulting in a straight-line graph when the depreciation expense is plotted against time.
Long-term liabilities are any financial obligations or debt that are not payable on demand or within one year. These can include loans, bonds payable, mortgages, and other financial obligations.
Long-term liabilities are financial obligations of a company that are due more than one year in the future. Examples include bonds payable, long-term loans, and lease obligations.
In accounting, a loss is the amount by which the expenses of a transaction or operation exceed the income produced.
Loss carryback is a tax strategy that allows businesses to apply a net operating loss (NOL) from a current year to offset income from previous years, typically up to three years. This can result in a tax refund for taxes paid in those previous years.
A lump-sum purchase involves the acquisition of two or more assets for one consolidated price, with the acquisition cost allocated to each asset based on their relative fair market values.
The matching concept in accounting requires that expenses be matched with the revenues they generate within the same accounting period, ensuring accurate financial reporting.
Materials cost is the expenditure incurred by an organization on direct or indirect materials. The expenditure on direct materials is part of the direct cost of sales, whereas the expenditure on indirect materials is categorized as manufacturing overhead.
A Materials Returns Note (MRN), also known as a Stores Returns Note (SRN), is a document used to record the return of materials to the store. Similar to a materials requisition, it is considered a prime document used to debit stock and credit expenditure.
A memorandum entry in accounting is a record in the ledger that does not form part of the double-entry bookkeeping system. These entries are used to provide additional details or supporting information without affecting the financial statements.
Minimum lease payments refer to the regular rental payments excluding executory costs, which are made by the lessee to the lessor in a capital lease. These payments are reported as an asset and a liability at the discounted value of future minimum lease payments by the lessee.
Miscellaneous Income refers to revenue that is unrelated to and much smaller than that from the main business operation. It usually originates from incidental or auxiliary activities.
MACRS is a depreciation method introduced in 1986 to calculate tax depreciation for property placed in service after its inception. It allows businesses to recover the cost basis of certain property more quickly, by assigning longer lives for personal property and offering conventions for calculation.
MACRS is a depreciation system in the USA designed to encourage capital investment by businesses. It enables a quicker recovery of an asset's cost by allowing greater depreciation deductions in the earlier years of an asset's life.
Monetary assets and liabilities represent specific sums of money that are either receivable or payable, captured in a company's financial statements, including cash, bank balances, loans, debtors, and creditors.
A fiscal year that aligns with the natural cycle of a given business rather than the calendar year, often ending when inventories and activities are at their lowest level.
Net denotes an amount remaining after specific deductions have been made. Net profit before taxation, for instance, is the profit made by an organization after the deduction of all business expenditure but before the deduction of the taxation charge.
Net Asset Value (NAV) is a measure used to value a mutual fund or an exchange-traded fund (ETF) and represents the market value of these investment assets minus their liabilities, typically expressed on a per-share basis.
Net Assets represent the total assets of an organization minus its liabilities and are crucial for evaluating the financial position and stability of a company.
Net Book Value (NBV) represents the carrying value of an asset on a company's balance sheet, calculated by subtracting accumulated depreciation or amortization from its original cost. It reflects the current value of a company's assets for accounting and investment decision purposes.
Net earnings, also known as net income, represent the total profit of a company after all expenses and taxes have been deducted from total revenue. It is a crucial indicator of profitability.
Net loss occurs when a company's total expenses exceed its total income for a specific period, such as a fiscal quarter or year.
Net proceeds refer to the amount received from the sale or disposition of property, from a loan, or the sale or issuance of securities after the deduction of all costs incurred in the transaction.
Net purchases refer to the total amount spent on purchases after accounting for returns, allowances, and discounts. This metric is crucial for businesses in tracking the actual cost of goods that remain in stock.
An essential liquidity measure that determines if a business can meet its short-term obligations with its most liquid assets.
The effective interest rate on a loan resulting from dividing the interest by the actual proceeds received. For instance, on a $1,000 discounted loan with a 10% interest rate, the net interest would be $100/$900 = 11.1%.
Net Realizable Value (NRV) represents the estimated selling price of an asset in the ordinary course of business, minus any predictable costs associated with the completion and sale of the asset. It is a critical metric in inventory valuation and accounting practices, ensuring realistic asset values are reflected in financial statements.
Net Realizable Value (NRV) is the estimated selling price of goods, services, or assets minus any costs associated with making the sale, including completion and disposal costs.
Net Realizable Value (NRV) is the net amount that an entity expects to realize from the sale of an asset after deducting any costs involved in its sale or disposal.
Net Sales refers to the revenue that remains after deducting returns and allowances, freight out, and cash discounts allowed from the gross sales.
Net yield is the return on an investment after all expenses, taxes, and costs have been subtracted. It provides a more accurate measure of an investment's profitability than gross yield.
The net-investment method, often used in international accounting, is a technique applied to translate a foreign subsidiary's financial statements into the parent company's currency. This method helps in adjusting for fluctuating exchange rates and provides a consistent basis for valuation of the subsidiary’s net assets.
New UK Generally Accepted Accounting Practice (UK GAAP) refers to the financial reporting standards that replace previous UK GAAP standards and align more closely with International Financial Reporting Standards (IFRS) while considering the specifics of UK companies.
A foundation used to calculate a company's earnings per share (EPS) focusing only on the constant elements in the company's tax charge; often contrasted with net basis.
In the USA and Canada, stock (shares) that have no par value or assigned value printed on the stock certificate, thus avoiding contingent liabilities and simplifying accounting entries.
The nominal ledger, also known as the general ledger, contains the nominal accounts and real accounts necessary to prepare the financial statements of an organization. It differs from personal ledgers, such as debtors' and creditors' ledgers, which contain the accounts of customers and suppliers respectively.
Non-purchased goodwill, also known as inherent goodwill, is the value of a company's brand, customer base, employee relations, and other intangible elements that are not acquired through purchase.
The normal operating cycle is the period required to convert cash into raw materials, raw materials into inventory finished goods, finished goods inventory into sales and accounts receivable, and finally, accounts receivable back into cash.
Normal wear and tear refer to the physical depreciation arising from the age and ordinary use of a property. Understanding this concept is critical in fields such as accounting, real estate, and property management.
A not-for-profit organization (NFP) is an entity formed for purposes other than generating a profit and where no part of the organization's income is distributed to its members, directors, or officers.
A Note Receivable is a financial instrument representing a written promise from a debtor to pay a specified sum of money to the creditor at a future date or on demand.
A note or note payable is a written document that acknowledges a debt and contains a promise to pay a specified sum to a certain party by a certain date. Maturity terms can be definite or become definite over time.
An obligation is a commitment undertaken by a person or entity to adhere to the conditions defined in a contract or to repay a specified debt.
Off the balance sheet (OBS) refers to financial transactions where the property involved does not appear on the company’s balance sheet. This technique is often used to keep debt-to-equity ratios lower and manage financial reporting more favorably.
Off-balance-sheet (OBS) refers to assets or liabilities that do not appear on a company's balance sheet but potentially have a significant impact on the company's financial health.
In various contexts such as accounting, banking, printing, and securities, the term 'offset' refers to actions or functions intended to counterbalance or neutralize other actions or amounts. It is used differently across diverse fields, reflecting its versatile nature.
This term refers to a partial payment of an obligation or an arrangement of credit terms between a seller and a buyer, where payment is expected at a later date and is not documented by a promissory note.
Oncost refers to the additional costs incurred beyond the direct expenses associated with employing personnel or handling and storing direct materials. These include wages oncost as well as materials and stores oncost.
Opening entries are unique journal entries created when a business starts up, capturing all assets, liabilities, and owners' equity as a beginning point for accounting records.
The operating cycle is the average period of time between acquiring inventory and receiving cash from its sale, reflecting the time required for a business to turn its investments into cash flows.
Any activities undertaken by an organization as part of its business, along with related undertakings, incidental activities, and arising events, typically included within routine operations.
An original entry error is a mistake made in a book of prime entry such as a purchase incorrectly entered in the purchase day book, which is not revealed by a trial balance.
In accounting, an originating timing difference refers to the initial recognition of a difference between the carrying amount of an asset or liability and its tax base that will result in taxable or deductible amounts in future periods.
Other Comprehensive Income (OCI) represents gains and losses that are not included in net income on the income statement but are reported in the equity section of the balance sheet.
An Outstanding Balance is the amount of money currently owed on a debt. This figure represents the total unpaid portion of a loan, credit card, or other financial liability at any given time.
Difference between the initially recorded store sales figures and the actual cash or audited figure, often caused by human error in making change or recording sales slips.
The term 'over-and-short' is frequently used in accounting to indicate discrepancies between recorded amounts and actual amounts, usually involving cash or inventory.
Overhead cost absorbed refers to the overhead costs allocated to the actual production during a period, calculated by multiplying actual production by the budgeted overhead absorption rate.
The Profit and Loss (P & L) account is a financial statement summarizing the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.
Padding refers to the practice of adding unnecessary material or expenses for the purpose of increasing the size or volume, such as padding an expense account to increase the company's reimbursement.
A paper trail encompasses the physical or digital documentation that records the sequence of activities and transactions, serving as a crucial mechanism for tracking and verifying the authenticity of business processes and financial records.
A Partner's Drawing is the amount withdrawn by a partner from the firm for personal use. These drawings are typically made against the partner’s share of profit or capital in the business.
A payee is an individual or entity to whom a debt is payable or to whose order a bill, note, or check is made payable, thus playing a crucial role in financial transactions.
A payee statement is a required tax information statement that indicates the amount paid to a payee, including various types of income and withholding details.
Payment in advance, also known as prepayment, is a transaction in which a payment for goods or services is made before the actual delivery. It is often used to mitigate credit risk or secure services and goods ahead of time.
Payroll is the aggregate periodic amount a business pays its workers and a list of employees along with their compensation.
The payroll period is the interval of time for which an employer ordinarily pays wages to employees. The amount of withholding varies depending on the payroll period.
Penalties for repeated errors are imposed to discourage consistent inaccuracies in tax filings or financial reports. These penalties serve as a deterrent for habitual mistakes and ensure compliance with legal standards.
Per annum, a Latin term meaning 'each year' or 'annually,' is used across various fields to denote the yearly occurrence or rate of an event.
Period expenses, also known as period costs, are amounts based on the passage of time and are considered to occur within a specific accounting period, such as rent on a building.
A perpetual inventory system continuously tracks and records the amount of inventory in stock, allowing companies to maintain accurate and up-to-date inventory records at all times.
Personal accounts are used to record transactions with individuals or entities, such as debtors and creditors. These accounts are essential for managing relations and obligations with people and organizations.
A detailed document that provides an individual's financial health using often the accrual basis of accounting.
A personal ledger is an accounting record containing a summary of all transactions related to individuals or specific entities such as debtors and creditors.
Petty cash is the amount of money in the form of notes or coins that an organization keeps on its premises to pay for small expenses.
A Petty Cash Book is a ledger used to record small or minor financial transactions that occur within a business, typically managed through an imprest system.
A petty cash fund is a small reserve of cash that an organization uses for making small, unexpected payments. Petty cash vouchers document each transaction.
Physical Inventory, also known as a physical stock check, is the process of counting the physical balance of stock items at a particular time to facilitate stocktaking under systems like inventory control or continuous stocktaking.
The term 'Placed in Service' refers to the date when property is in a state of readiness and is available for a specific use. This is a critical concept in accounting and taxation, as it determines the start of depreciation or amortization for the asset.
POST in accounting refers to transferring accounting entries from a journal of original entry into a ledger book in chronological order. Banks traditionally posted checking account deposits and withdrawals in a ledger and summarized these transactions on a monthly bank statement. Nowadays, such operations are computerized.
A Post-Closing Trial Balance is prepared after closing entries are recorded and posted, ensuring that beginning balances for the next accounting period are accurate and free of temporary accounts.
To insert a date on a document that is later than the date on which it is signed, making it effective only from the later date. A post-dated (or forward-dated) cheque cannot be negotiated before the date written on it, irrespective of when it was signed.
A postdated check is a check written by the payer for a date in the future. It is not negotiable until the specified date becomes current.
The Preclosing Trial Balance is an internal financial statement used to ensure that total debits equal total credits before the financial books are closed for the accounting period.
Prepaid expenses refer to amounts that are paid prior to the period they cover, such as insurance and rent. These expenses are assets on the balance sheet and become tax deductible during the appropriate period.
The present value (PV) of an annuity is the current value of a series of future payments, discounted at a specific interest rate over a specific number of periods. It is a fundamental concept in finance and accounting, allowing individuals and businesses to evaluate the worth of future payments in today's terms.
Prime documents are the foundational elements used to initiate and record accounting entries in both accounting and management accounting systems. They include documents such as sales invoices, materials requisitions, materials returns notes, and direct charge vouchers.
The term 'principal' in accounting can refer to either the initial sum of money on which interest is paid or to a person who has authorized another to act on their behalf, especially in the context of an agency relationship.
A prior period adjustment is an accounting term used to describe a correction to an error in previously issued financial statements. These adjustments are necessary to accurately reflect the financial status of a company or organization.
Prior service cost refers to the obligations a company incurs for employee benefits under a pension plan related to service provided by the employee before a specific date.
Pro Forma refers to the presentation of financial data that adheres to a specific format and often includes hypothetical or projected numbers to provide a basis for analysis and planning.
