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Key Accounting Terms

The document provides a list of key accounting terms including assets, liabilities, equity, revenue, expenses, gains and losses. It defines current and non-current assets as well as current and long-term liabilities. The four basic financial statements and their order of preparation are also outlined.

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Laura Tai
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34 views3 pages

Key Accounting Terms

The document provides a list of key accounting terms including assets, liabilities, equity, revenue, expenses, gains and losses. It defines current and non-current assets as well as current and long-term liabilities. The four basic financial statements and their order of preparation are also outlined.

Uploaded by

Laura Tai
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Key Terms:

The following is a quick list of key accounts that are part of the vocabulary that is
essential in accounting. This is not meant to be a complete list.

Assets ​–Economic resources that a company owns or has the right to collect

Current Assets – Assets that are going to liquidate in less than a year
Cash​– Money that is on hand or in the bank.

Accounts Receivable (A/R)–​ Amount owed to a company for goods previously


sold or services previously provided.

Prepaid Expenses – ​Expenses that a company has paid for in advance. E.g. An
annual insurance policy paid for in advance.

Notes Receivable –​ Loan that a company has issued and has the right to collect.
Please note that this could be short-term or long-term. A note receivable is
different from an account receivable because notes have interest associated with
them.

Inventory –​ Goods that a company will sell. Please note that a service company
does not have inventory. E.g. The cost that Foot Locker incurred to stock its
stores with shoes.

Non-Current Assets – Assets that are going to be used in more than a year

Property, Plant, & Equipment (PP&E) –​ Any type of property that is owned and
will be depreciated over the course of its useful life. E.g. computers, cars,
buildings.

Land – ​Real Estate. This is not depreciated; however, the building on the land
would be depreciated.

​ ssets that have economic value that cannot be touched. E.g.


Intangible Assets- A
Patent or Trademark

Liability ​– ​An economic resource that is owed.

Current Liabilities – Liabilities that are due within a year.

Accounts Payable (A/P) -​ ​ ​ Amount that must be paid because a good or service
has been previously delivered or performed.
Accrued Expenses –​ Unrecorded expenses that have been incurred. These are
adjusted for at the end of a period. E.g. A company that has used electricity but
has not received its electric bill yet.

Note Payable ​– Loan that must be paid back. Please note that the difference
between a note payable and account payable is that a note has interest associated
with it. Notes payable could be short term or long term.

Unearned Revenue ​– An obligation that must be completed before revenue is


recorded. In this case, cash is typically received in advance and a company has an
obligation to provide a service. E.g. The insurance company that receives a
prepayment from a customer must provide insurance to the customer.

Long Term Liabilities – Liabilities that are due in more than a year

Stockholders’ Equity​-The financing provided by the owners and operations of a


company

Contributed Capital – G​ eneral term to indicate cash or other assets provided by


the owners to the business

Common Stock​ - Shares of a corporation are issued, typically in exchange for


cash. Please note, the value of the common stock account is equal to the number
of shares issued multiplied by the par value of the stock.

Paid-In-Capital in Excess of Par ​- The difference between the cash raised at the
issuance of stock and the par value of the common stock. ​Note: This is also
called Additional Paid-in Capital

Retained Earnings ​– Cumulative earnings of a company that are not distributed to


the owners of the business and are reinvested. Please note that this is ​not ​cash. It
is calculated by taking the sum of historical net income minus the sum of
historical dividends.

Accounts Associated with the Income Statement:


Net Income = Total Revenue minus Total Expenses + Total Gains - Total Losses

Revenue​ – Sales earned through the course of operations.

Expenses ​– General term to indicate decreases in assets or increases in liabilities


from ongoing operations incurred to generate revenues during the period.
Cost of Goods Sold (COGS) –​ A specific expense that represents the Cost
of the inventory sold to earn revenue. Please note that only merchandising or
manufacturing companies have COGS.

Gains – ​The amount by which the sales price of an investment or property is


greater than the book value of investment or property. Note: This is not revenue
as gains occur on items that are not normally sold through daily operations. E.g.
Verizon selling a company truck for more than the listed book value.

Losses- ​The amount by which the sales price of an investment or property is less
than the book value of investment or property. Note: This is not an expense as
losses occur on items that are not normally sold through daily operations. E.g.
Verizon selling a company truck for less than the listed book value.

Additionally, please remember that Assets = Liabilities + Owners’ Equity.


Debits increase assets. Debits decrease liabilities and owners’ equity accounts
Credits decrease assets. Credits increase liabilities and owners’ equity accounts

For T – Accounts, Debits = Left and Credits = Right.

For journal entries, debits must always equal credits.

Remember: The financial statements are prepared in the following order:


1) Income Statement*
2) Statement of Stockholders’ Equity
a) The Statement of Retained Earnings is part of the Statement of
Stockholders’ Equity.
3) Balance Sheet
4) Statement of Cash Flows

*If you read a company’s 10k, you may see the Statement of Comprehensive
Income. This is out of the scope of this course.

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