Glossary of Accounting Terms

Matching Concept: The concept behind accrual accounting that holds that revenue should be recognized at the same time as related expenses are incurred.

Materiality: A threshold amount accountants utilize in deciding if adjustments are needed to particular accounts.

Money Market Investments: A short-term, highly liquid debt security, including commercial paper and U.S. Treasury obligations.

Notes Payable: A liability account reflecting amounts owed from an unconditional written promise to pay a certain sum of money upon demand or at a fixed or determinable time.

Notes Receivable: An asset account reflecting amounts owing from an unconditional written promise to pay a certain sum of money on demand or at a fixed or determinable time.

Notes to the Financial Statements: The summary of significant accounting policies and other disclosures required for a fair presentation of the financial statements in conformity with generally accepted accounting principles (GAAP) which are in addition to and not included on the face of the financial statements. The notes to the financial statements are in integral part of the financial statements.

Overhead: Those elements of cost necessary in the production of a good or service which are not directly traceable to the product or service. These costs usually relate to expenditures that do not become an integral part of the finished product or service, such as rent, utilities, management, and supervision.

Partnership: A form of unlimited liability firm with more than one owner.

Par Value: In the case of bonds, the amount of principal that must be paid at maturity. Par value is referred to as the face value of the security.

Periodic Inventory Method: A method of recording inventory purchases that reflects adjustments to the inventory account only at the end of an accounting period.

Perpetual Inventory Method: A method of recording inventory purchases that changes the inventory account only at the end of an accounting period.

Petty Cash: A sum of money set aside for making change or paying small obligations when the issuance of a check would be too expensive and time consuming.

Posting: The process of transferring transaction information recorded in books of original entry to general ledger “T” accounts.

Prepaid Expenses: A firm’s payment for goods and services to be provided at some later time.

Price Index: A method of comparing the purchasing power of money over different time periods.

Profit: The excess of revenues over expenses.

Purchase Order: A document that authorizes the delivery of specified merchandise or the rendering of certain services.

Replacement Cost: The amount of cash or other consideration that would be required today to obtain the same asset or its equivalent.

Retained Earnings: Undistributed profits of a corporation.

Retainers: A form of deferred revenue collected by attorneys, accounts and other professionals.

Revenue: Cash or receivables received from customers or clients in exchange for goods and services provided.

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