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Common Accounting Terminology Glossary Account An account is a record used to properly classify the activity recorded in the General

Ledger. Account balance An account balance is the sum of debit entries minus the sum of credit entries in an account. If positive, the difference is called a debit balance; if negative, a credit balance. Accounting: Accounting is recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the financial statements. Accounts Payable Accounts Payable is an amount owed by the college for delivered goods or completed services. Accounts Payable is a liability. ertain e!penses are paid through Accounts Payable, see What is an Expense above. Accounts Receivable Account "eceivable is an amount owed to the college from a completed transaction of sales or services rendered. #or e!ample$student account balances. Accounts "eceivable is an asset. Accrual Basis Accrual basis is a method of accounting that recognizes revenue when earned, rather than when collected and e!penses when incurred rather than when paid. %he college uses the accrual basis for its accounting. Asset An asset is what the college owns. #or e!ample$ land, property, buildings, e&uipment, cash in ban' accounts, other investments and accounts receivable. Audit An audit is a formal e!amination and official endorsement of the accuracy of the financial statements of the college by an independent certified public accountant ( PA). *ased on GAAP and #A+* rules the college is re&uired to have an audit performed each fiscal year. Audited financial statements are available on the ontroller,s -ffice website at. http.// ABC Analysis. Activity based costing ,an inventory method where by firms e!ercise different degree of control over different items of inventories depending upon their cost and rate of moving. Abnormal cost : It is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained. Absolute cost : It is the total cost of any product or process. #or e.g.. in a cost sheet, both absolute cost and cost per unit are depicted. Absorption costing : It is the techni&ue of assigning all costs i.e. both fi!ed and variable, to the respective product/service. Actual Cost. An amount determined on the basis of cost incurred including standard cost properly ad1usted for applicable variance.

Administrative cost : It is the indirect cost pertaining to the administrative function which involves formulation of policies, directing the organisation and controlling the operations of an underta'ing. Avoidable Cost: A cost associated with an activity that would not be incurred if the activity were not performed. Balance Sheet A *alance +heet is a summary report of the college,s assets, liabilities and fund balance (net assets) on a specific date. Budget A budget is an estimate of activity for a fiscal year or period. A budget can be created for a department or a pro1ect. Batch costing: This method of costing is used where small parts/components of the same 'ind are re&uired to be manufactured in large &uantities. 2ere a batch of similar products is treated as a 1ob and the cost of such a 1ob is ascertained. Budgeted cost: ost or &uantitative e!pression of ob1ectives and a means of monitoring progress towards achievement of those ob1ectives for a specific period. Committed cost: It is a fi!ed cost which results from decisions of prior period and is not sub1ect to managerial control in the present. 3!amples of committed cost are depreciation, insurance premium and rent. Common Cost: %he cost of resources employed 1ointly in the production of two or more outputs and the cost cannot be directly traced to any one of those outputs. Contract costing : If a 1ob is very big and ta'es a long time for its completion, then the method appropriate for costing is called contract costing. 2ere the cost of each contract is ascertained separately. It is suitable for firms engaged in erection activities li'e construction of bridges, roads, buildings, dams etc. Contribution centres : Profit centres whose e!penditure are reported on a marginal cost basis, are called contribution centres. Controllable cost : %he cost, which can be influenced by the action of a specified person in an organisation, is 'nown as controllable cost. Conversion cost : It is the cost incurred for converting the raw material into finished product. It comprises of direct labour cost, direct e!penses and factory overheads. Cost: ost represents the amount of e!penditure (actual or notional) incurred on or attributable to a given thing. It represents the resources that have been or must be sacrificed to attain a particular ob1ective. Cost absorption :It is the process of absorbing the overhead costs (indirect costs) allocated to or apportioned over a particular cost centre.

Cost Accounting Practice: Any disclosed or established accounting method or techni&ue which is used for measurement of cost, assignment of cost to accounting periods, and assignment of cost to cost ob1ects. Cost Driver: Any factor that causes a change in the cost of an activity or output. #or e!ample, the &uality of parts received by an activity, or the degree of comple!ity of ta! returns to be reviewed. Cost allocation : ost allocation refers to the allotment of whole items of costs to cost centres. Cost apportionment : It is the process of distributing an item of cost over several cost centres or cost units Cost Assignment: A process that identifies costs with activities, outputs, or other cost ob1ects. In a broad sense, costs can be assigned to processes, activities, organizational divisions, products, and services. Cost centre. ost centre is the smallest organisational sub$unit for which separate cost collection is attempted. It is defined as a location, a person or an item of e&uipment (or group of these) for which cost may be ascertained and used for the purpose of cost control. Cost unit: A cost unit is defined as a unit of &uantity of product, service or time (or a combination of these) in relation to which costs may be ascertained or e!pressed. ost units are usually units of physical measurement li'e number, weight, time, area, length, volume etc. Cost of Goods Sold ost of Goods +old ( G+) is the cost of items purchased for resale. #or e!ample$the boo'shop purchases te!tboo's to sell in the boo'shop, 4n ommon Grounds buy rolls that will be used to ma'e sandwiches that will be sold in 4n ommon Grounds. Credit A credit is an entry on the right side of a double$entry accounting system that represents the reduction of an asset or e!pense or the addition to a liability or revenue. Debit A debit is an entry on the left side of a double$entry accounting system that represents the addition of an asset or e!pense or the reduction to a liability or revenue. Double !ntry Accounting 5ouble$entry accounting is a method of recording financial transactions in which each transaction is entered in two or more accounts and involves two$way, self$balancing posting. %otal debits must e&ual total credits. %he college uses this method of accounting. Differential cost: 5ifference in the total cost between alternatives calculated to assist decision ma'ing and represents the change in total cost (both fi!ed and variable) due to a change in the level of activity, technology, process or method of production, etc. Distribution cost : It is the cost of the se&uence of operations which begins with ma'ing the pac'ed product available for despatch and ends with ma'ing the reconditioned returned empty pac'age, if any available, for re$use.

Direct cost :5irect cost is that cost which can be identified with a cost centre or a cost unit. #or e.g. cost of direct materials, cost of direct labour. Direct costing : 4nder direct costing, a unit cost is assigned only the direct cost, i.e., all the direct costs are charged to the relevant operations, products or processes. Direct "abour : Labour which can be attributed wholly to a particular product, process or 1ob is called direct labour. #or eg. labour employed in the crushing department of an oil mill. Direct #aterials : 6aterials which are present in the finished product or can be identified in the finished product are called direct materials. #or eg. coconuts in case of coconut oil or wood in a wooden cupboard. Direct !$penses : 3!penses incurred (e!cept direct materials and direct labour) specifically for a product, process or 1ob is 'nown as direct e!penses. %hey are also called 7chargeable e!penses7. #or eg. hiring charges for a machine. Discretionary cost: It is an 7escapable7 or 7avoidable7 cost. In other words, it is that cost which is not essential for the accomplishment of a particular ob1ective. Decision driven cost: It is that cost which is incurred following a policy decision and continues to be incurred till that decision is altered. It does not vary with changes in output or with operational activities. !conomic order %uantity: %he level of inventory order that minimises total cost associated with inventory management& !stimated cost : It is an appro!imate assessment of what the cost will be. It is based on past data ad1usted to anticipated future changes. !$pired cost: osts which cannot contribute to the production of future revenues. !$pense An e!pense is funds paid by the college. #or e!ample$paychec's to employees, reimbursements to employees, payments to vendors for goods or services. 'ASB #A+* stands for #inancial Accounting +tandards *oard which is an independent, private, non$ governmental authority for the establishment of accounting principles in the 4nited +tates. 'inancial Statements #inancial +tatements are a series of reports showing a summary view of the various financial activities of the college at a specific point in time. 3ach statement tells a different story about the financial activity of the college. 'iscal (ear A fiscal year is a period of 89 consecutive months chosen by an entity as its accounting period which may or may not be a calendar year. %he college,s fiscal year is :une 8st to 6ay ;8st.

'i$ed Asset A fi!ed asset is any tangible item with a useful life of more than one year and a unit cost of <=,>>> or more. #or e!ample$campus buildings and ma1or e&uipment. A fi!ed asset is an asset. 'und Balance )net assets* #und balance represents the net assets of the college. %o arrive at this number ta'e total assets minus total liabilities. Any e!cess revenue over e!penses or cumulative appreciation or depreciation on investments will become a net asset at the end of the fiscal year. '+',: 6ethod (of process costing) the method of cost assignment that computes an average cost per e&uivalent unit of production for the current period; 'eeps beginning inventory units and costs separate from current period production and costs. 'i$ed cost : #i!ed cost is that cost which remains constant at all levels of production. #or e.g. rent, insurance& GAAP GAAP stands for Generally Accepted Accounting Principles which are conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. %he highest levels of such principles are set by #A+*. General "edger %he general ledger is the collection of all asset, liability, fund balance (net assets), revenue and e!pense accounts. -istorical Costing : It is the ascertainment of costs after they have been incurred. %his costing is based on recorded data and the cost arrived at are verifiable by past events. +ncome Statement An Income +tatement is a summary report that shows revenues and e!penses over a specific period of time, typically a month, &uarter or fiscal year. +ndirect cost : ost which cannot be identified with a particular cost centre or cost unit is called indirect costs. #or e.g. wages paid to indirect labour. +ndirect !$penses : 3!penses incurred other than direct e!penses are called indirect e!penses. #or eg. factory rent ? insurance, power, general repairs. +ndirect "abour : Labour which cannot be identified with a particular product, is called indirect labour. #or eg. maintenance wor'ers. process or 1ob

+ndirect #aterials : Indirect materials are those materials which do not normally form part of the finished products or which cannot be directly traced to the finished product. #or eg. stores, oil, grease, cotton wool etc. +mpersonal cost centre : consisting of a location or an item of e&uipment +mputed . /otional cost : Imputed cost is that cost which does not involve any cash outlay. %hough it is a hypothetical cost, it is relevant for decision ma'ing. Interest on capital, the payment for which is not actually made, is an e!ample of imputed cost.

+nventoriable . Product cost : It is the cost which is assigned to the product. +nvestment centres : entres which are responsible for earning an optimum return on investments are termed as investment centres. +rrelevant cost: %hey are not relevant cost and are not affected by management action. 0ob Costing : A 1ob card is prepared for each 1ob to accumulate costs. %he cost of the 1obs is determined by adding all the costs against the 1ob when it is completed. %his method of costing is used in printing press, foundries, motor$ wor'shops, advertising etc. 0oint cost: +t is the cost of the process which results in more than one main product. 0ournal !ntry A 1ournal entry is a group of debit and credit transactions that are posted to the general ledger. All 1ournal entries must net to zero so debits must e&ual credits. "iability A liability is what the college owes. #or e!ample$loans, ta!es, payables, long term debt from a bond issue, funds held by the college for a third party such as a student group. "abour efficiency variance: %he number of hours actually wor'ed minus the standard hours allowed for the production achieved multiplied by the standard rate to establish a value for efficiency (favorable) or inefficiency (unfavorable) of the wor' force. "abor mi$ variance:I t presents the financial effect associated with changing the proportionate amount of higher or lower paid wor'ers in production. @(actual mi! Aactual hours A standard rate) $ (standard mi! A actual hours A standard rate); "abor rate variance: %he actual rate (or actual weighted average rate) paid to labor for the period minus the standard rate multiplied by all hours actually wor'ed during the period; "abor yield variance : It shows the monetary impact of using more or fewer total hours than the standard allowed @ (standard mi! A actual hours A standard rate) $(standard mi! A standard hours A standard rate)1 #anaged . Policy cost: It is that cost which is incurred as a matter of policy eg. " ? 5 cost. It arises from periodic (usually annual) decisions regarding the ma!imum outlay to be incurred and %his cost is not tied to a cause and effect relationship between input and output. #arginal cost: It is the amount at any given volume of output by which aggregate cost changes if the volume of output changes increases/decreases) by one unit. #arginal Costing: 4nder marginal costing, marginal cost is ascertained by differentiating between fi!ed and variable costs. 6arginal costing is of great importance in case of short$term decision ma'ing. #i$ed cost: change& osts that are neither perfectly variable nor absolutely fi!ed in relation to volume

#ultiple Costing : It is a combination of two or more methods of costing mentioned above. +uppose a firm manufactures bicycles, including its components, the parts will be costed by way of batch costing but the cost of assembling the bicycle will be done by unit costing. %his method is also called composite costing. +ome other industries using this method of costing are those manufacturing B radios, automobiles, aeroplanes etc. /ormal cost : It is the cost which is normally incurred at a given level of output, under the conditions in which that level of output is normally attained. /on controllable cost: %hey cannot be directly administered/ ac&uired at a given level of management. /et +ncome )loss* Cet Income (loss) is the amount the college, a department or a pro1ect made or lost for a specific period of time. %o arrive at this number ta'e total revenues minus total e!penses. ,perating Costing : %he method of costing used in service rendering underta'ings is 'nown as operating costing. ,pportunity cost: ost of benefits foregone from re1ecting the ne!t best alternative in favour of the best option available. ,ut of poc2et cost: %hese are cost that re&uires current or future cash e!penditures as a result of a decision. ,verhead : -verhead is the sum total of indirect materials, indirect labour and indirect e!penses. It can be Production / Dor's overhead, Administrative overhead, +elling overhead, 5istribution overhead. Period cost : It is the cost which is not assigned to the product but is charged as an e!pense against the revenue of the period in which it is incurred. Personal cost centre : ost centre consisting of a person or a group of persons Post ponable cost : It is that cost which can be shifted to the future with little or no effect on the efficiency of the current operations. Pre determined cost : It is the cost which is computed in advance, before the production starts, on the basis of specification of all the factors affecting the cost. Pre production cost : It is that part of the development cost which is incurred for the purpose of a trial run, before the commencement of formal production. Prime cost : Prime cost is the aggregate of direct material cost, direct labour cost and direct e!penses. Prime cost percentage rate: 3stimated overhead divided by the estimated prime cost. %he result is e!pressed as a percentage.

Process costing: A costing method applied where a product passes through many separate stages of manufacture. %here is a continuous flow of identical products. 3g. transport companies, chemical industry, soap industry, rubber industry, paints industry, electricity supply companies, canteens, hospitals etc. Product cost: ost assigned to products and services Production cost: ost that is incurred in manufacturing goods. It is prime cost plus absorbed production overhead Production cost centre: It is a cost centre where both direct and indirect e!penses are incurred for the production e.g. machine shop, milling and turning shop, assembly shop. Production volume ratio: Actual production in standard hours divided by budgeted standard hours. %he result is e!pressed in percentage. Profit: +ales minus total cost. It is also contribution minus fi!ed cost. Also referred as income Profit centres : entres, which have the responsibility of generating and ma!imising profits , are called profit centres. Profit on contracts: Also called attributable profit. It is that proportion of the total currently estimated profit on the contract which is relative to the wor' done at the accounting date. R3D cost : E"esearch ostF and E5evelopment costFare two different types of costs. "esearch cost is the cost of researching for new products, methods and applications. 5evelopment cost is the cost of the process which begins with the implementation of the decision to produce the new product and ends with the commencement of formal production of that product . Restricted 'und A restricted fund is a fund established to account for assets whose income must be used for purposes established by donors or grantors. %he college,s restricted funds are fund 9, ;, G, =, H, I and J. Revenue "evenue is funds collected by the college; it can also be called income. #or e!ample$tuition, fees, rentals, income from investments. Relevant cost : It is defined as 7 cost appropriate to a specific management decision7. Replacement cost : It is the cost of replacement in the current mar'et. Responsibility centre : Dhen an organisation is divided into different sub$units according to the responsibility and for each sub$unit, a specified individual is made responsible, then the sub$unit thus formed is termed as a responsibility centre. Revenue centres : entres which are devoted to raising revenue with no responsibility for production are called revenue centres. 3g. +ales centre.

Semi variable cost : %his cost is partly fi!ed and partly variable in relation to the output. #or e.g. telephone bill, electricity bill. Selling cost : +elling cost represents the indirect cost which is incurred for see'ing to create and stimulate demand and securing orders. Service Cost Centre : A cost centre which renders services to production cost centres is termed as service cost centre. It serves as an ancillary unit to the production cost centre. 3.g Powerhouse, boiler plant, repair shop. Shut do4n cost: %he fi!ed cost which cannot be avoided during the temporary closure of a plant is 'nown as shut down cost. Subsidiary "edger A subsidiary ledger is a group of accounts containing the detail of debit and credit entries. #or e!ample$ detail information contained in Accounts Payable. Single ,utput.5nit Costing : %his method of costing is used where a single product is produced. %his method of costing is normally used in marble &uarrying, mining, bric'$'ilns, breweries, etc. Standard cost : It is a pre$determined cost which is arrived at, assuming a particular level of efficiency in utilisation of material, labour and other indirect services. It is the planned cost of a product and is e!pected to be achieved under a particular production process under normal conditions. Standard Costing : I6A defines standard costing as 7 a control techni&ue which compares standard costs and revenues with actual results to obtain variances which are used to stimulate improved performance.7 Sun2 cost : 2istorical cost which is incurred in the past is 'nown as sun' cost. %his cost is not relevant in decision ma'ing in the current period. 5nabsorbed cost: 5ncontrollable cost : %he cost which cannot be influenced by the action of the person heading the responsibility centre is called uncontrollable cost. #or e.g. all the allocated costs and the fi!ed costs. 5ne$pired cost: %hey have the capacity of contributing to the production of the revenue in the future. 5nrestricted 'und An unrestricted fund is a fund of the college that has no restrictions as to use or purpose. %he college,s unrestricted fund is #und 8. 5niform Costing : It is defined as 7 the use by several underta'ings of the same costing system, i.e., the same basic costing methods, principles and techni&ues.7

6ariable cost : %he cost which varies with the level of production is called variable cost i.e., it increases on increase in production volume and vice$versa. #or e.g. cost of materials, cost of labour.