Accounting Dictionary

A
Account Systematic arrangement showing the effect of transactions on
income statements and balance sheet.

Accountancy The activities and theories comprising accounting including

practice, research and teaching.

Accounting Process of recording, measuring, interpreting and communicating

the financial data.

Accounting control Procedures used to assure accuracy in the accounting functions.

Accounting Necessary assumptions and ideas which are conceived for

Concepts accounting in systematized way

Accounting Methods or procedures based on custom which are generally

conventions employed by accountants

Accounting Process of overstating an expenses provision so that current

Cushion period’s expenses provision is shown more than the later period’s
expenses provision.

Accounting cycle Series of steps in recording and accounting event from the time a
transaction occurs to its reflection in the financial statements.

Accounting entity Business or other economic units being accounted for separately e.g
sole-proprietorship ,company etc.

Accounting Double entry book-keeping where there is an identity of debit and

equation credit elements of a transaction. Assets= Liability+Capital

Accounting error Inaccurate measurement or representation of an accounting related

item not caused by intentional fraud

Accounting event Transaction entered in the accounting records of a business

Accounting A hand book containing policy guidelines, procedures and

Manual standards for accounting

Accounting Quantification of accounting values in the form of money or other

measurement units

Accounting period Time covered by financial statements which can be for any length

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 but is usually annual

Accounting Reporting methods, measurement systems and disclosures used by

policies a specific accounting unit

Accounting Basic assumption or fundamental proposition regarding the

postulate economic, political or social environment that accounting operates

Accounting Day –to-day implementation of accounting policies

practices

Accounting Method or technique used to uncover, record or summarize

procedures financial data in the preparation of financial statements

Accounting Various journals, ledgers and the sources of information for these
records formal records such as sales invoices, cheques, vouchers and
written agreements.

Accounting Conduct to be followed by accountants as formulated by an

standard authoritative body

Accounting system Methods, procedures and standards followed in accounting

Accounts payable Obligations to pay for goods or services that have been acquired on
open account from suppliers

Account Amounts due to the accounting unit under consideration from

receivables customers

Accrual Recognition of revenue when earned and expenses when incurred.

accounting

Accrued Assets Money which has been earned but not received

Accrued Revenue Same as accrued assets

Accrued Expenses Expenses incurred at the end of accounting period but not yet paid

Accrued liabilities Same as accrued expenses

Accumulated Sum of depreciation charges taken to date on a fixed asset

depreciation

Cumulative profit that has been retained and not distributed in the
Accumulated form of dividend

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income

Acquisition cost Price paid to buy goods, services or assets. E.g list price(net of
discount) plus delivery and storage expenses

Adjusting Journal Necessary entry at the end of accounting period to record

Entry unrecognized revenue and expenses applicable to that period

Adjustment Increase or decrease to an account resulting from an adjusting

journal entry

Allowance Acceptable reduction in quantity or quality or reduction in the

amount owed to a supplier

Allowance for bad Provision for possible uncollectibility associated with accounts
debts receivable

Appreciation Increase in the value of assets

Articles of Formal document drawn up by the partners indicating significant

Partnership and important aspects of the partnership

Assets Economic resources that is expected to provide benefit to a business

At par Price that is the same as the face value or nominal amount of
security

Accrual basis of The basis of accounting that assumes that revenues are realized at
accounting the time of the sale of goods or services regardless of when the cash
received. In this method of accounting, expenses are recognized at
the time the services are received and utilized or an asset is
consumed in the production of revenue, regardless of when
payment for these services of assets is made

Accrual principle The accounting principle that postulates that realize at the time of
the sale of goods or services, regardless of when cash received
According to this principle, expenses should be recognized at the
time the services are received and utilized or an asset is consumed
in the production of revenue, regardless of when payment for these
services of assets is made

Administrative Classification of expenses incurred in the general direction of an

expenses enterprise as a whole such as salaries,postag,stationary and
insurance

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Amortization This term is used in two senses (i) repayment of loan over a period
of time(ii) Write-off of an expenditure(like issue cost of shares)
over a period of time

Annual report The report issued annually by accompany to its shareholders. It

contains primarily the financial statements. In addition, it presents
the managements view of the operations of the previous year and
prospects for future

Authorized share The maximum share capital the company is authorized to issue as
capital per its articles of association

B
Bank statement A statement prepared by the bank and sent to the depositor to show
transactions in the account

Basis of Methods of recognizing revenue and expenses

accounting

Behavioral Approach to accounting that stresses psychological consideration in

accounting decision making

Bond Written promise by accompany, government or other institutions to

pay the face value at maturity date.

Book-keeping Most basic support functions such as classifying, recording and

summarizing

Book of original Journals in which transactions are first adopted

entry

Book value Net value of the asset( i.e gross cost less balance of related
valuation account) and carrying value of liability shown in the
Balance Sheet

Brokerage fees Commission paid to broker who buys and sells securities

Bad debts Uncollectable receivables

Balance sheet The statement that summarize the assets, liabilities and owner’s
equity of a business unit as on a specific date

Bank Statement showing items of difference between the balance of

reconciliation account reported by the bank and balance appearing in the books of

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statement customers.

Bankruptcy A state in which a firm (or an individual) is unable to meet its

obligations and hence, its assets are surrendered to a court for
administration

Bill of exchange A general term for a note demanding payment

Bill of lading A document which represents ownership of goods-in –transit

Bills payable A bill showing that a firm owes money to those whose names are
mentioned in the bill

Bills receivable A bill showing that money is due to the farm from those whose
names are mentioned in the bill

Bonus shares Shares issued to existing share holders as a result of capitalization

of reserves.

Brought Down Term used to present the opening balance of an account (may be
(b/d) used as a synonym for term Brought Forward )

Brought forward Term used to open an account for the current year by posting the
(b/f) closing balance of previous year.

C
Capital Equity interest of the owner in the business that is the difference
between the assets and liabilities

Capital account Accounts which describes owner’s equity in a business

Capital assets Assets purchased for use in production over long period of time
rather than for resale

Capital Expenditure either adds a fixed asset unit or increases the value of
expenditure an existing fixed assets

Capital gain Gain arises out of exchange of capital assets

Capital loss Loss arises out of exchange of capital assets

Capital surplus Amount received from share holder in excess of the par value of
shares issued

Cash basis of Method of recognizing revenue and expenses when cash is received

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accounting or disbursed rather than when earned or incurred

Cash discount Discount allowed by the seller to the buyer for realization of dues
within a stipulated period of time.

Circulating capital Entity’s investment, that is continuously used up and renewed to

enable ongoing operations

Closing entry Journal entry made at the end of the accounting period to transfer
the net effect of income statement to owner’s equity

Consistency Uniformity of accounting procedures used by an accounting entity

from period to period

Consumed cost Expired benefits in the generation of revenue

Contingent assets Assets the existence or value of which depends on some future
happening that may or may not occur

Cost of sales Price of buying or making an item that is sold

Contingent Potential liability that may exist in the future depending on the
liability outcome of past event.

Continuity Accounting assumption that expects a business to continue in life

indefinitely

Contra account Reduction in the gross cost of an asset to arrive at its net cost and
reduction of a liability to arrive at its net value

Cost Sacrifice, measured by the price paid, to acquire, produce or

maintain goods or services

Credit balances Balancing figure in the right side of an account

Current account Account in which all transactions between the partners and the
business entity(other than capital contribution) are recorded

Current assets Assets having a life of one year or less, or the normal operating
cycle of the business whichever a greater

Current liability Obligation payable within one year or the normal operating cycle of
the business

Capital Cost incurred to acquire fixed assets ,the benefit for which is spread
expenditure over several accounting periods

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Capital work in Investment made in fixed assets which are not yet ready to use
progress

Carried Down Term used to balance an account( may be used as synonym for the
(c/d) term carried forward)

Carried Transferring the balance of an account from one period to another

forward(c/f) period

Carriage inward Expenses incurred for transporting the goods/direct material

purchase by the firm

Carriage outward Expenses incurred for transporting the goods in the course of sale

Cash Currency,coins,cheque,and any other item that a bank will accept

for deposit

Cash accounting A basis of keeping accounts,wherby revenue and expenses are

basis recorded in the books of account when received and paid without
regard to the period to which they apply

Cash at bank Balance of deposit with bank

Cash book A book of entries for cash receipts and payments.

Cash in hand Balance of cash available and undeposited

Closing Balance of goods at the end of accounting period

stock/closing
inventory

Conservatism The principle says, anticipate no profits but provide for all possible
principle losses

Commission Remuneration for services related to sales, purchases etc.

Companies Act A comprehensive piece of legislation regulating the functioning of

joint stock companies in India

Cost The amount paid or payable in either cash or its equivalent for
goods, services or other assets purchased

Credit note A note sent by the seller to the purchaser informing the later of
reduction in the amount due from him e.g when goods are returned
by the purchaser as not confirming to specifications the seller will

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 issue a credit note on receipt of the goods.

Creditor Persons to whom the business owes certain amounts

Cum-dividend It included dividend or interest in the sale or purchase proceed of

securities

Cum-right With right

Cumulative A feature of preferred stock that requires all past dividends on

dividend preferred stock to be paid before any equity dividends are paid

Cumulative A preference share is a cumulative preference share when the

preference shares arrears of dividends are accumulated and such arrears are paid first
of all whenever dividend is declared

Current assets Assets which normally get converted in to cash during the operating
cycle of the firm

Current liabilities Liabilities that are normally payable within a year

D
Day book Descriptive and chronological record of day to day business
transactions

Debt Money or services owed to an outside party

Debtor Individual who has a legal obligation to pay money to another

Deferred credit Income items received by a business, but not yet reported as
income. It is also called deferred revenue or deferred income

Depletion Physical exhaustion of a natural resources

Depreciable cost Acquisition cost less salvage value of fixed assets

Depreciation Decline in economic potential life of fixed assets originating from

wear and tear, natural deterioration or technical obsolescence

Depreciation Amortization of fixed assets in order to allocate the cost over its
accounting depreciable life

Discount Reduction in price given for prompt payment. Excess of face value
of shares or debentures over the price paid for them

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Dividend Distribution of earnings to share holders

Drawing account The account in which withdrawal of cash or other assets from the
business by the owners are recorded

Debentures An instrument for long-term debt. Debentures in India typically

secured

Debit note A note sent by the purchaser to the seller informing the later of the
reduction in the amount due to him

Dividend A share of earnings distributed to the owners of a business

Double entry Recording of transactions which takes in to account the debit and
credit aspects of each transaction

Doubtful debts A debt the collectability of which is doubtful

Drawings Withdrawal of cash or goods by the owners from the business for
personal use

Dual aspects A fundamental principle of accounting according to which the total

principles of assets and the total of equities are always equal

Differed cost Expenditure incurred having future benefits in excess of one year
that is capitalized to an asset

E
Equity The net worth of a firm consisting of paid up equity capital plus
reserves and surplus

Equity share These shares received the residue of the distributed profit after
capital commitments on preference shares and any other shares carrying
priority have been met. Equity share holders have voting rights

Exchange rate The rate at which one currency may be exchanged for another

Economic life Estimated period that a fixed asset will provide benefits to the
business

Endorsement Signature on a bill or a cheque by a payee before transfer to a third

party

Entity See the ‘Accounting entity’

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Entry Recording of a transaction in the books of accounts

Equity Assets minus liabilities. It is also called net worth or owners equity

Error Inaccurate measurement, representation or mathematical mistake

Expenditure Payment of cash or property or the incurred of a liability to obtain

an asset or services

Expenses Results from or measures the using up of an asset or incurrence of a

liability to obtain revenue in the current accounting year

F
Face value Nominal amount of shares, debentures or other security

Financial Recording ,summarizing and analyzing business transactions

accounting

Fixed assets Item that has physical substance and a life in excess of one year

Folio number Manner of referring in a journal or ledger to the origination or

disposition of the item

Foot note Explanatory data that follows the financial statements and is
integrally related to them

Freight in Transportation charge the pays while purchasing goods from

supplier

Freight out Cost of transporting goods to the supplier

Fund Cash, securities or other assets designated for a specified purpose

Financial A balance sheet, income statement, funds statement or other

statement presentation of financial data derived from accounting records

Fixed assets Assets purchased for use in the operation of the business and not
intended for resale to customers e.g building, plant ,furniture etc.

Fixed charges A payment by a firm which is required under a contract

e.g interest on debt

Freehold premises Premises not subject to any charge

Furniture and Assets like chairs, tables ,lights and attachment thereto
fittings

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G
Gain Excess of sale value of property over its value

Goods Items of merchandise, finished products, supplies or raw materials.

Goodwill The present value of future excess earnings

Gross income Amount of money earned from the sale of goods minus the cost of
goods sold

Gross sales Total sales before sale discounts and sale returns and allowances

General/miscellaneous Expenses not classifiable as manufacturing ,selling, administrative

expenses etc.

General reserve Segregated portion of the retained earnings of a business ,it may be
utilized for future needs

Going concern Accounting is based on the premises that the business firm will
principles remain a going concern for indefinitely long period

Gross cost The acquisition value of affixed asset (with no reduction for
accumulated depreciation) used calculating return on capital

Gross profit margin Gross profit/net sales. A ratio denoting the gross profit of the firm
as a percentage of net sales

H
Hidden reserve Understatement of owner’s equity or net worth by under
valuation of assets or overvaluation of liabilities. It is also called
secret reserve.

Historical cost Acquisition of an asset less discounts plus normal incidental

costs (such as taxes, transportation ,installation) necessary to
bring the asset in to existing use and location

Historical cost Financial accounting based on the historical cost of an item

accounting ignoring inflationary increase

Human resource Method that recognizes a variety of human resources and shows
accounting them in balance sheet

I
Income Money earned during an accounting period that results in an
increases in total assets

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Inflation accounting Method or reporting that allows for the financial effects of
changes in price level

Insolvency Failure to meet financial obligation

Intangible assets Item lacking physical substance or representing right granted by

the government or another business

Inventory Merchandise or supplies on hand or in transit at a particular

point of time

Invoice A bill prepared by a seller of goods or services and submitted to

the buyer

Imprest Cash maintained for paying sundry expenses

Income due but not Income receivable but not yet received
received

Income received but Income received during an accounting period, through due to be
not due received only at a future date

Income statement A basic accounting statement that measures the result of a

firm’s operations over a specified period commonly one year.
Also known as profit &loss statement. The bottom line of the
income statement shows the firm’s profit or loss for the period

Insurance Insurance payment of a premium the insurer agrees to

compensate the insured in the event of the later suffering a
specified loss

Investment allowance Reserve created at the time of making investments in plants and
reserve machinery to avail tax benefits.

Investments Purchase of shares ,debentures or other securities

J
Journal The book where business transactions are first recorded in
chronological order

Journal entry Record of the accounting information for a business in journal

Journalize To make an entry for a transaction in the journal

Journal voucher One that documents and authorizes a business transaction.

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L
Leasehold Agreement between the lessee and lessor specifying the lessee’s
right to use the leased property for a given time at a specified
rental payment

Ledger The book in which classified and summarized business

transactions are recorded

Liability Amount payable or future services to be rendered

Liquid assets Assets that can be converted in to cash in a short period without
a material concession in price

Long term asset One whose future benefit is expected for a number of years

Long-term debt Monies owed for a period exceeding one year

Long term liability Obligation payable in money, goods or services for a period in
excess of one year

Loss Decrease in net assets for which no revenue is obtained and

which arises from incidental transactions

Lighting and heating Expenses incurred for lighting and heating

Liquidation value The rupee amount that could be realized if an asset were sold
independently of the going concern

Liquidity A firm’s liquidity refers to its ability to meet its obligation in

the short run (defined usually as a period of one year). An
asset’s liquidity refers to how quickly it can be sold at a
reasonable price.

M
Macro accounting Accounting for aggregate economic activities of the nation

Matching concept The process of reporting expenses on a cause-effect basis

against the reported revenue it relates to

Materiality concept Magnitude of an omission or misstatement of accounting data

that mislead financial readers

Micro accounting Accounting for a person, firm, company or other institution

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Marketable securities Security investments that the firm can quickly convert in to cash
balances

Market value The value observed in the market place, where buyers and
sellers negotiate a mutually acceptable price of the asset

Miscellaneous Expenditure such as primarily expenses and development

expenditure expenditure which are expected to bring in benefits during
several accounting periods

Money measurement Financial accounting is concerned with only those facts which
principle are expressible in monetary terms

Mortgage A pledge of specific property offered as security for a loan

N
Net assets Total assets less total liabilities

Net income Revenue less all expenses

Net loss Excess of total costs and expenses over total revenue for the
accounting period

Nominal account Account relating to revenue and expenses

Net income A figure representing the firm’s profit or loss for the period. It
also represents the earnings available to the firm’s common and
preferred stockholders

Net profit margin Net income/sales. A ratio that measures the net income of the
firm as a percent of sales

Net worth See equity

Nominal account Accounts of various expenses and incomes

O
Opening Balance of stock at the beginning of accounting period
stock/opening
inventory

Operating profit Net operating income/sales. A firm’s earnings before interest

margin and taxes. The ratio serves as an overall measure of operating
effectiveness.

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Outstanding expenses Expenses remaining unpaid

Overdraft Amount by which a check or other demand for payment

exceeds the amount of credit against which it is drawn

Obsolescence Major factor in depreciation, resulting from technological or

market changes

On account Purchases or sales on credit. Partial payment on an obligation

Opening entry One or series of entries usually undertaken upon forming a new
enterprise or new accounts or new accounting period

Owners equity Interest of the owners in the assets of the business represented
by capital contribution and retained earning

P
Partnership Form of business organization created by an agreement between
two or more persons who contribute capital and /or their
services to the organization for common goal

Patent Exclusive right given by the government to use ,manufacture

,and sell a product or process

Petty cash fund Minimal amount of money kept on hand by a business entity to
meet small expenditures

Post Transfer from the journal to the ledger a debit or credit to the
given account involved

Premium Excess of the amount received over the par or face value of
shares

Prepaid expenses Expenditure which can consumed until the next accounting
period

Promissory note Formal unconditional promises in writing to pay on demand or

at a future date a definite sum of money

Proprietary concept The theory that assets are owned by the proprietor and liabilities
are owed by him

Provision The amount of an expenses that must be recognized currently

when the exact amount of the expenses is uncertain

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Paid up capital Share capital which has been paid up

Par value See face value

Petty expenses Expenses of small amount

Plant and machinery Tangible assets held for use in the production of goods and
services

Postage Amount paid for postal services

Power and fuel Coal, electricity etc

Preference shares Class of shares usually having preference dividends and in the
distribution of assets in the event of liquidation

Printing and stationary Expenses incurred for printing and stationary items

Profit The excess of a firm’s operating revenue over the expenses of

producing that revenue in a given fiscal period

Profit and loss account A statement showing all revenue and expenses items for a given
period, arranged so that total expenses are subtracted from total
revenue to reveal the net income earned during that period

Pro forma financial Literally, according to form financial statements. They are the
statement basic financial statements projected to the end of the next fiscal
period in accordance with the provisions of planning budgeted.

Profit margin The ratio of profit to sales. Several profit margin ratios are used.
The two most commonly used are : gross profit margin(gross
profit divided by sales) and net profit margin (net profit divided
by sales)

Proposed dividend Dividend proposed as return on investment made by equity

shareholders

Prospectus A document issued to describe a new security issue

Provision for doubtful Providing for those debts whose collection is doubtful
debt

Provision for tax Providing for tax payment which is calculated on profits earned

Public company A corporate body other than a private company. In a public

company there is no upper limit on the number of shareholders

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 and there is no restrictions on transfer of shares

Purchase book A record of entries made for purchase on credit

Purchase return book A record of entries made for return of purchase goods

Q
Quick assets Current asset that can be converted in to cash in a short period
of time

Quick liability A current liability that is payable in short period of time

R
Real account Accounts related to assets

Receivables Claims held against customers and other for money, goods or
services

Replacement cost Current cost to replace the service potential of an existing asset

Reserve Apportion of retained earning for a designed purpose

Residual value Value of depreciable asset after all allowable depreciation has
been taken

Revenue Increase in the assets or decrease in the liability primarily from

the organization’s operating activities during an accounting
period

Revenue expenditure Outlay benefiting only the current accounting year

Royalty Money paid for the use of an asset or right

Rates Municipal taxes

Realization principle According to this principle, revenue is deemed to be earned

when it is realized

Redeemable Preference share which are repayable at par or at premium at a

preference shares certain date or some time between two stated dates

Rent Expenses for using the land or building

Reserves and surplus Accumulated profits of a business

Retained earnings The portion of net income which is ploughed back in the

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 business

Revenue To recognize revenue in the form of an inflow of assets

reorganization resulting from the profit-oriented activities of business

Right issue Issue of securities offered to existing shareholders on a pre-

emptive basis

S
Sales allowance Reduction in selling price of goods because of breakage
,quality, deficiency ,incorrect quantity etc.

Sales journal Special book in which credit sales of goods are recorded
chronologically

Secret reserve Refer to hidden reserve

Share One unit of ownership interest in a company

Short term debt Money payable by the debtor to the creditor within one year

Single entry system In complete and imperfect recording of transactions

Sinking fund Fund set aside for periodic payment, aimed at reducing or
amortizing a financial obligation

Statement of record Report indicating the account status of an agreement between

creditors and debtors

Statement of affairs Financial showing assets, liabilities and owner’s equity

Stop payment order Instruction to the bank not to honor cheque when presented

Suspense account Temporary accounts before final identification of accounts or

detection of accounting error for which Trial balance disagrees

Salary Compensation paid periodically for services like managerial

,administration and professional services

Sales book A record of entries for goods returned by customers

Secured loans Loans against which specific assets have been pledged or
guarantees given

Selling expenses Class of expenses incurred in selling or marketing

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Share application Money received by the company along with application for
money shares/debentures

Share capital Capital of a company represented by shares

Shareholder’s fund Funds owned by the shareholder’s i.e share capital ,retained
earnings and reserves

Single entry System of book keeping only records of cash and personal
account

Stable money unit Financial accounting is based on the assumption that the
principle monetary unit remains stable

Staff welfare expenses Expenses incurred for the welfare of the employees

Statement of changes A basic accounting statement ,also known as sources and

in financial positions application of funds statement, identifying how the firm
acquired its funds for the period and what it did with those
funds

Stock Difference between opening and closing balance of stock

Accretion/decretion

Subsidiary books Books such as journal, sales book purchase book, returns book,
bills book cash book etc

Sundry expenses General/miscellaneous expenses

T
Taxable income Gross income from all sources, except for allowable ,exclusions
,less any tax deductible expenses

T- account Common accounting form in the shape of the letter T

Tangible assets Assets having physical substance i.e. which can be touched and
seen

Trade discount Reduction of the list or catalogue price in return for the
purchase of large quantities

Transaction Events or happenings in business that change its financial

position and /or earnings

Taxes A levy backed by the force of laws which unilaterally

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 determines the payers and terms of payment to a government
unit

Telephones Telephone charges

Transaction An event the recognition of which gives rise to an entry in

accounting records., or a business activity or event which has
taken place

Trial balance Trial balance is a statement in which debit and credit balances
of all the accounts of ledger are listed to test the arithmetical
accuracy of books of accounts

Turnover ratio Turnover ratios, also referred to as activity ratios or asset

management ratios measures how efficiently the assets are
employed by the firm

U
Unsecured loan Loan which is not secured by any property of the business entity

Unexpired expenses Expenses which are associated with future revenue period

Under writing The purchase and subsequent resale of new security issue. The
risk of selling the new issue at a satisfactory (profitable) price is
assumed by the investment banker or underwriter

Under writing Amount which is paid to the agent or broker or under writer for
commission his services rendered to the company

V
Valuation account Item offset against or added to the gross amount of an account
to arrive at net balance E.g provision

Verification Process of validating a statement, item or account

Voucher Form used to contain all information regarding transaction

Vertical form Preparing the account in the form of statement

W
Wages Compensation paid to workmen

Waste material Natural resources such as oil, coal and timber having a limited
useful life and subject to depletion

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Window dressing Making a business entity look better financially than it rally is

Work sheet Document or schedule in which an accountant gathers

information to substantiate an option concerning an account

Working capital Excess of current assets over current liabilities

Write down Reduction of part of the balance or an asset by charging an

expenses

Write off Transfer of the entire balance of an asset account in to an

expenses

Write up Increasing in the book value of an asset not due to a cash

payment or other asset

Written down value A depreciation method according to which the depreciation

method charge is certain percentage of the written down value of the
asset.

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