Income Summary Account

A non-financial statement account used only to facilitate the closing process

Temporary Accounts

(or "nominal accounts" include all of the revenue accounts, expens accounts, the owner drawing
account, and the income summary account. Generally speaking, the balances in the temporary accounts
increases throughout the accounting year and are "seroed out" and closed at the end of the accounting
year.

Permanent Accounts

Asset, liability, and most owner/stockholder equity accounts are referred to as "permanent accounts"
(or "real accounts"). Permanent accounts are not closed at the end of the accounting year; their
balances are automatically carried forward to the next accounting year.

Post Closing Trial Balance

A post-closing trail balance is prepared to check the clerical accuracy of the closing entries and to prove
that the accounting equation is in balance before the next accounting period begins.

Adjusting Entries

Adjusting entries are usually made on the last day of an accounting period (year, quarterm month) so
that the financial statements reflect the revenues that have been earned and the expenses that were
incurred during the accounting period.

Classified Balance Sheet

Accountants usually prepare classified balance sheets. "Classified" means that the balance sheet
accounts are presented in distinct groupings, categories, or classificaitons. The asset classifications and
their order of appearance on the balance sheet are: Current assests, investments, property,plant and
equipment, intangible assets and other assets.

Inventory Shrinkage

Material or goods lost through deteriorataion, obsolescence, pilferage, theft and/or waste.

Net Sales

The amount of sales generated by a company after the deduction of returns, allowances for damaged or
missing goods and any discounts allowed. The sales number reported on a company's financial
statements is a net sales number, reflecting these deductions.

Sales Returns and Allowances

Although sales returns and sales allowances are technically two distinct types of transactions, they are
generally recorded in the same account. Sales returns occur when customers return defective, damaged,
or otherwise undesirable products to the seller. Sales allowances occur when customers agree to keep
such merchandise in return for a reduction in the selling price.

Gross Profit Margin

A financial metric used to assess a firm's financial health by revealing the proportion of money left over
from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for
paying additional expenses and future savings.
Acid-Test Ratio

A stringent indicator that determines whether a firm has enough short-term assets to cover its
immediate liabilities without selling inventory. The acid-test ration is far more strenuous than the
working capital ration, primarily because the working capital ratio allows for th inclusion of inventroy
assets.

Merchandise Inventory

The current asset which reports the cost of a retailer's,wholesaler's, or distributer's goods purchased to
be resold, which have not yet been sold as of the balance sheet date.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company. This amount includes
the cost of the the materials used in creating the good along with the direct labor costs used to produce
the good.

Multiple-Step Income Statements

An alternative to the single-step income statement is the multiple-step income statement, because it
uses multiple subtractions in computing the net income shown on the bottom line.

Sales Discounts

A sales discount is an incentive the seller offers in exchange for prompt payment on credit sales. Sales
discounts are recorded

Damaged and Obsolete Goods

are not counted in inventory if they cannot be sold. If these goods can be sold at a reduced price, they
are included in inventory at a conservative estimate of their net realizable value.

Goods and Transit

Goods in transit refers to merchandise and other inventory items that have been shipped by the seller,
but havenot yet been received by the purchaser.

Internal Controls

The process designed to ensure reliable financial reporting, effective and efficient operations. and
compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized
use, aquisition, or disposal is also part of interal control.

Inventory Shrinkage

Encompasses employee theft, customer shoplifting, and fraud and administrative errors by vendors.

FIFO

First in, first out

LIFO

Last in, last out

Consistency Concept

Accounting and practices should not differ from period to period so as to enable comparisons between
periods to be made.

Inventory Turnover Ratio

A ratio showing how many times a company's inventory is sold and replaced over a period.

Lower of Cost or Market (LCM)

An approach to valuing and reporting inventroy. Normally ending inventory is stated at historical cost
(what is paid to obtain it) but there are times when the original cost of the ending inventory is greater
than the cost of replacement thus the inventory has lost value. If the inventory has decreased in value
below historical cost then its carrying value is erduced and reported on the balance sheet. The criterion
for reporting this is the current market value. Any loss resulting from the decline in the value of
inventory is charged to Cost of Goods Sold (COGS) if non-material, or Loss on the reduction of inventory
to LCM is material.

Sales Journal

A sales journal is a specialized accounting journal used in an accounting system to keep track of the sales
of items that customers have purchased by changing them to their accounts-receivable account.

Subsidiary Ledger

A group of similar accounts whose combined balances equal the balance in a spevific general ledger
account. The general ledger account that summerizes a subsidiary ledger's account balances is called a
control accoun or master account.
Accounts Receivable Ledger/Accounts Payable Ledger

Listing detailed accounts, often in the form of a book wiht pages devoted to each customer, that shows
how much each customer owes. Each transaction that generated a receivable is listed under that
customer and a balance by customer is determined. The balance in this ledger should agree with that
shown in the general ledger.

Deposits in Transit

Cash (currencym coins, checks, electronic transfers) that a company has received and is rightfully
reported as Cash on its balance sheet, but does not appear on the bank statement until a later date.

Outstanding Checks

Written but not yeat cleared the bank on which they were drawn. In the bank reconciliation,
outstanding checks are deducted from the balance per bank.

NSF

Indicates that a demand for payment cannot be honored because insufficient funds are available in the
account on whic the instrument was drawn.