Assorted Glossary

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Accelerated Depreciation Methods
Depreciation methods that recognize more depreciation expense in the early years and
less in the later years. Double-declining balance is an example of an accelerated
depreciation method.
Accounting Equation
Assets = Liabilities + Owners' Equity. This equation is fundamental and must always
be true in double-entry accounting.
Accounting Period
The period of time for which the financial results are reported; typically either a
month or a quarter or a year.
Accounts Payable
Liability account used to show the obligation to pay suppliers who have provided
goods or services on credit terms.
Accounts Payable Turnover
Accounts Payable Turnover is a ratio that is used to measure how efficiently a
business is paying its vendors. It is calculated by dividing the credit purchases for the
period by the average accounts payable balance for the period. In the absence of credit
purchases information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the period. For
most ratios in this course, we use averages when calculating ratios with balance sheet
numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Accounts Receivable
Asset account used to show the claim to receive cash at some future date for goods or
services that have been supplied to a customer on credit terms.
Accounts Receivable Turnover
Accounts Receivable Turnover is a ratio that is used to measure how efficiently a
business is collecting receivables from its customers. It is calculated by dividing the
credit sales for the period by the average accounts receivable balance for the period.
In the absence of credit sales information, we may use total sales as a substitute. The
ratio represents how many times the accounts receivable turned over during the
period. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use
beginning or ending balances.
Accrual
A revenue amount that is recorded after the revenue is earned but before the payment
is received or an expense amount that is recorded after it has been incurred but before
the payment has been made. In either case, for an accrual the exchange of cash is
expected at some future point after the initial revenue or expense is recognized.
Accrual Accounting Method
This is the accounting method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the revenue recognition
principle, which says that revenue should be recognized in the period in which it is
earned and realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in which the
related revenue is recognized rather than when the related cash is paid.
Accrued Expenses

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 Liability account used to record amounts at the end of an accounting period to
recognize expenses that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are salaries/wages payable,
accrued rent expense, accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense, legal expense) and the
credit is to the accrued expense account, which is a liability because it represents an
obligation which will need to be paid in the future. Remember accrued expenses are
NOT expenses.
Accrued Liability
Liability accounts that record expenses that have been recognized on the income
statement but have not yet been paid. Similar to accrued expenses.
Accrued Payroll
An accrued expense recorded at the end of a financial period for amounts of payroll
that have been worked but not yet paid. It is a common type of accrued expense. See
also Salaries/Wages Payable.
Accrued Revenue
An asset account that records revenue that has been earned and recognized on the
income statement but not yet paid for by the customer. At the time of the accrual, we
debit the receivable account and credit the appropriate accrued revenue account.
When the cash transfer ultimately occurs, we debit the cash account and credit the
receivable account.
Accumulated Depreciation
A contra asset account that includes the cumulative total of all depreciation expenses
recorded to date for specific assets. The credit balance in this account offsets the debit
balance in the asset account which shows the original value of the asset. When the
original asset value is netted against the accumulated depreciation for the asset you
arrive at the net book value of the asset.
Accumulated other comprehensive income
An equity account that consists of cumulative unrealized gains or losses on line items
classified under other comprehensive income. It includes items such as unrealized
gains or losses on investments available for sale, foreign currency gains or losses, and
pension plan gains or losses.
Adjusting (Journal) Entries
Entries made to adjust the balances of asset and liability accounts to reflect changes in
their values due to the passage of time or another implicit transaction.
Allowance for Doubtful Accounts
A contra asset account that nets against Accounts Receivable. It is generally set up as
an estimate of accounts that will ultimately prove to be uncollectible. It is then
reduced when accounts are written off. It may be adjusted at period end to reflect any
updated estimates. May also be referred to as Reserve for Bad Debts.
Amortization
The method for recognizing the expense of long-lived intangible assets such as
patents, copyrights, and brands, over the life of the assets. Amortization is usually
calculated similar to straight-line depreciation. Some companies use an accumulated
amortization account, while other companies may directly reduce the value of the
associated asset.
Annuity
An investment where the purchaser receives the right to receive a fixed amount each
year for a lifetime or for a certain number of years.
Asset

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 A resource that is owned or controlled by a business and is expected to provide some
future economic benefit to the business. Examples include cash, inventory, and
equipment. The business expects that its assets will help to produce cash inflow in the
future.
Asset Turnover
Asset Turnover is calculated by dividing the total sales for the period by the average
total assets. This calculation is used as a measure of efficiency in the DuPont
Framework. For most ratios in this course, we use averages when calculating ratios
with balance sheet numbers, but this is not necessary and some may choose to use
beginning or ending balances.
Average Collection Period
Average Collection Period is a measure related to accounts receivable turnover that
shows the average number of days it took for a business to collect payment from a
customer. It can be calculated by dividing the average accounts receivable by the
credit sales per day. Alternatively, it can be calculated by dividing 365 by the
Accounts Receivable Turnover. For most ratios in this course, we use averages when
calculating ratios with balance sheet numbers, but this is not necessary and some may
choose to use beginning or ending balances.