Accounting Terms Defined (A – N)

Verifying balance sheet

Like it or not, accounting is an integral, and necessary part of our jobs.  There is not a single business or agency today that does not have some element of accounting to attend to: tax reporting, billing, payables, receivables, payroll.  For such an important role it plays, it is not uncommon for the job to be handed over to someone with little, or no accounting experience.  And while these jobs may start with an accounting introduction that includes entering invoices, billing customers, or entering payroll, it is important to understand how inaccurate entries or account coding can affect the overall accounting picture.

Understanding the lingo is the first step to understanding accounting.  Here is an A – N list of accounting terms that will help you go from amateur to accounting trainee in no time!  Although many of these terms are used more frequently in for-profit operations, it is important to understand universal accounting language so you can better interface with customers and vendors who use GAAP (see letter G).

Stay tuned for list O – Z!

A – Account: Self-balancing accounting entity with a set of general ledger codes in which cash and financial resources, together with all related liabilities and residual equities or balances, and changes, are recorded.

B – Balance Sheet: A financial statement that discloses the assets, liabilities, and equities of an entity at a specified date in conformity with generally accepted accounting principles (See G: GAAP).

C – Capital Assets: Assets that meet the state’s capitalization policy such as land, improvements to land, easements, buildings, leasehold improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in state operations and that have initial useful lives extending beyond one year. Capital assets do not include depletable resources such as minerals or timber.

D – Debt: An obligation resulting from the borrowing of money or from the purchase of goods and services. Debts of the state include bonds, accounts payable, and other liabilities.

E – Encumbrance: A reservation of an expenditure authority for an obligation in the form of purchase orders or contracts. An encumbrance represents a commitment. It is not an expenditure.

F – Financial Audit: An audit made by an independent external auditor for the purpose of issuing an audit opinion on the fair presentation of the financial statements of the state in conformity with GAAP.

G – GAAP (Generally Accepted Accounting Principles): The general guidelines and principles, standards and detailed rules, plus industry practices that exist for financial reporting. Often referred to by its acronymn GAAP.

H – Historical Cost: A measure of value in which the price of  an asset on the balance sheet is based on its nominal or original cost when acquired by the company. The historical-cost method is used for assets under GAAP. The historical cost usually bears little or no relationship to the market value after an asset has been held for several years.

I – Income Statement: One of the main GAAP financial statements for government funds (along with the balance sheet). The income statement is also referred to in the private sector as a profit and loss statement, P&L, statement of income, and the statement of operations. The income statement reports inflows, outflows, and balances of current financial resources. It reconciles fund balance at the beginning and end of the financial period, explaining the relationship between the operating statement and the balance sheet.

J – Journal Voucher: Used to transfer funds between agencies and between funds within treasury and/or treasury trust accounts, and to record accruals and other adjustments to account balances.

L – Liabilities: Obligations of an entity. Probable future sacrifices of economic benefits, arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. The term does not include encumbrances.

M – Modified Accrual Basis: The basis of accounting under which expenditures, whether paid or unpaid, are formally recognized when incurred against the account, but revenues are recognized only when they become both measurable and available to finance expenditures of the current accounting period. All governmental funds use the modified accrual basis of accounting.

N – Net Income: A term used in accounting for proprietary funds to designate the excess of total revenues and operating transfers in over total expenses and operating transfers out for an accounting period.

Don’t see a term you are looking for on this list?  Check out this full list of hundreds of accounting terms, available here.

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