VOCABULARY

1. Accounting: The bookkeeping methods involved in making a financial record of

business transactions and in the preparation of statements concerning the assets, liabilities,
and operating results of a business.

2. Chart of Accounts: the chart of accounts is a listing of all the accounts in the general
ledger, each account accompanied by a reference number. To set up a chart of
accounts, one first needs to define the various accounts to be used by the business.
Each account should have a number to identify it. For very small businesses, three
digits may suffice for the account number, though more digits are highly desirable
in order to allow for new accounts to be added as the business grows. With more
digits, new accounts can be added while maintaining the logical order. Complex
businesses may have thousands of accounts and require longer account reference
numbers.

3. Accounting system: The collection, storage and processing of financial and accounting
data that is used by decision makers. An accounting information system is generally
a computer-based method for tracking accounting activity in conjunction with
information technology resources. The resulting statistical reports can be used
internally by management or externally by other interested parties including
investors, creditors and tax authorities.

4. Auditing: The general definition of an audit is an evaluation of a person, organization,

system, process, enterprise, project or product. The term most commonly refers to
audits in accounting, but similar concepts also exist in project management, quality
management, and energy conservation.

5. Asset: ∙A resource with economic value that an individual, corporation or country owns
or controls with the expectation that it will provide future benefit.
∙A balance sheet item representing what a firm owns.

∙Assets are bought to increase the value of a firm or benefit the firm's operations. You can
think of an asset as something that can generate cash flow, regardless of whether it's
a company's manufacturing equipment or an individual's rental apartment.
∙In the context of accounting, assets are either current or fixed (non-current). Current means
that the asset will be consumed within one year. Generally, this includes things like cash,
accounts receivable and inventory. Fixed assets are those that are expected to keep
providing benefit for more than one year, such as equipment, buildings and real estate.

6. Liabilities: A company's legal debts or obligations that arise during the course of
business operations. Liabilities are settled over time through the transfer of economic
benefits including money, goods or services. Recorded on the balance sheet (right
side), liabilities include loans, accounts payable, mortgages, deferred revenues and accrued
expenses. Liabilities are a vital aspect of a company's operations because they are used to

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finance operations and pay for large expansions. They can also make transactions between
businesses more efficient. For example, the outstanding money that a company owes to
its suppliers would be considered a liability.

Outside of accounting and finance this term simply refers to any money or service that is
currently owed to another party. One form of liability, for example, would be the
property taxes that a homeowner owes to the municipal government.

Current liabilities are debts payable within one year, while long-term liabilities are debts
payable over a longer period.

8. Proprietorship: The sole proprietor is an unincorporated business with one owner who
pays personal income tax on profits from the business. With little government regulation,
they are the simplest business to set up or take apart, making them popular among
individual self contractors or business owners.

Many sole proprietors do business under their own names because creating a separate
business or trade name isn't necessary.

Sole proprietorship is also known as "proprietorship".

9. Expenses: Business expenses incurred while an individual is away from home. These
include meals, lodging, and transportation expenses. You may only claim expenses directly
related to business purposes.

10. Revenue: The portion of a company's revenue that is highly likely to continue in the
future. This is revenue that is predictable, stable and can be counted on in the future with a
high degree of certainty. For example, a cable company that has millions of customers
paying monthly could consider a large portion of its monthly revenues to be recurring in
nature. Many market pundits consider recurring revenue to be a highly desirable quality
for a company to have.

11. Taxes: An involuntary fee levied on corporations or individuals that is enforced by a

level of government in order to finance government activities. In the investing world, this
is one of the most important types of taxes and, therefore, one of the most highly debated
types of tax is capital gains tax. Capital gains tax represents the tax paid on the increase in
value made on an investment.

12. Financial statement: The process of reviewing and evaluating a company’s financial
statements (such as the balance sheet or profit and loss statement), thereby gaining an
understanding of the financial health of the company and enabling more effective decision
making. Financial statements record financial data; however, this information must be
evaluated through financial statement analysis to become more useful to investors,
shareholders, managers and other interested parties.

13. Balance sheet: A financial statement that summarizes a company's assets, liabilities
and shareholders' equity at a specific point in time. These three balance sheet segments give
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investors an idea as to what the company owns and owes, as well as the amount invested by
the shareholders.
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders' Equity

14. General journal: ∙ In accounting, a first recording of financial transactions as they

occur in time, so that they can then be used for future reconciling and transfer to other
official accounting records such as the general ledger. A journal will state the date of the
transaction, which account(s) were affected and the amounts, usually in a double-entry
bookkeeping method.
∙For an individual investor or professional manager, a detailed record of trades occurring in
the investor's own accounts, used for tax, evaluation and auditing purposes.

15. General ledger: A company's accounting records. This formal ledger contains all the
financial accounts and statements of a business. The ledger uses two columns: one records
debits, the other has offsetting credits.

16. Purchase: The price that an investor pays for a security. This price is important as it is
the main component in calculating the returns achieved by the investor. Essentially,
it can be thought of as the price that is paid for anything that is bought. For example, if an
investor buys Ford stock at $15, then this would be the purchase price. When looking at the
return on the investment, the investor would compare the purchase price of $15 to the price
the investment was sold at or the current market price for Ford.
Purchase price can also refer to the price that a company pays for an item, such as another
company. For example, if Ford bought Kia for $3.5 billion, this would be Ford's purchase
price.

17. 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.

18. Auxiliary ledger:

19. Cost: The required return necessary to make a capital budgeting project, such as
building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of
equity.

20. Depreciation: ∙In accounting, an expense recorded to allocate a tangible asset's cost
over its useful life. Because depreciation is a non-cash expense, it increases free cash flow
while decreasing reported earnings.
∙A decrease in the value of a particular currency relative to other currencies.

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 SENTENCES

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