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Accounting Terminology

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by

Joanne Luo

on 14 October 2015

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Transcript of Accounting Terminology

By Joanne Luo
The most frequently used terms in accounting today.
Accounting Terminology
Term #1:
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Term #20:
Assets:
Liabilities:
Equity:
Income:
Expenses:
Drawings:
Capital:
Profit:
Profitability:
Liquidity:
Trading Business:
Service Business:
Debit:
Credit:
Transaction:
Journal:
Ledger:
Trial Balance:
Balance Sheet:
Income Statement:
Items of value owned by the business that will help the business earn income or provide monetary benefit.
Amounts owing to people outside the business.
Represents the owner's investment in the business.
Earnings of a business resulting from the sale of goods or providing of services.
Costs incurred to help a business earn income in the short term and are consumed or used up once recorded as expenses.
Amounts of money, or assets, taken out of the business by the owner.
Amounts or assets invested into the business by the owner.
Financial benefit of the difference between the amount earned and the amount spent in buying, operating or producing something.
Refers to the business's ability to make a profit.
Refers to the business's ability to pay its debts (liabilities).
A business which makes a profit by buying goods and re-selling them at a profit.
A business which makes a profit by charging a fee for the services provided.
Accounting entry that either increases an asset or expense account, or decreases a liability of equity account. It's used in the Accounting system as a way of organising financial information.
Accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It's used in the Accounting system as a way of organising financial information.
Event in the business often involving the receipts or payment of money.
A record which groups transactions about a particular item together, records changes in the accounting system on a daily basis, and has a debit and credit column.
Shows assets, liabilities and equity of a business, and records information about and the changes of a particular item.
A summary of ledger balances and has a debit and credit column.
Shows the profit and loss of a business over a period of time.
Accounting record which summarises in date order, the details about a series of transactions.
Part of the Accounting Process
Part of the Accounting Process
Part of the Accounting Process
Part of the Accounting Process
Part of the Accounting Process
Part of the Accounting Process
Examples:
Car
Tools
Examples:
Creditor
Bank Loan
Examples:
Expenses
Income
Examples:
Sales
Fees
Examples:
Rent
Petrol
Examples:
Owner's drawing of $5,000
Owner's drawing of a computer
Examples:
Owner's contribution of $75,000
Owner's contribution of a van
Examples:
Fees paid for a service less the cost of providing the service is the profit.
Sale of goods less the cost of producing the items is the profit.
Examples:
Income increases profitability
Expenses decrease profitability
Examples:
Liquidity decreases with more debts
Liquidity increases with less debts
Examples:
Woolworths - grocery store
Kmart - general store
Examples:
Dentist
Doctor
Examples:
Asset increase
Liability decrease
Examples:
Asset decrease
Liability increase
Examples:
Purchased a lawn mower
Paid for insurance of equipment
Examples:
Examples:
Examples:
Examples:
Examples:
How to set up a double-entry bookkeeping system:
1. Set up a table with six columns and as many rows as you need.
2. Right align the top row.
3. Label the first row, the top of the six columns from left to right:

4. Label the last row, the bottom of the six columns from left to right:
Instruction 1:
How to set up a general journal:
1. Set up a table with four columns and as many rows as you need.
2. Label the first row, the top of the four columns from left to right:

Instruction 2:
The bookkeeping process:
1. Gather the source documents.
2. Determine the financial effects of transactions from the source documents.
3. Enter the transactions into journals and accounts.
4. Balance accounts and perform the end-of-period procedures by getting the records up-to-date and ready for the preparation of important financial statements.
5. Compile the trial balance which is the basis of the financial statements.
6. Close the books for that period and repeat the process for the next period.

Instruction 5:
How to enter a transaction into the general journal:
1. Identify which account the transaction affects and provide a brief but detailed summary.
2. Decide whether it is a debit or credit – credit represents the money that comes into the business, and debit represents the money that leaves the business or the money which has increased the amount of total purchases.
3. If the transaction is a credit, place it on the right in the journal.
4. If the transaction is a debit, place it on the left in the journal.
5. Write the date in the first column.
6. By rule of thumb, place the debit account first and the credit account second.
7. Place the summary, called a narration, under the credit account.


Instruction 3:
The record keeping process for a small business involves:
1. Commencing the business with cash provided by the owner or outside sources.
2. Purchasing equipment and other assets to operate the business.
3. Transactions occurring and being recorded on source documents.
4. Information on source documents being recorded in the accounting system.
Instruction 4:
Full transcript