Accounting Department Terms and Definitions

1. Accrual Accounting: A method of accounting where revenues and expenses are recorded when they are earned and incurred, respectively, regardless of when the cash is received or paid. This provides a more accurate representation of a company's financial health.
2. Amortization: The process of spreading the cost of an intangible asset (such as a patent or copyright) over its useful life. This is done through periodic deductions from income.
3. Asset: Any resource owned by a business that is expected to provide future economic benefits. Examples include cash, equipment, inventory, and accounts receivable.
4. Audit: An independent examination of a company's financial records and activities to ensure accuracy, conformity to regulations, and proper internal controls.
5. Balance Sheet: A financial statement that provides a snapshot of a company's financial position at a specific point in time. It shows the company's assets, liabilities, and shareholders' equity.
6. Budget: A financial plan that sets out the company's expected revenue and expenses for a specific period. It helps management in controlling costs and allocating resources effectively.
7. Cash Flow: The movement of cash into and out of a business over a specific period. It shows the company's ability to generate cash from its operations and meet its financial obligations.
8. Cost of Goods Sold (COGS): The direct costs associated with producing or purchasing the goods or services sold by a company. It includes expenses such as raw materials, labor, and manufacturing overhead.
9. Depreciation: The systematic allocation of the cost of a tangible asset (such as buildings, vehicles, or machinery) over its estimated useful life. It reflects the wear and tear and obsolescence of the asset.
10. Equity: The residual interest in the assets of a company after deducting liabilities. It represents the shareholders' ownership in the business and is also known as net assets or shareholders' equity.
11. Expense: The cost of goods or services used up or consumed in the operations of a company. It is incurred to generate revenue and is recorded in the accounting period in which it is consumed.
12. Financial Statements: Formal records that present the financial activities and position of a company. The main financial statements include the income statement, balance sheet, statement of cash flows, and statement of shareholders' equity.
13. General Ledger: The central repository of all financial transactions of a company. It contains individual accounts that are used to record and summarize the company's financial activities.
14. Income Statement: A financial statement that summarizes a company's revenues, expenses, gains, and losses for a specific period. It shows the company's profitability and ability to generate income.
15. Internal Controls: Procedures and policies implemented by a company to safeguard its assets, ensure accuracy in financial reporting, and promote efficient operations. They help prevent fraud, errors, and inefficiencies.
16. Liability: Any obligation or debt owed by a company to external parties. Examples include accounts payable, loans, and accrued expenses. Liabilities represent the company's financial obligations or claims against its assets.
17. Payroll: The total amount of wages, salaries, bonuses, and deductions paid by a company to its employees. It also includes employer-paid benefits and taxes.
18. Reconciliation: The process of comparing two sets of records (such as bank statements and general ledger) to ensure they are in agreement. It helps identify and resolve any discrepancies or errors.
19. Revenue: The inflow of assets resulting from the sale of products, provision of services, or other business activities. It represents the company's earnings from its primary operations.
20. Trial Balance: A report that lists the balances of all general ledger accounts to ensure that debits equal credits. It is often used as the basis for preparing financial statements.
21. Variance: The difference between a budgeted or standard amount and the actual amount. Variances can relate to revenues, expenses, or other financial metrics and provide insights into performance and efficiency.