B C D,  E F G,  H I J K L M N,  O P Q R S T U V W X Y Z

A

Account:  A record that holds the results of financial transactions.

Accountant's Equation:  The equation that is the basis of the Balance Sheet: Assets = Liabilities + Owners' Equity. (Also, the response to "What does 1 + 1 equal?": "What do you want it to equal?")

Accounting:  A service that oversees, measures, and evaluates financial information for decision making purposes.

Accounts Payable:  Amounts due from your business to your creditors. Generally these are short term liabilities (30-120 days), and are shown under the Current Liabilities section in the Balance Sheet. (What you owe to other folks.)

Accounts Receivable:  Amounts due to your business from your customers. Generally these amounts are short term receivables (30-120 days), and are shown under Current Assets section in the Balance Sheet. (What other folks owe you.)

Accounts Receivable Turnover:  A measure used to determine a company's average collection period for receivables. Usually computed by dividing net sales (or net credit sales) by average accounts receivable.

Accrual Basis Accounting:  The practice of bookkeeping when income is recorded when earned and expenses are recorded when they are incurred. (Opposite of Cash Basis Accounting, the way you run your personal checkbook; personal finances are almost always cash basis. Believe it or not, Accrual Basis accounting turns out to be a truer way of showing the profitability of your business.)

Aging Schedule:  (No relation to Grandma's next birthday.) A schedule showing the length of time an invoice has been outstanding or held. Aging schedules are normally created for Accounts Payable and Accounts Receivable. For example, an aging schedule for accounts receivable can show how many days an invoice has been outstanding. Aging schedules can also be created for inventory.

Amortization:  The gradual and periodic reduction of an amount over time. It can apply to either the periodic write-down of an asset (see depreciation) or a gradual extinguishment of a debt (payments reducing loan principal).

Annual Percentage Rate (APR):  Also known as effective annual rate, is used to put investments with varying interest compounding periods (daily, monthly, semiannually) on a common basis. It is computed as follows:

Annual Report:  A report prepared by a business entity at the end of its calendar or fiscal year. It presents a company's financial position and operating results for use by interested parties, including potential investors, creditors, stockholders, and employees.

Arm's-Length Transaction:  Business dealings between independent and rational parties who are looking out for their own interests.

ASCII:  (pronounced, "ass-key") A standard computer code for the conversion of a character to a binary number (a combination of 1's and 0's) that is understood by almost all computers. Because it is a uniform code, it is used frequently in data transfer of all kinds.

Assets:  Economic resources owned or controlled by a person or company.

Audit:  The result of an independent accountant's review of the financial statements and their footnotes to ensure compliance with generally accepted accounting principles (GAAP) and to express an opinion on the fairness of the financial statements.

Audit Opinion:  The official result of an audit. A CPA's "unqualified opinion" means that the financial statements he/she has audited present fairly the financial position and operating results of the company in conformity with GAAP (in other words, "you pass"). A "qualified opinion" occurs under a number of circumstances, for instance, if the financial statements do not follow GAAP and the client refuses to make the needed changes (this may be anything from "not bad" to "really bad", depending on the reason for the qualified opinion; a string of qualified opinions is generally "bad"). An "adverse opinion" happens when the financial statements are misleading and do not fairly represent a company's financial position (in other words, "you fail"; If you're running a company that just got an "adverse opinion", get ready to find new employment.) Keep in mind that, just because you passed an audit, it does not mean that your company is in good financial shape. It just means that your books are a fair representation of what you did.

Top of Page