ACCOUNTING DICTIONARY

INTRODUCTION

Accounting as a discipline is a very interesting course. Accounting is a professional course like medicine, law, and host of others. We speak in the language that the ordinary man cannot understand. As an accounting student, you must learn how to speak in technical terms. This is what differentiate you from an economist, Geographer, Sociologists, etc. This is the major reason why they need us to always interpret all we say or write. What a wonderful discipline! You cannot be reading this course without knowing these terms alone is a stepping stone. It makes it more easier to understand. English language students needs to increase his/her stock of vocabulary in order to write well or understand a comprehensive passage and this is the major reason why the English dictionary was introduced. 

However, this article is designed in such a way that beginners and old students can be exposed to the various terms in accounting in order to facilitate their learning process. you have no choice than to succeed academically. This article will exposed you to many difficult terms in accounting.

MEANING OF TERMS 

AAA: American Accounting Association.

Accounting: The one that analyses accounting information, report and interprets to the users.

Accounting Conventions: (a) These are rules that must be followed strictly in preparing financial statements. (b) Accounting postulates, principles and concepts.

Accounting Equation: The functional relationship that exist among capital, assets and liabilities. A=C+L.

Accounting Errors: These are accounting mistakes committed and causing a discrepancy in the agreement of the trial balance.

Accounting Income: This is the difference between the realize revenues arising from the period of transaction and the corresponding historical cost.

Accounting Period: 12 Calendar months, that is, one year.

Accounting Standards: These are rules comprising of the best of practices issued from time to time by a duly empowered body.

Accounting: (a) An information system that provides financial information for decision making purpose. (b) Observation of economic activities, recording, analyzing, reporting and interpreting to the users.

Accrual Concept: Income should be recognized, when earned and expenses when incurred or not.

Accrual Convention: This recognizes the sum due and payable as expenses.

Accrual: This is payment not yet made for services already rendered. 

Accumulated Fund: This is the excess of assets over liabilities of a non profit making organization.

Active Partner: This contributes capital and participates in the business.

Activity Ratio: This indicates how well the assets of the business are used.

Actual Royalty: This is the actual payment made annually by the grantee to the grantor.

Analysis: The preparation account is an extension of the profit and loss debited.

Asset: This is the future benefit of a business organization e.g. land and building, freehold premises, plant and machinery, motor van, cash, bank, debtors, etc.

Audit Committee: This is a creation of the 1990 CAMA which consist of equal representation of shareholders and directors who are required to examine the report of the auditor and make recommendations to the annual general meeting.

Auditor: This is one that examines and report upon the balance sheet and profit and loss account of a company.

Auditors Report: This is a report upon the balance sheet and the profit and loss account laid before the company in annual general meeting.

Available Cash Balance: This is the same as the beginning cash balance less than the minimum cash balance required.

Bad Debt Recovered: Debt previously written off is recovered in later years.

Bad Debt: Irrecoverable Debt

Balance Sheet: (a) This is a snap shot of all the assets and liabilities of a business organization (b) It is a statement of affairs that shows the worth of assets and liabilities of a business organization.

Bank Overdraft: This situation arises when an account is over drawn.

Bank Reconciliation Statement: This is a statement that reconciles the difference between the bank statement and the cash book.

Bills Of Exchange: This is made up of bills payable and bills receivable which a company can hold till maturity date or discounted before maturity date.

Bonus Capitalization: (a) Script issues (b) Shares issued to existing share holders for no cost.

Bonus Scheme: The principle behind the bonus scheme is that a standard time is not set for a task and if an employee complete the work on the standard or longer time he is paid normal time rate but if he completes the task less than the standard time, he is compensated for the time saved.

Book-Keeper: The one that observes the economic activities and put them into records for analysis.

Book-Keeping: This exist to provide a data base from which accounting report can be prepared.

Branch Account: This is the process where branches render accounts of their business transactions to the head office.

Branch Stock Account: This account is debited and goods sent to branch account credited with the selling price of goods transferred to branch.

Branch Stock Adjustment Account: It discloses the branch profit or loss. it is like the conventional trading account.

Break Even Pricing: This is influenced by the marginal costs of the branches and the unit contained in each batch.

Capital Account: This is the account that accommodates the initial capital contributed by partners.

Capital Adequacy Ratio: This indicates the extent to which the bank fixed capital is sufficient to meet business risks and absorb any operational loss.

Capital: This is owners equity and fund from external sources needed to start up a business.

Carriage Inward: This is the cost of transporting stock out of the business premises to the market overt.

Cheque In Transit: This occurs when Joe Dee Ltd sends cheque to Enterlegit.com and Enterlegit.com has not received.

Cash Book: This records cash, transactions e.g, single column cash book, double column cash book, and three column cash book.

Cash Budget: A cash budget is the company's expected cash flows, including both inflow and outflow in a given period of time.

Cash Discount: This is given to encourage prompt payment e.g, discount allowed and discount received.

Cash Flow Statement: This statement reports the Entity cash flows during this period.

Cash Payment: This is the cash required to pay for material purchases, manufacturing operations cost, tax, dividends, etc.

Cash Receipts: This is computed from the collections from account receivable, cash sales, sale of assets, borrowing issues stocks etc.

Cash: This is cash in hand, cash in bank and cash equivalents.

Closing Stock: This is collective term for the business ram materials and finished goods at the end of the accounting period usually a year.

Consignee: This is an agent to the consignor.

Consignment: This is a batch of goods moving from one party referred to as the consignor.

Consignor: This is the owner of the goods, that is, the one who sends the goods to the consignee.

Continuous Stock Taking: The principle here is that each class of material is physically counted at a time and the figure recorded and this kind of stock taking is carried on almost all the year round for different groups of materials.

Contra Entry: This is the transfer of money from cash to bank and vice versa.

Contrack Pricing Or Quotation: This is a detailed cost analysis required to show the total cost of executing the contract and the expected profit.

Control Accounts: These are accounts introduced into cash sectional ledger in order to make that ledger self balancing.

Copyright: This is the right of the author, musician etc.

Cost Concept: Assets should be valued at their initial cost of acquisition.

Cost of Goods Available for Sale: This is the totality of the company's purchases, opening stock, carriage inwards and wages, etc.

Cost of Goods Sold Budget: This is denoted by; opening stock net purchases (i.e, purchases less return)-closing stock.

Cost Of Sales: Cost of sales constitutes opening stock, purchases, wages, carriage inwards and less closing stock.

Cost Plus Predetermined Make-Up Percentage: This involves charging goods to branches at cost plus a fixed percentage.

Cost: This is the value of economic resources used in the production of goods and services.

Credit (Cr): It is an induction that one has paid.

Current Account: This is capital account extension.

Current Liabilities: These are economic resources owed by the company and they are due within one accounting period (one year) e.g, accrual, overdraft, creditors, payable, etc.

Current Ratio: It shows the number of times current assets covers current liabilities.

Debenture: This is loan certificate.

Debit (Dr): This is an indication that one has received.

Deed Of Partnership: (a) This is the document that regulates the operation of the partnership business. (b) It contains all the rules and regulations governing the partnership business.

Del Credere Commission: This is an additional commission given to the consignee for assuming a responsibility of collecting debts.

Depreciation: The wear and tear of an assets as a result of usage or passage of time.

Differential Piece Rate: Under this method, the amount of money paid per unit of output is graduated.

Direct Cost: These are cost that are not traceable to the final finished goods.

Direct Expenses: These are expenses that are traceable to the cost of production, e.g, wages, carriage inward, etc.

Direct Labor: This relates to work performed that is directly traceable to particular units of product.

Direct Materials: These raw materials are traceable to, or directly associated with cost object.

Direct Report: Directors are required by law to prepare a report to shareholders on issues outlined in part 1 and 2 schedule 5 of CAMA 1990.

Disc Method: Some organizations design metallic or wooden disc in which the employment number of staff is printed boldly.

Discount Allowed: This is a kind of cash discount given by the seller to buyer.

Discount Received: This is one given to the seller by his manufacturer or producer.

Discount: This is an incentive given by the seller to the buyer encourage high patronage, bulk purchase or prompt payment, e.g. cash discount.

Double Partner: (a) Sleeping partner (b) Contribute capital but does not participate in the business.

Double Entry Principle: For every debit entry, there is a corresponding credit entry and vice versa.

Drawings: This is the term used to describe the amount of cash or goods taken by the owner from the business for private or personal use.

Earning Per Share (EPS): This indicates the profit accruing to a unit claim of all the assets of the business.

Economic Activities: The exchange of values that can be captured in monetary terms.

Entity Concept: Business entity should be separate from those that have economic interest in it.

Equity: This represents owner's fund.

Error Of Commission: This occurs when the entry is made into a different account but of the same classification e.g. Joe's account taken as Joel's account.

Error Of Compensation: This has equal effect on other sides of the ledger.

Error Of Complete Reversal: Account that suppose to be debited but now credited and vice versa.

Error Of Omission: This is committed when a transaction is completely left out.

Error Of Original Entry: This is an error that originated from the source document.

Error Of Principle: This is committed when an entry is made into an account of different classification e.g. assets of personal account.

Eye Ball Review: This is a method of inventory control which is based on observation of the particular material.

Final Account: (a) Trading, Profit and loss account (b) income statement.

Finance Lease: This is payment made to provider of capital.

Financed By: This constitutes, net profit, opening capital of the company and less drawing by the owner of the business.

Financial Expenses: These are financial charges such as bank charges, interest on loan and a host of others.

Financial Statement: These are the summary of the millions of economic transaction that have taken place in a business organization e.g. balance sheet, trading profit and loss account, cash flow statement etc.

Finished Goods: These are already produced goods ready for sales.

First In First Out: This is the process of issuing the old stock first before the new stock.

Fixed Asset: These are assets that can last for more than one accounting period.

Fixed Cost: These are cost which do not change with level of activities.

Flexible Budget: Flexible budgets are budgets that adjust for changes in the level of activities.

Folio: This is a reference column of any book of account.

Fundamental Accounting Conventions: These go to the root of financial accounting e.g. entity and money measurement concepts.

General Journal: (a) This records miscellaneous items (b) It is used for correction of errors.

Going Concept: Every business organization must continue to operate in to the forcible future.

Goodwill: This is a commercial advantage that a particular business organization has over others.

Gross Profit Margin: It shows for every £1 of sales, the proportion that relates to gross profit.

Gross Profit: This is the excess of sales over cost of sales.

High Level Time Rate: This is introduced to pay workers high rate of wages per hour to generate special interest and effort.

Hire Purchase: This is a financial arrangement resulted to where it is not possible to out-rightly acquire the item.

Holding Profit: This is an assumed profit.

IAS: International Accounting Standard.

Impersonal Account: (a) This is an account in the name of the reason for the transaction (b) It can real or nominal.

Incomplete Record (Single Entry): This occurs when records are not kept in line with the double entry book keeping system.

Incorporation Period: This is a period when the company was formally incorporated by the Corporate Affairs Commission.

Indirect Cost: They are cost expenses that are not traceable to the cost of production, e.g. transport, electricity, insurance, bad debt, increase in provision, etc.

Intangible Assets: these are assets that cannot be seen nor touched e.g, goodwill, patent right, copyright, etc.

Intercompany Indebtedness: These are debts in form of dividends, sales on account, bill receivable and payable owed by one company in the group to another company in the same group.

International Harmonization: This is used to reduce the variation in accounting practices occasioned by difference in socioeconomic ideology.

Interpreting: This is the explanation of the technicalities associated with the prepared financial statements to the users.

Investing Activities: These are activities that increases the long term assets available to the business organization.

Investment Securities: These are securities held by the bank from where they are expected to earn return or income.

Investor Ratio: This provide information as to the profitability of various investment.

Issue Of Share At a Premium: share are said to be issued at premium, when they are issued at a price above the nominal value of the shares.

Issue of share at a Discount: Shares are said to be issued at discounts when they are issued at a price below the nominal value.

Issue of Share at Par: Shares are issued at par, when the issue price is equal to the nominal value of the shares.

Issue of Shares for non Cash Consideration: This is the issue of share not for cash or on account but for non cash consideration to reward the services of promoters who muted the idea of establishing the business.

Joint Venture: This is a type of temporary partnership arrangement whose object is restricted to a particular operation.

Journal: Also subsidiary book e.g. sales day book, purchasing day book, etc.

Labor Cost: Cost of human effort.

Labor Costing Control: This is a way of controlling staff to ensure that they do the work they are paid to do.

Labor Report: This is a report sent to the management that shows labour turnover, payroll fraud, remuneration method even at interval of time.

Labor Turnover: This is a term used to refer to the rate at which employees leave the employment of an organization.

Last in first Out(LIFO): This is a process of issuing the new stock first before the old one.

Lease: This is a contractual agreement between an owner and another party which conveys to lease the right to use the leased assets for an agreed period of time in return for a consideration called rent.

Ledger: (a) The final destination of all accounting entries (b) The primary book of account.

Lessee/Tenant/ Grantee: The owner of a right or asset.

Leverage Ratio: These indicate the extent to which fixed interest capital is used to finance the operation of a business.

Liabilities: These are organizational obligation to outsiders.

Liquidity Ratio: These provided information as to the short term survival of the organization.

Long Term Liabilities: These are economic resources owed by the organization. They are long term loan whose tenure extends beyond one accounting period e.g. debenture, long term load, etc.

Low Level Time: This is a time rate paid on hourly, weekly, or monthly basis.

Manual Register: Workers are made to sign this register as they report for duty and time of leaving the office.

Manufacturing Account: It is used to ascertain cost of production in manufacturing company.

   Matching Concept: Revenue and expenses should be matched at the end of the accounting period.

Materiality Cost: Cost of raw materials.

Material Management: This involves material planning and material control.

Materiality Concept: Only items of high materials value should be recorded in the books of account.

Memorandum Trading Account: This is a branch trading account which profit figure must reconcile with that of the branch stock adjustment account.

Minimum Royalty: This is royalty paid annually by the grantee to the grantor.

Minimum Subscription: This is minimum amount of capital that can be raised by the issue of shares.

Minority Interest: This is the interest that is external to the holding company.

Miscellaneous assets: These include physicals assets as land building, etc which provide operating leverage for the bank.

Monetary Measurement Concept: Accounting records economic activities that can be captured in monetary terms e.g, £, $, £.

NASB: Nigeria Account Standard Board.

Net Asset: (a) Net worth (b) This is the addition of all fixed assets and current asset of a company.

Net Loss: The excess of indirect expenses over gross profit.

Net Profit: This is the excess of gross profit over indirect expenses.

Networth: This is the addition of all fixed assets  and net current asset.

Next in First Out (NIFO): This means the batch of stock that followed the first batch should be issued out first.

Nominal Account: These are accounts that have expired that should be written off in the trading, profit and loss account e.g, expenses, losses, gain, expenditure, etc.

Nominal Value Of Share: This referred to as per values dates back to history of share ownership.

Non Profit Making Organization: These are organization that do not operate for profit maximization but for the welfare of their members e.g. Church, Clubs, etc.

Non-Returnable Containers: These are containers whose costs are already charged to the cost of production.

Nominal Partner: Does not contribute capital but participate in business.

Note on Account: Note on account form an integral part of financial statement of which help to expend and expatiate on figures or items reflected in the profit and loss account and the balance sheet.

Objectivity Concept: Only items that have economic evidence should be recorded in the books of account.

Opening Stock; This is the company's collective term for the raw materials or finished goods at the beginning of the accounting period.

Operating Activities: These are activities that creates revenue or expenses in the organization's major line of business.

Operating Expenses: All indirect expenses, such as, discount allowed, rent, depreciation, electricity bills, sundry expenses, salaries and wages, etc.

Operating Profit: This is profit realized from business transaction.

Over Casting Error: This occurs when figure is over estimated, e.g £250 as £500.

Overhead Absorption: This is the charging of the allocated or apportioned cost center overhead cost to units.

Overhead Apportionment: This means that the overhead cost will be divided among the two or more cost centers using any equitable basis so that each receives a fair charge of the cost it caused.

Overhead Cost: Incidental expenses.

Partnership: This is a relationship that subsists among partners who contribute their capital together for the running of a business with the view of profit making.

Patent Right: This is the right of an inventor.

Periodicity Concept: Financial statements should be prepared at interval of time usually one year.

Personal Account: This is the account of individuals. For example, debtors and creditors.

Petty Cash Book: This is a book used in recognizing petty items by the petty cahier. 

Physical Stock Taking: This is where every item of the stock is coded and the weight or quantities counted are entered in the record sheet including the value of the stock at cost.

Piece Rate: This is a method of remuneration in which worker is paid a fixed amount for every unit produced regardless of the time taken to do the work.

Pre-Incorporation Contract: This is a contract in the period before incorporation.

Premium Bonus Scheme: It shows how the time saved is shared between the employee and the organization.

Prepayment: This is payment made in advance for services not yet rendered.

Price Earning Ratio (PER): It indicates how long it will take to recover the initial investment given that a firm pays out all its earning as direct cost such as direct material, direct labor and direct expenses.

Private Ledger: This records accounts with the owner of the business such as capital, drawing, etc.

Proced ural Accounting Conventions: These conventions border on the quality of the financial information such as the matching concept, cost concept objectivity, etc.

Profit Sharing Scheme: Under this, workers are paid in addition to their wages as a definite percentage of the profit made within the financial period.

Profitable Ratio: This indicates ability of management to use the resources of the organization efficiently.

Prospectus: This is a document prepared by a reporting accountant at the instance of the under writer which is to serve as a means of advertising the company to members of the public.

Provision: This is an amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for known liability of which the amount cannot be determined with substantial accuracy.

Prudency Concept: Profit should not always be anticipated but losses so that provision can be provided for them.

Purchase Consideration: This is the proceed not necessary cash which a vendor is required to pay to acquire the tangible asset and goodwill of an existing company.

Purchase Day Book: (a) This is a book that records all credits purchases (b) Purchase journal.

Purchase Ledger Day Book: This is also used to summarize the total number of creditors. 

Purchase Return Day Book: (a) This is return outward (b) This book records all purchases returns.

Quantity Discount: This is given to encourage bulk purchases.

Quick/Acid Test Ratio: It shows the extent to which liquid assets covers current liabilities.

Ratio: This is a quantitative factor which expresses relationship between two or more values.

Real Account: Assets account e.g motor van, land and building, premises, furnitire and fittings, plant and machinery, cash, bank, etc.

VAT: Value Added Tax.

Working Capital: This is the excess of current assets over current liabilities.

Work-in Progress: This is on process.