Accounting For Dummies, 5th Edition

Appendix

Glossary: Slashing Through the Accounting Jargon Jungle

ABC: The acronym for activity-based costing, which is a cost allocation scheme that allocates the cost of support functions in an organization (such as maintenance) based on the units of activity of the support function that are used by other departments and processes in the business.

accounting: The methods and procedures for identifying, analyzing, recording, accumulating, and storing information and data about the activities of an entity that have financial results, and preparing summary reports of these activities internally for managers and externally for those entitled to receive financial reports about the entity. A business’s managers, investors, and lenders depend on accounting reports called financial statements to make informed decisions. Accounting also encompasses preparing tax returns that must be filed with government tax authorities by the entity, and facilitating day-to-day operating functions.

accounting equation: Assets = Liabilities + Owners’ Equity. This equation expresses the fundamental duality, or two-sided nature, of accounting and is useful for explaining double-entry accounting, which uses debits and credits for recording transactions. It summarizes the balance or equality of an entity’s assets and the sources of its assets, which fall into two categories: liabilities and owners’ equity.

accounting fraud (also called cooking the books): The deliberate falsification or manipulation of accounting ...