Bookkeeping For Dummies, 3rd Edition

Glossary

Accounts Payable:

An account used to record money due to vendors, contractors, and consultants for products or services purchased by the company.

Accounts Receivable:

An account used to record income not yet received on products sold or services provided to customers that will be collected at a later date.

accrual accounting:

The accounting method used by most businesses today. Transactions are recorded when they actually occur, even if cash has not changed hands. Income is recorded when it’s earned (not when the business is actually paid for the products or services), and expenses are counted when goods or services are received, even if the business has not yet paid for the goods or services.

amortization:

An accounting method used to show the use of an intangible asset by writing off a portion of the asset’s value each year.

arm’s length transaction:

An exchange of assets, products, or services between two unrelated or unaffiliated parties or, if the parties are related, conducted as if the parties were unrelated to avoid the appearance of conflict of interest.

assets:

All things owned by the business, such as cash, buildings, vehicles, furniture, and any other item that’s used to run the business.

average costing:

An accounting method used to value inventory by calculating an average cost per unit sold.

bad debts expense:

A categorization used to write off customer accounts that are determined to be not collectible.

cash-basis accounting:

An accounting method that’s based ...