The Income Statement Glossary

 

Accounting Boot Camp Accounting Glossary


At Accounting Boot Camp, we want to give you the resources you need to successfully learn the fundamentals of accounting. This handy accounting glossary defines some of the basic accounting terms that you will come across in our accounting for beginners series, Virgil Whitelaw: Forensic Accountant in Space.


We recommend that you keep this glossary handy as you make your way through all five installments of Virgil Whitelaw –– and be sure to complete the associated quizzes to ensure that you’ve mastered these accounting basics.  



Accounts Receivable

Accounts receivable refers to any money owed by a customer to another company (or perhaps an individual) as payment for goods or services. The accounts receivable is considered an asset on your company’s balance sheet, since there is an expectation that your clients are legally mandated to pay you this money.


Accruals

Accruals are those expenses which your business or company has already incurred but has not yet paid. Accruals also include sales that have been completed but have not yet been billed to the client or customer. In other words, accruals can be positive or negative in terms of their financial impact to your books, and are typically due to the time required for accounting staff to complete the processes.


Accrual Basis Accounting

In the accrual accounting method, your business reports when income is earned and when expenses are incurred, allowing for flexibility when income and expenses are ultimately recognized. It is important to understand that there are rules which dictate when income is recognized for the reporting period, and one must follow best practices for handling bad debt expenses.


Accrued Expense

Accrued expenses are single accounting expenses that are being reported but haven’t yet been paid.


Assets

Assets are everything that a company owns and can be divided into two basic categories: tangible and intangible assets. In most cases, accounting assets are tangible assets, including property, cash, equipment, land, and tools. Intangible assets can include patents, trademarks, copyrights and stock.


Learn more when you use this accounting glossary

to guide you through the second installment of our Virgil Whitelaw series, Assets.


Balance Sheet

A balance sheet is an overview of a company’s financial status, including assets, liabilities and equity.


Capital

Capital, or ‘working capital’, is money that can be accessed immediately and is the money a company has available to spend on items, equipment or other investments for the business. Capital does not include assets or liabilities.


Cash Basis Accounting

Cash basis accounting is a straightforward accounting method in which revenues and expenditures are recorded when payments are received and sent. This method of accounting can be useful for companies that don’t maintain inventories, as well as new businesses and certain types of small businesses.


Debt Expense

This is an entry on a company’s income statement that tracks non-collectible accounts receivable during a specific period of time.


Depreciation

Depreciation is the decrease in an item’s value over time. As equipment that can directly impact the company’s ability to make money (typically items that are used for more than one year) depreciate, these items can be written off on tax returns based that depreciated value.


Dividends

Dividends are company earnings that are distributed on a regular basis to company shareholders. Dividend amounts or percentages are typically decided by a corporation‘s board of directors and can be issued as cash, shares of stock or other property.


Owner’s Equity

Owner’s equity is the amount of money that has been invested in the company by its owners. If the company is small with only a handful of owners, this is referred to as “owner’s equity” vs. simply “equity.” If the company has many different owners, or if the company’s ownership has been parsed out via stock options, equity can also refer to ownership collectively held by shareholders.


Learn more when you use these basic accounting terms

to guide you through the fourth installment of our Virgil Whitelaw series, Owner’s Equity.


Expenses

There are typically four types of expenses: fixed, variable, accrued, and operational.


Fixed Expense

Fixed expenses stay consistent from month-to-month, year-to-year. This typically includes expenses like salaries, rent and so forth. These costs are not affected by fluctuations in sales, production or the market.


Fiscal Year

A fiscal year is a period of time that a company uses for accounting purposes and in preparing financial statements. This is often broken up into quarters (e.g, January through March would be Q1 of a fiscal year). Generally, fiscal-year start and ends dates are determined by the company based on how long it will take to complete annual accounting processes, close out the books for the year and prepare financial statements and tax forms.


Forecasting

The process of using a company’s historical financial data to predict future business trends, forecasting is typically used by organizations to best estimate budgets for an upcoming period of time. This often includes sales records and expenses and supply and demand figures.


General Ledger

This is the complete recording of a company’s financial transactions over the lifetime of the organization.



Income Statement


An income statement is a financial report which details the financial performance of your company over a specific period of time. Also known as the Profit and Loss statement, this report lists earnings, expenses and net profits for said accounting period.


Learn more when you use this accounting glossary

to guide you through the first installment of our Virgil Whitelaw series, The Income Statement.


Journal

Journals can also be referred to as accounts. This is where transactions are recorded as they occur and before they are transferred to the official accounting record, such as the general ledger.


Liabilities

Liabilities are debts that a company is responsible to pay in the short or long term.


Learn more when you use these basic accounting terms

to guide you through the third installment of our Virgil Whitelaw series, Liabilities.


Revenue

Revenue is the total amount of money your business collects for goods sold or services rendered before any expenses are subtracted. This would include credits or discounts for products that have been returned by the customer.


Trial Balance

Trial balance is an exercise used to confirm final figures before generating financial statements. It requires placing debits and credits on a worksheet to ensure that any current balances are correct.


Learn more when you use this accounting glossary

to guide you through the fifth installment of our Virgil Whitelaw series, Debits & Credits.


Variable Expense

Variable expenses are those expenses which can fluctuate based on production or sales. For example, if you sell magazines, your costs on ink and paper may increase or decrease based on the number of magazines you sell in a given period.