Vocabulario Financiero

Glossary of Accounting Terms

A

Above the line : This term can be applied to many aspects of accounting. It means transactions, assets etc., that are associated with the everyday running of a business.
Account: A section in a ledger devoted to a single aspect of a business (eg. a Bank account, Wages account, Office expenses account).
Accounting cycle: This covers everything from openingthe books at the start of the year to closing them at the end. In other words, everything you need to do in one accounting year accounting wise.
Accounting equation: The formula used to prepare a balance sheet: assets = liability + equity .
Accounts Payable: An account in the nominal ledger which contains the overall balance of the Purchase Ledger.
Accounts Payable Ledger: A subsidiary ledgerwhich holds the accounts of a business's suppliers. A single control account is held in the nominal ledger which shows the total balance of all the accounts in the purchase ledger.
Accounts Receivable: An account in the nominal ledger which contains the overall balance of the Sales Ledger.
Accounts Receivable Ledger: A subsidiary ledger which holds the accounts of a business's customers. A singlecontrol account is held in the nominal ledger which shows the total balance of all the accounts in the sales ledger.
Accretive: If a company acquires another and says the deal is 'accretive to earnings', it means that the resulting PE ratio (price/earnings) of the acquired company is less than the acquiring company. Example: Company 'A' has an earnings per share (EPS) of $1. The current shareprice is $10. This gives a P/E ratio of 10 (current share price is 10 times the EPS). Company 'B' has made a net profit for the year of $20,000. If company 'A' values 'B' at, say, $180,000 (P/E ratio=9 [180,000 valuation/20,000 profit]) then the deal is accretive because company 'A' is effectively increasing its EPS (because it now has more shares and it paid less for them compared with its own shareprice). (see dilutive )
Accruals: If during the course of a business certain charges are incurred but no invoice is received then these charges are referred to as accruals (they 'accrue' or increase in value). A typical example is interest payable on a loan where you have not yet received a bank statement. These items (or an estimate of their value) should still be included in the profit & lossaccount. When the real invoice is received, an adjustment can be made to correct the estimate. Accruals can also apply to the income side.
Accrual method of accounting: Most businesses use the accrual method of accounting (because it is usually required by law). When you issue an invoice on credit (ie. regardless of whether it is paid or not), it is treated as a taxable supply on the date it wasissued for income tax purposes (or corporation tax for limited companies). The same applies to bills received from suppliers. (This does not mean you pay income tax immediately, just that it must be included in that year's profit and loss account).
Accumulated Depreciation Account: This is an account held in the nominal ledger which holds the depreciation of a fixed asset until the end of theasset's useful life (either because it has been scrapped or sold). It is credited each year with that year's depreciation, hence the balance increases (ie. accumulates) over a period of time. Each fixed asset will have its own accumulated depreciation account.
Advanced Corporation Tax (ACT - UK only - no longer in use): This is corporation tax paid in advance when a limited company issues a dividend.ACT is then deducted from the total corporation tax due when it has been calculated at year end. ACT was abolished in April 1999. See Corporation Tax .
Amortization: The depreciation (or repayment) of an (usually) intangible asset (eg. loan, mortgage) over a fixed period of time. Example: if a loan of 12,000 is amortized over 1 year with no interest, the monthly payments would be 1000 a month....