• Home
  • Audit and Accounting
    • Audit and Assurance
    • Financial Planning
    • Accounting and Bookkeeping Services
    • Payroll
    • Outsourced Controller
    • Cloud Accounting
    • PPP Loan Forgiveness Assistance
  • Tax and Advisory
    • Tax and Advisory
    • Tax Resolution
    • Filing Prior Years Returns
    • Owing the IRS Money
    • Behind on Payroll Taxes
    • When Your Spouse Owes the IRS
    • Help with Your IRS Audit
  • Industries
    • Services
    • Construction
    • Medical and Health Care
    • Real Estate
    • Non Profit
    • Retail
    • Restaurant
    • Manufacturing
    • Wholesalers and Distributors
    • eCommerce
  • Resources
  • Blog
  • About
    • About Us
    • Send Us Your Referrals
  • Contact
(855) 543-6476
client.service@waatcpa.com
April 26, 2018

Boost Your Accounting Know-How with These Terms

Keston Woodhouse Accounting

The field of accounting has its own vocabulary, which can sound like a foreign language to some people. Your financial savvy will increase by learning a few new accounting terms. You’ll be “speaking accounting-ese” in no time, and you’ll become a smarter entrepreneur too.

Trial balance

A trial balance is an accounting report that simply lists the current balances of your accounts in your chart of accounts as of a certain date. It can also be called working trial balance. Another way to look at the trial balance is it’s a very informal version of a balance sheet.

Entity

Entity is a generic term for a company or organization. There are many types of entities: nonprofit, corporation, partnership, and sole proprietor.

Going concern

Going concern is an accounting principle. An entity is a going concern if it’s expected to continue operations in the near future.

Double entry

A double entry bookkeeping system means that when a transaction occurs, two accounts are impacted. For example, when an invoice is generated, entries are made to both the sales account and the accounts receivable account. It was invented in the 1400s and is widely used in modern accounting today.

Retained earnings

Retained earnings is an account in the equity section of the balance sheet. It’s the amount of earnings that is reinvested in the company after dividends are paid out. It’s computed by taking the retained earnings beginning balance, adding income or subtracting loss for the period, and subtracting any dividends paid.

Realization

A business transaction has many stages. It starts with an idea, may progress to a promise, then it actually happens. Accountants need to figure out when it becomes “real,” when to record it on the books. This is the concept of realization. A transaction is realized and put on the books when there is a contract, a legal obligation, an exchange of products or services, or an exchange of cash. There are many complicated principles and rules to help accountants determine this timing.

Cost principle

The cost principle is a foundational accounting principle. It means that when a transaction is booked, it is booked at cost and not market or current value. So even though an asset may have gained in value after you bought it, your books will still reflect the cost of the item, not the current value.

Client portal

A client portal is a software application where client files can be stored and retrieved securely. Both the accountant and the client have access to the portal.

Engagement letter

An engagement letter is the contract that defines the relationship between the client and the accountant. It is typically signed before the work starts and can be renewed once a year. It can also be changed if the scope of the work changes.

Matching

The matching principle is another basic accounting principle. It says that for any particular transaction, all aspects should be booked in the same accounting period. For example, let’s say you incurred expenses on an order in November. The order wasn’t delivered or invoiced until December. To meet the matching principle, the expenses should be deferred until December when they can be matched with the revenue that relates to the expenses.

Adjusting entry

An adjusting journal entry is made when account balances need to be corrected. An example is depreciation expense, which is typically booked with an adjusting entry. Accountants will make several adjusting entries like this at year-end.

Reversing entry

A reversing entry is a form of adjusting entry that is made in the period following an adjusting entry. It reverses the adjusting entry. One example of this is a cash basis taxpayer that is tracking accounts receivable. The accounts receivable balance is adjusted to zero prior to year-end and reversed on January 1.

How many terms did you already know? Now you can talk with your accountant about these concepts.

Five Fun Customer Perks to Set You Apart in the Marketplace How to Read Your Income Statement

Related Posts

Accounting, Blog, Business Tips, News

PPP January 2021 Update

Accounting, Blog, Business Tips, Tax

A 39-Item Tax and Accounting Year-End Checklist for Your Small Business

Accounting, Accounting Software, Business Growth, Business Tips, Technology

5 Signs You Need to Upgrade Your Accounting System

Recent Posts

  • Fighting Cybersecurity Threats in Your Business
    February 25, 2021
  • PPP January 2021 Update
    January 13, 2021
  • Wrapping Up 2020
    December 31, 2020
    • Home
    • Accounting and Audit
    • Tax
    • Industries
    • Resources
    • Blog
    • About
    • Contact

    Contact Us

    Tax Services and Accounting services

    Woodhouse Associates CPA

    3510 Main Street, 1st Fl Suite 200, Bridgeport, Connecticut 06606

    7421 Douglas Blvd, Suite #478, Douglasville, Georgia 30135

    (855) 543-6476 | client.service@waatcpa.com

    Client Login

    Copyright Woodhouse Associates CPA 2020 | Site Design by Accelerator Websites