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Appendix F. Glossary

This appendix provides a glossary of important terms that were used in this book.

account

A record for maintaining financial information. A separate record, or account, is used for each type of information, such as cash, sales revenue, repairs expense, and so on.



accounts payable

An account that tracks the amounts you owe for items or services you purchase.



accounts receivable

An account that keeps a running balance of the amounts that your customers owe you.



accrual basis

A system of accounting in which revenue is reported when it is earned and expenses are reported when they are incurred, regardless of the actual dates on which money is received or payments are made. Contrast to cash basis.



accumulated depreciation

An account composed of the total of depreciation expense deducted.



aging

The process of tracking due dates of unpaid bills.



amortization schedule

A report that shows the balance of the loan after each payment is made and a breakdown of the interest and principal portion of payments on the loan.



assets

Rights and resources that belong to your company and have future value.



balance sheet

A report showing the value of a business based on assets (items and resources owned), liabilities (amounts owed), and equity (the difference between assets and liabilities).



base pay rate

The rate for working standard hours, as distinct from a rate for overtime or holiday hours.



book value

The value of the company’s assets (items that the company owns), minus what the company owes (amounts due to others). Also called equity.



capital

Amounts invested in a company by its owners.



cash basis

An accounting system under which revenue is reported as income only when it is received, and expenses are reported only when the bills are actually paid. A retail store, where income is recorded as it is received in the cash register, is an example of a cash-basis business. Compare to accrual basis.



chart of accounts

A group of categories into which you categorize your company’s income, expenses, debts, and assets so that you can make sense of all your business transactions in the form of professional-looking financial statements.



contra asset

A type of asset account whose purpose is to offset the value of the assets. An example is an Accumulated Depreciation account, which offsets the account containing the cost of an asset by the amount of the accumulating depreciation.



cost of goods sold

The cost of goods held in inventory and then sold.



credit

Depending on the type of account, either an increase or a decrease to the balance of the account. Liability, equity, and income accounts are increased with credits. Asset and expense accounts are decreased with credits.



credit memo

A statement that reduces the balance due on a purchase. It is usually a result of a return of merchandise or a defect in merchandise.



customer type

Categorizations of different kinds of customers, such as wholesale, commercial, and retail customers.



daily activities

QuickBooks activities that need to be performed daily, such as entering bills, checks, deposits, sales, and employee time.



debit

Depending on the type of account, either an increase or a decrease to the balance of the account. Liability, equity, and income accounts are decreased with debits. Asset and expense accounts are increased with debits.



equity

The net worth of the company, or the total assets reduced by the total liabilities.



equity account

An account that reflects the value of the company. Included are accounts such as Capital Stock, Preferred Stock, Retained Earnings, Owner Draw, and Additional Paid-In Capital.



expenses

Costs incurred in an attempt to obtain revenue.



FOB

Free On Board. Refers to the transfer of ownership of merchandise from seller to buyer and is based on where the merchandise is in the shipping process.



general journal entry

Adjustments that are made to the balances in your accounts without the use of forms, such as invoices, bills, and checks. A general journal entry must always have two sides—a debit and a credit.



income

The result when expenses are subtracted from revenues.



inventory

The items you sell to earn money in your business. You might sell machine parts, books, or groceries that you purchase somewhere and offer for sale to others. Or you might produce your own inventory, such as clothing that you make, ships that you build, or pottery that you create.



job

A project that has a beginning and an end. You might have multiple jobs for the same customer. QuickBooks can track the income and expenses for each job separately.



job type

A categorization of the types of jobs you perform. For example, as a wedding photographer, you might offer a standard and a deluxe picture package.



liability

Obligations that you must satisfy by the disbursement of assets (such as payment of cash) or by the performance of services.



line of credit

A type of loan, usually a bank loan, from which you can draw money when needed and pay it back on a predetermined schedule.



maintenance releases

Downloadable updates to the QuickBooks software that fix small problems and offer the latest information.



net income

The result when total expenses are deducted from total income.



net worth

The term applied to the sum of a company’s equity accounts. If you add the value of the company’s assets (items that the company owns) and subtract what the company owes (amounts due to others), the resulting amount is the book value of the company, or equity.



parent account

In QuickBooks, the major category of an account. You can provide more details of the components of a parent account by creating subaccounts. The total value of all the subaccounts of one parent make up the total amount in the parent account.



principal

The face value, otherwise known as the original amount, of a loan.



profit and loss statement

A statement covering a specific time period and listing income earned for the period and expenses incurred during the period.



service items

A job that you perform for which you charge a customer.



start date

The date on which you want to begin tracking information in QuickBooks. When you set up a company in QuickBooks, you need to enter all transactions that have occurred in the company from the start date to today.



subaccount

In QuickBooks, the subsidiary category of an account. You can provide more details of the components of a parent account by creating subaccounts. The total value of the subaccounts of one parent make up the total amount in the parent account.



type lists

In a submenu of the Lists menu, you’ll find Other Lists. Of particular interest here are the type lists. Types enable you to further break down your lists into subgroups that make sense for your business.



vendor type

A categorization of types of vendors that you work with. For example, as a restaurateur, perhaps you purchase consultation and marketing services to come up with plans to bring in more customers. You would not group these transactions in the same expense category with ordering paper cups and food inventory. In this case, you’d set up two vendor types.



weighted average

A method of valuing the inventory that you have on hand. As each new item is added to the total inventory, the cost of the new item is added to the cost of all pieces of the same item on hand to provide a total. When an item is sold, the total cost of all inventory items is divided by the number of pieces on hand to determine an average cost. This cost is reflected at the time of sale as the cost of sales for the item sold.




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