Understanding Bookkeeping

RETURN TO GLOSSARY INDEX

Account

The method used to accumulate related accounting information (e.g. Salaries and Wages Expense - an account used to collect the payroll costs).

Account Codes

Is the identification process so as to identify the individual accounts in the ledger. Ultimately, the account codes are grouped and classified to be used to generate the information for financial statements.

Accounting cycle

Is the sequence in which the data is recorded and processed until it becomes part of the financial statements at the end of the period.

Accounting

Accounting is the process of identifying, recording, classifying and reporting information on economic events in a logical manner for the purpose of providing financial information for decision making.

Accounting policies

The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Accounting profit

Profit or loss for a period before deducting tax expense

Accrual basis of accounting

The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Or it is a method of accounting whereby revenue is recorded when earned (regardless of when received) and expenses are recorded when incurred.

Accounts Payable and Accrued Liabilities

A short-term liability account reflecting amounts due to individuals or organizations for goods and services purchased.

Accounts Receivable

An asset account reflecting amounts due from individuals or organizations for goods and services rendered.

Asset

A resource controlled by an entity as a result of past events; and

from which future economic benefits are expected to flow to the entity

Annual Report

A financial report prepared annually that includes financial statements.