Danielle Gonzalez's List: Chart of Accounts Vocabulary

• A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.
• The balance sheet must follow the following formula:
  
   Assets = Liabilities + Shareholders' Equity
  
• It's called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders' equity).
• Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt.

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• The income statement presents the results of a business for a stated period of time. The statement begins with revenues, from which expenses are subtracted to arrive at a profit or loss.

• typically include some or all of the following line items:

   
   
  • Revenue
   
  • Tax expense
   
  • Post-tax profit or loss for discontinued operations and for the disposal of these operations
   
  • Profit or loss
   
  • Extraordinary gains or losses
   
  • Other comprehensive income, subdivided into each component thereof
   
  • Total comprehensive income

• The income statement is important because it shows the profitability of a company during the time interval specified in its heading. The period of time that the statement covers is chosen by the business and will vary.
• Keep in mind that the income statement shows revenues, expenses, gains, and losses; it does not show cash receipts (money you receive) nor cash disbursements (money you pay out).

• Interest Payable
• Interest payable is the amount of interest on its debt and capital leases that a company owes to its lenders and lease providers as of the balance sheet date. Interest payable can include both billed and accrued interest, though (if material) accrued interest may appear in a separate "accrued interest liability" account.
• Interest payable is a liability, and is usually found within the current liabilities section of the balance sheet.
• The associated interest expense that comprises interest payable is stated on the income statement for the amount applicable to the period whose results are being reported.

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• A customer deposit is cash paid to a company by a customer, for which the company has not yet provided goods or services in exchange.
• Customer deposits are commonly used in four situations:
• • Poor credit. When a customer has such a poor credit record that the company requires it to pay in advance.
   
  • High cost. When the goods ordered are so expensive for the company to produce that it requires a deposit from the customer in order to pay for the production of the goods.
   
  • Customized. When goods are custom-designed to the specifications of the customer, and so cannot be resold if the customer were to renege on its purchase order.
   
  • Held goods. When the customer wants to reserve goods without yet taking delivery.
• The company receiving a customer deposit initially records the deposit as a liability. Once the company performs under its contract with the customer, it debits the liability account to eliminate the liability, and credits a revenue account to record the sale. This may occur in stages, if deliverables are sent out over a period of time.
• A customer deposit is usually classified as a current liability, since the company typically provides services or goods within one year of the deposit being made. If the deposit is for a longer-term project that will not be resolved within one year, it could instead be classified as a long-term liability.

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• Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of the balance sheet. This unexpired cost is reported in the current asset account Prepaid Insurance.
  
• As the amount of prepaid insurance expires, the expired cost is moved from the asset account Prepaid Insurance to the income statement account Insurance Expense. This is usually done at the end of each accounting period through an adjusting entry.

• A current asset account which includes currency, coins, checking accounts, and undeposited checks received from customers. The amounts must be unrestricted. (Restricted cash should be recorded in a different account.)

• A loan is an arrangement under which the owner of property (usually cash) allows another party the use of the property in exchange for an interest payment and the return of the property at the end of the lending arrangement. The loan is documented in a promissory note. If any portion of the loan is still payable as of the date of a company's balance sheet, the remaining balance on the loan is called a loan payable.
• If the principal on a loan is payable within the next year, it is classified on the balance sheet as a current liability. Any other portion of the principal that is payable in more than one year is classified as a long term liability.
• A loan payable differs from accounts payable in that accounts payable do not charge interest (unless payment is late), and are typically based on goods or services acquired. A loan payable charges interest, and is usually based on the earlier receipt of a certain sum of cash from a lender.

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• Unearned revenue is prepaid revenue. In essence, the customer pays in advance for services that have not yet been performed by the recipient of the payment.
• Unearned revenue is a liability for the recipient of the payment, so the initial entry is a debit to the cash account and a credit to the unearned revenue account.
• As a company earns the revenue, it reduces the balance in the unearned revenue account (with a debit) and increases the balance in the revenue account (with a credit). The unearned revenue account is usually classified as a current liability on the balance sheet.

• Examples of unearned revenue are:

   
   
  • A rent payment made in advance
   
  • A services contract paid in advance
   
  • A legal retainer paid in advance
   
  • Prepaid insurance

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• The type of stock that is present at every corporation. (Some corporations have preferred stock in addition to their common stock.) Shares of common stock provide evidence of ownership in a corporation. Holders of common stock elect the corporation's directors and share in the distribution of profits of the company via dividends. If the corporation were to liquidate, the secured lenders would be paid first, followed by unsecured lenders, preferred stockholders (if any), and lastly the common stockholders.

• Common stock is an ownership share in a corporation that allows its holders voting rights at shareholder meetings and the opportunity to receive dividends.
• The dollar amount of common stock recognized by a business is stated within the equity section of the company balance sheet.

• Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors. The formula for ending retained earnings is:

   

  Beginning retained earnings + Profits/losses - Dividends = Ending retained earnings
• The retained earnings balance or accumulated deficit balance is reported in the stockholders' equity section of a company's balance sheet.

• Generally, retained earnings is a corporation's cumulative earnings since the corporation was formed minus the dividends it has declared since it began. In other words, retained earnings represents the corporation's cumulative earnings that have not been distributed to its stockholders.
• The amount of retained earnings as of a balance sheet's date is reported as a separate line item in the  stockholders' equity section of the balance sheet.
• A negative amount of retained earnings is reported as deficit or accumulated deficit.

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• Revenue is an increase in assets or decrease in liabilities that is caused by the provision of services or products to customers.
• Revenue is listed at the top of the income statement.

• Salaries expense is an expense category in which is recorded the salaries paid to employees.
• Any of the preceding accounts appear in the income statement, and may be aggregated into a larger cluster of expenses, such as a single line item of expenses for a department, or within the cost of goods sold line item.

• The expense incurred during the time interval indicated on the income statement for using rented equipment.

• The income statement account which contains a portion of the cost of plant and equipment that is being matched to the time interval shown in the heading of the income statement. (There is no depreciation expense for land.)

• An operating expense is any expense incurred as part of normal business operations. Depreciation represents the periodic, scheduled conversion of a fixed asset into an expense as the asset is used during normal business operations. Since the asset is part of normal business operations, depreciation is considered an operating expense.

• The costs associated with traveling for the purpose of conducting business-related activities.
• The Internal Revenue Service (IRS) considers employees to be traveling away from home if their business obligations require them to be away from their "tax home" (the general area where the their main place of business is located) for a period longer than a typical work day.
  
   

        

• Utilities expense is the cost consumed in a reporting period related to the following types of expenditures:

   
   
  • Electricity
   
  • Heat (gas)
   
  • Sewer
   
  • Water
• The category is sometimes also associated with expenditures for ongoing telephone and internet service.