Accounting Glossary

Simple and concise explanations of common accounting terms, especially tailored for small and medium business owners. Use the search function to find terms or browse trough the collection of terms by selecting different letters.

Accounting or corporate accounting is a branch of business administration that is used for the systematic recording, monitoring and informational consolidation of the flows of money and services resulting from the operational performance process.
Accounting automation
Accounting automation refers to the use of technology and software solutions to streamline and automate various accounting tasks and processes. It leverages advancements in artificial intelligence, machine learning, and cloud computing to reduce manual effort, improve accuracy, and enhance efficiency in accounting operations. Here are some areas where accounting automation can be implemented:
  • Data Entry and Transaction Processing
  • Bank Reconciliation
  • Invoicing and Accounts Receivable
  • Expense Management
  • Financial Reporting
  • Payroll Processing
  • Inventory Management
  • Tax Compliance
  • Audit and Compliance
  • Workflow and Collaboration
Implementing accounting automation offers several benefits, including increased efficiency, reduced errors, improved data accuracy, enhanced compliance, and cost savings. However, it is important to evaluate and choose automation solutions that align with the specific needs and complexity of your accounting processes. Consider consulting with accounting professionals or technology experts to identify suitable automation tools and ensure a smooth transition to automated accounting operations.
Accounting checklist
An accounting checklist is a tool used to ensure that key accounting tasks and responsibilities are completed accurately and timely. It helps businesses stay organized and maintain proper financial records. While specific checklists may vary depending on the organization's needs, here are some common areas that are typically included in an accounting checklist:
  • Record-Keeping and Bookkeeping
  • Financial Reporting
  • Accounts Receivable and Accounts Payable
  • Payroll and Employee Benefits
  • Tax Compliance
  • Internal Controls
  • Reconciliation
  • Compliance and Regulatory Requirements
  • Financial Analysis and Decision-Making
  • Continuous Improvement and Professional Development
It's important to tailor the accounting checklist to the specific needs and requirements of your business. Regularly review and update the checklist to accommodate changes in processes, regulations, or business operations. Additionally, consider seeking professional advice from accountants or financial experts to ensure compliance and accuracy in your accounting practices.
Accounting flowchart
An accounting flowchart is a visual representation of the steps or processes involved in a particular accounting system or procedure. It typically involves using standardized symbols and shapes to represent the different stages of the accounting process, such as recording transactions, preparing financial statements, and conducting audits. An accounting flowchart can be useful for a number of purposes, including:
  • Identifying potential inefficiencies or bottlenecks in the accounting process
  • Developing or refining accounting procedures to improve accuracy and efficiency
  • Training new employees on the steps involved in a particular accounting process
  • Communicating the accounting process to stakeholders such as management, investors, or auditors
Overall, an accounting flowchart can be a valuable tool for streamlining and improving the accounting process, as well as ensuring that everyone involved in the process has a clear understanding of the steps involved.
Accounting for technology companies
Accounting for technology companies refers to the specialized accounting practices and financial reporting requirements that apply to businesses in the technology industry. This includes companies that produce hardware, software, or services related to information technology, telecommunications, and other high-tech fields. Accounting for technology companies involves several unique challenges, including:
  • Revenue recognition: Technology companies often use subscription-based or SaaS (Software-as-a-Service) business models, which can make it more difficult to recognize revenue accurately. Revenue recognition for technology companies must comply with the Financial Accounting Standards Board's (FASB) ASC 606, which provides guidelines for recognizing revenue from contracts with customers.
  • Intellectual property: Technology companies often have valuable intellectual property (IP), including patents, trademarks, and copyrights. Accounting for IP involves valuing and tracking the costs associated with acquiring, developing, and protecting these assets.
  • Research and development (R&D): Technology companies typically invest heavily in R&D to develop new products and services. Accounting for R&D involves tracking the costs associated with research and development activities and determining how those costs should be treated for accounting purposes.
  • Stock-based compensation: Many technology companies offer stock-based compensation to employees and executives as a way to attract and retain top talent. Accounting for stock-based compensation involves valuing the equity awards and recording the associated expenses.
  • Financial reporting: Technology companies must comply with financial reporting requirements such as the Generally Accepted Accounting Principles (GAAP) and the Securities and Exchange Commission (SEC) regulations, which provide guidelines for financial reporting and disclosure.
Overall, accounting for technology companies requires a deep understanding of the unique accounting practices and financial reporting requirements of the industry. By effectively managing these areas, technology companies can improve their financial performance and make better-informed decisions about their operations.
Accounting management
Accounting management refers to the process of overseeing and directing the financial activities of a business to ensure accurate and efficient accounting operations. It involves the planning, organizing, and controlling of accounting functions to support the financial well-being of the organization. Here are key aspects of accounting management:
  1. Financial Planning and Budgeting
  2. Financial Record-Keeping
  3. Financial Reporting and Analysis
  4. Internal Controls
  5. Compliance and Regulatory Reporting
  6. Cash Flow Management
  7. Financial Analysis and Decision-Making
  8. Collaboration with Other Departments
  9. Technology and Software Utilization
  10. Professional Development and Compliance
Effective accounting management is crucial for businesses to maintain accurate financial records, make informed decisions, comply with regulations, and achieve their financial objectives. It helps businesses monitor and improve their financial performance, identify areas for cost savings or revenue growth, and mitigate financial risks.
Accounting mistakes
Accounting mistakes can occur for various reasons, and they can have significant implications for a business's financial records and decision-making. Here are some common accounting mistakes that businesses should be aware of and strive to avoid:
  • Data Entry Errors: Data entry errors, such as transposing numbers, inputting incorrect amounts, or recording transactions in the wrong accounts, can lead to inaccuracies in financial records.
  • Failure to Reconcile Accounts: Neglecting to regularly reconcile bank statements, vendor statements, or other accounts can result in discrepancies between the recorded transactions and actual balances.
  • Inadequate Documentation: Poor documentation practices, such as failing to retain supporting invoices, receipts, or other financial documents, can make it difficult to verify transactions, track expenses, or comply with regulatory requirements.
  • Lack of Internal Controls: Inadequate internal controls, such as segregation of duties, approval processes, or monitoring procedures, can create opportunities for errors or fraudulent activities.
  • Incorrect Classification of Transactions: Misclassifying transactions can distort the financial picture of a business.
  • Failure to Recognize and Account for Liabilities: Failing to properly identify and account for liabilities, such as outstanding bills, loans, or accrued expenses.
  • Inaccurate Inventory Management: Incorrectly valuing or miscounting inventory can impact the accuracy of financial statements, cost of goods sold calculations, and overall profitability analysis.
To minimize accounting mistakes, it is important to establish robust internal controls, implement proper documentation and record-keeping procedures, conduct regular reconciliations, and seek professional advice when needed. Utilizing reliable accounting software and engaging the services of qualified accountants can also help mitigate the risk of errors and ensure accurate financial management.
Accounting outsourcing
"Accounting outsourcing" refers to the practice of hiring a third-party service provider or company to handle all or a portion of a company's accounting functions and financial tasks. Instead of managing these tasks in-house, a business contracts with an external accounting firm or service provider to perform various accounting functions and responsibilities. Benefits of accounting outsourcing can include cost savings, access to specialized expertise, improved accuracy, reduced administrative burden, and increased focus on core business activities. Additionally, outsourcing can be particularly advantageous for smaller businesses that may not have the resources or expertise to manage complex accounting functions effectively. However, it's essential to carefully select a reputable outsourcing partner to ensure the security and integrity of financial data.
Accounting services
Accounting services refer to professional services provided by accountants or accounting firms to assist businesses with various financial tasks and responsibilities. Accounting services encompass a wide range of services that businesses can utilise to stay on track and in compliance with domestic and international financial regulations. These services can range from basic bookkeeping and financial reporting to more complex financial analysis and strategic planning. Here are some common accounting services:
  • Bookkeeping
  • Financial Reporting
  • Tax Preparation and Planning
  • Payroll Services
  • Financial Analysis and Interpretation
  • Auditing and Assurance
  • Consulting and Advisory Services
  • Compliance and Regulatory Services
  • Software Implementation and Training
The specific accounting services required may vary depending on the size, industry, and specific needs of the business. Some businesses may choose to outsource their accounting needs to accounting firms or hire in-house accountants, while others may use a combination of both approaches.
Accounting software
Accounting software is a type of computer software designed to streamline and automate various accounting tasks and processes. It helps businesses manage their financial transactions, recordkeeping, and financial reporting more efficiently. Accounting software typically includes a range of features and tools that facilitate tasks such as bookkeeping, invoicing, expense tracking, payroll management, and financial analysis. Here are some common features and functionalities found in accounting software:
  • General Ledger: Accounting software provides a digital general ledger that serves as the core repository for recording and organizing financial transactions.
  • Accounts Payable: This feature helps manage the company's payable accounts, including tracking vendor invoices, recording payment due dates, and generating payment reports.
  • Accounts Receivable: Accounts receivable functionality enables businesses to manage customer invoices, track payments, and generate reports on outstanding balances.
  • Bank Reconciliation: Accounting software facilitates the reconciliation process by comparing bank statements with recorded transactions, identifying discrepancies, and automatically updating the general ledger.
  • Financial Reporting: Accounting software offers a range of financial reporting capabilities, allowing businesses to generate reports such as income statements, balance sheets, cash flow statements, and customizable financial analysis reports.
  • Payroll Management: Many accounting software solutions include payroll management features to streamline payroll processing.
  • Invoicing and Billing: Accounting software enables businesses to create and send professional invoices to clients or customers.
  • Expense Tracking: Accounting software helps businesses track and categorize their expenses. It allows users to record and manage business expenses, upload receipts, and generate expense reports.
  • Tax Management: Accounting software often includes tax management features to help businesses calculate and track taxes owed, generate tax reports, and simplify tax preparation processes.
Accounting software provides businesses with the tools and capabilities to manage their financial processes more effectively. It reduces manual effort, enhances accuracy, improves data visibility, and enables timely financial decision-making. When choosing accounting software, businesses should consider their specific needs, such as the size of the company, industry requirements, scalability, user-friendliness, security, and compatibility with existing systems.
Accounting solutions
Accounting solutions entail a wide range of flexible, cost-effective, and specialised services that are designed to alleviate accounting-related issues and meet the individual demands of your organisation, allowing you to focus on your core business. There are various accounting solutions available in the market, each with its own set of features and functionalities. Here are some popular accounting solutions used by businesses:
  • Xero
  • QuickBooks
  • Sage Intacct
  • NetSuite
  • Wave
  • Zoho Books
  • FreshBooks
These are just a few examples of accounting solutions available in the market. When selecting an accounting software, it's important to consider the specific needs and requirements of your business, such as the size of your organization, industry-specific features, integrations with other tools, scalability, pricing, and customer support.
Accounts payable
Accounts payable (AP) is a term used in accounting to refer to the money that a company owes to its vendors or suppliers for goods or services purchased on credit. It represents the short-term debt obligations of a company that arise from the normal course of business operations. When a company purchases goods or services on credit, it will receive an invoice from the supplier, which outlines the details of the transaction such as the amount owed, payment terms, and due date. The company will record this invoice in its accounts payable ledger, which tracks all of its outstanding bills. Once the company pays the supplier, it will reduce the accounts payable balance by the amount paid. If the payment is not made by the due date, the supplier may charge late fees or interest, which will increase the amount owed and potentially harm the company's creditworthiness. Managing accounts payable effectively is important for maintaining good relationships with suppliers and ensuring that the company has access to the goods and services it needs to operate. Additionally, managing accounts payable well can help a company to conserve cash and avoid late fees or other penalties.
Accounting analysis refers to the process of evaluating and interpreting financial information contained in a company's financial statements. It involves examining various financial data and ratios to gain insights into the financial health and performance of a business. The primary objective of accounting analysis is to assess the quality and reliability of financial statements, understand the underlying financial transactions, and derive meaningful conclusions about a company's financial position, profitability, cash flows, and other key financial metrics. Accounting analysis is crucial for investors, creditors, financial analysts, and other stakeholders to make informed decisions regarding investments, lending, valuation, and overall financial assessment of a company.
Automated payment systems
Automated payment systems, also known as electronic payment systems or electronic funds transfer (EFT) systems, are technologies and processes that enable the automated transfer of funds between parties. These systems eliminate the need for manual handling of cash or paper-based checks, offering convenience, efficiency, and enhanced security in financial transactions. Automated payment systems have transformed the way financial transactions are conducted, offering convenience, speed, and security in transferring funds. They are widely used in e-commerce, retail, banking, and various industries where efficient and secure payment processing is essential. Key aspects of automated payment systems are:
  • Electronic Funds Transfer (EFT):
  • Online Payment Gateways
  • Digital Wallets and Mobile Payments
  • Recurring Payments:
  • Point-of-Sale (POS) Systems
  • Security and Fraud Prevention
  • Integration with Accounting Systems
  • Cross-Border Payments
  • Reporting and Analytics
  • Compliance and Regulation