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Online Accounting Dictionary
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Account is a record within an accounting system which is used to collect and store similar information for a specific asset, liability, equity, revenue, or expense.
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Account balance is the difference between the debit and the credit side of a T account.
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Accounting is a service-based profession that provides reliable and relevant financial information useful in making decisions.
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Accounting equation is a rule under which Assets = Liabilities + Equity. This rule holds true at all times because of the double-entry accounting system. Also called basic accounting equation or balance sheet equation.
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Accounting reconciliation (also called account reconciliation) is a process of comparing two sets of related records (usually balances) from different sources (accounts, systems, etc.), identifying and analyzing differences, and making corrections (if needed).
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Accounts payable represent amounts that the company owes to its suppliers (vendors) for goods purchased or services received on credit. Accounts payable are a current liability.
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Accounts receivable refer to amounts of future cash receipts that are due from customers (i.e., amounts to be collected in the future). Accounts receivable are shown on the asset side of the balance sheet.
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Accrual (or accrual-based) accounting recognizes the effects of accounting events when such events occur regardless of the time cash is exchanged.
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Accrued expenses are expenses incurred but not yet paid in cash. When recorded, such expenses are usually shown in the liabilities section of the balance sheet.
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Accrued revenue is revenue earned but not yet received. When recorded, such amounts are usually shown as interest receivable in the balance sheet and interest revenue in the income statement.
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Accumulated depreciation represents an estimated cost of an asset used in operations. Accumulated depreciation is a cumulative of all depreciation expenses recognized for a particular asset. Accumulated depreciation is an example of a contra asset account. This account is included in the balance sheet under related asset accounts.
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Activity cost driver rate is calculated by dividing activity expenses by the total quantity of the activity cost driver (e.g. machine set up expenses divided by total number of machine set up hours).
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Activity-based costing (ABC) is a product costing system when a company allocates factory overhead costs to activity centers (e.g. machine set ups, running machines) and then uses activity cost drivers to allocate factory overhead costs to individual products or services.
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Activity-based management (ABM) is a discipline about the management of activities that improve values received by customers and the profit generated by providing such values. ABM uses a lot of information from an activity-based costing (ABC) system. There are two types of ABM: operational ABM and strategic ABM.
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Actual costing is a product costing system when a company measures actual costs of direct materials, direct labor, and factory overhead. Actual costing system is rarely used because it does not provide accurate information on a timely basis: many costs can be measured only at the end of the production, and some actual costs fluctuate a lot leading to potential errors in price recording.
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Adjusting entries adjust the account balances before the final financial statements are prepared. Each adjusting entry affects one balance sheet account and one income statement account.
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Allocation is a process of assigning a portion of an entire amount to each of several accounting periods.
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Allowance for doubtful accounts (also called allowance or reserve for bad debts) is the company's best estimate of uncollectible accounts receivable. It is determined based on certain historical or current data about the company's financial activity.
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Allowance method of accounting for bad debts is the practice of reporting accounts receivable at the net realizable value. This method involves estimating uncollectible accounts at the end of each period.
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Amortization is allocation of the cost of intangible assets to expense in a systematic and rational manner over the useful life of the asset.
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Asset exchange transactions occur when only asset accounts are engaged in a transaction. For example, collection of cash on accounts receivable is an asset exchange transaction. Total assets remain unchanged after such transactions.
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Asset source transactions result in an increase in an asset account and in one of the claim accounts (liability or equity accounts).
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Asset use transactions result in a decrease in an asset account and in one of the claim accounts (liability or equity accounts).
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Assets are economic recourses of a business used to accomplish its main goal, i.e. increase owners' wealth.
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Avolidable fixed costs are costs that are not required to be incurred.
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