Wednesday, March 26, 2008


Also known as Owner's Equity and Net Assets, it is the result of subtracting Liabilities from Assets. Businessmen will use the term "Capital" to describe the amount of money or other resources owned or used to acquire future income or benefits. The amount subscribed and paid by stockholders.

Capital Assets:

A collective term which included all fixed assets, consisting of Furniture and Fixtures, Land, Buildings, Machinery, etc.

Capital Budget:

This is the estimated amount planned to be expended for capital items in a given fiscal period. Capital items are fixed assets such as facilities and equipment, the cost of which is normally written off over a number of fiscal periods. The capital budget, however, is limited to the expenditures which will be made within the fiscal year comparable to the related operating budgets.

Capital Lease:

A capital lease is a considerable lease obligation that has to be capitalized on the balance sheet. A capital lease is characterized by the following (1) It is non-cancelable; (2) The life of the lease is less than the life of the asset being leased; (3) Bargain price of $1 at the end of the lease; (4) And the lessor does not pay for the upkeep, maintenance, or servicing costs of the asset during the lease period. The capital lease is recorded as a fixed asset on the balance sheet and is depreciated over the life of the asset.

Capital Stock:

The ownership shares of a corporation authorized by its articles of incorporation, including common and preferred stock.

Cash Basis:

The practice of recording income and expenses only when cash is actually received or paid out.

Cash Control:

A system of verifying the accuracy of all cash receipts and all cash disbursements.

Cash Flow:

This term may have different meanings depending upon who is using the term and in what context. Bankers usually define it as "Net Profits plus all non cash expenses", but it can also be defined as "the difference between cash receipts and disbursements over a specified period of time."

Cash Flows From Financing Activities:

Cash flows from financing activities are money used to or provided from financing activities. An example would be moneys received from borrowing from a bank. Another example would be moneys received from a stockholder loan. Another example would be capital contributions by partners in a partnership. Moneys used to reduce principal on a long-term debt would be an example of moneys used by financing activities.

Cash Flows From Investing Activities:

Cash flows from operating activities are moneys used or provided from investing activities. An example would be moneys used to purchase property and equipment. Another example would be money received from the sale of company stock.

Cash Flows From Operating Activities:

Cash flows from operating activities starts with a company's net income or loss for a specific period such as the year ending December 31, 2002. The net income or loss is adjusted for any non-cash items, such as, depreciation and amortization expense. Also included as cash flows from operating activities are other adjustments to reconcile net income or loss provided by operating activities. Those other adjustments are changes in current assets, other than cash, and changes in current liabilities for those accounts from the beginning of the year balances to the period end of the cash flow statement.

Cash Flow Statement:

A report describing the changes in the cash balances on the Balance Sheet. There are three categories for a cash flow statement: Cash Flows for Operating Activities, Cash Flows for Investing Activities, and Cash Flows from Financing Activities.

Chart Of Accounts:

It is a systematic listing of all accounts used by a company. Accounts are classified into six categories: Assets, Liabilities, Capital, Sales, Cost of Sales, and Expenses.


The term closing refers to procedures that take place at the end of an accounting period, which is at the end of the year. Adjusting entries are made. The income and expense accounts are closed. The net income or loss that results from the closing of these accounts is transferred to an equity account called Owner's Equity for a sole proprietorship; Partner's Equity for a partnership; and Retained Earnings for a corporation.

Contribution Margin:

The difference between sales and variable costs; the amount remaining after variable costs are paid. For example: Sales $400,000 Variable Costs 150,000 Contribution Margin $250,000

Contribution Margin Percentage:

The contribution margin expressed as a percentage of sales, where sales equal 100% and the variable cost percentage is determined by dividing the variable cost total by sales. For example: Sales ($400,000) 100% Variable Cost Percentage ($150,000 ?00,000) 37.5% Contribution Margin Percentage 62.5%

It is a type of business organization that is chartered by a state and given many legal rights as a separate entity.


Purchase price or expense paid to acquire something.

Cost Accounting:

It is a managerial accounting activity designed to help managers identify, measure, and control operating costs. It is used most often in a manufacturing environment.

Cost of goods sold:

A total that represents the cost of buying raw material and producing finished goods such as overhead, labor, and utilities.

Cost Of Goods Sold:

It is the cost of inventory items sold to a company's customers. It is determined using one of three methods: 1) Specific Identification, or 2) by adding beginning inventory and purchases for the period (which is called total available for sale) less ending inventory, or 3) Percentage of Sales. It is a reduction to Sales in arriving at Gross Profit. The amount determined by subtracting the value of the ending merchandise inventory from the sum of the beginning merchandise inventory and the net purchases for the fiscal period.

Cost of Labor:

The cost of labor used in the actual production of the goods.

Credit Memo:

It is the writing off of all or part of a customer's account balance. A credit memo would be required when a customer returns some merchandise that was bought. A credit memo would also occur when a customer overpaid on his or her account.


A credit is one component or every accounting transaction indicating the source of the item received. Credits increase liabilities and equity and decrease assets on the balance sheet. Credits increase revenue and decrease cost and expenses on the income statement or profit and loss statement.

Current Assets:

Current assets are those assets of a company that are reasonably expected to be realized in cash, or sold, or consumed during the normal operating cycle of the company (usually one year). Current assets include accounts receivable, cash, inventories, and prepaid expenses.

Current Liabilities:

Current liabilities are liabilities to be paid within one year of the balance sheet date. Examples of current liabilities are accounts payable, accrued wages payable, accrued rent payable, payroll taxes payable, and current portion of long-term debt.

Current Ratio:

It is a commonly used measure of short-run solvency. It is the immediate ability of a company to pay its current debts as they become due. It is calculated by dividing Current Assets by Current Liabilities. A perceived safe Current Ratio is 2 to 1, meaning Current Assets are twice Current Liabilities.

Customer Deposits:

It is also called Unearned Revenue and Prepaid Income. Customer Deposits represents money the company received in advance of providing a service or product to a customer. Customer Deposits is classified as a current liability on the balance sheet. It is classified as a liability because the company still owes the service or product to the customer. An example would be taking a deposit on a job before the job is started, or a Lay away Deposit.

No comments:

Post a Comment