Vocabulary Guide

Topics

• Billing & revenue
• Payables & expenses
• General ledger
• Financial reporting
• Project accounting
• Multi-company
• Multi-currency
• Taxation
• Orders & inventory

Billing & revenue

Account / Customer

Definition

Customer master record used to record billing addresses, payment terms, etc.

Billing / Accounts Receivable / Sales Invoice / Customer Invoice

Definition

A document detailing out what the customer owes with the sale of your services or products.

Customer Credit Memo

Definition

A document detailing out what the customer returned or was given from the return of a prior sale.

Recurring Billing / Recurring Invoice / Memorized Billing

Definition

Allows for the automatic creation of a billing from a template for a specific customer on a regular interval of time such as monthly, quarterly, semi-annual, or annual basis.

Metered Billing

Definition

Billing (invoicing) a customer based on their usage of a service.

Cash Receipt

Definition

Money received from a customer for a billing, deposit, retainer, or donation. Also, money returned from a vendor.

Customer Deposit / Retainer

Definition

A cash receipt collected from a customer to be specifically applied against a future billing.

Cash Application / Cash Match

Definition

A cash receipt applied to a billing to show that the balance on the billing has been partially or fully paid.

Bank Deposit / Deposit

Definition

A grouping of cash receipts for the purposes of reconciliation with a bank statement.

Revenue Recognition Method

Definition

The accounting method used to determine when revenue is recognized. The most common methods are:

• Recognition when billed
• Deferred revenue (See Below)
• Project Percent Complete (See Below)

Amortized Revenue / Deferred Revenue

Definition

A revenue recognition method that records revenue in the accounting period for which the service was delivered instead of the period it was billed.

Current Accounts Receivable Aging

Definition

An accounts receivable aging is a report that shows what billings are unpaid or past due as of the report runtime. The billings are grouped in categories called “Aging Categories.” The Aging Categories are typically: Current, 1-30, 31-60, 61-90, Over 90.  However, a flexible accounting system will provide for other groupings.

Historical Accounts Receivable Aging / Period Sensitive AR Aging

Definition

A historical accounts receivable aging is a report that shows what billings are unpaid or past due as of the end of a specific accounting period. The billings are grouped in categories called “Aging Categories.” The Aging Categories are typically: Current, 1-30, 31-60, 61-90, Over 90. However, a flexible accounting system will provide for other groupings. A historical aging report is used for audit purposes.

Payables & expenses

Account / Vendor

Definition

Vendor master record used to record billing addresses, payment terms, etc.

Payable / Account Payable / Purchase Invoice / Vendor Invoice

Definition

A document detailing out what you owe a vendor for a service or product.

Vendor Credit Memo

Definition

A document detailing out what you returned to a vendor or were given from a vendor for the return of a prior purchase.

Recurring Payable / Recurring Expense / Memorized Expense

Definition

Allows for the automatic creation of a payable from a template for a specific vendor on a regular interval of time such as monthly, quarterly, semi-annual, or annual basis.

Metered Payable

Definition

Payable (Vendor Invoice) from vendor based on their usage of a service.

Cash Disbursement

Definition

Money paid to a vendor for a payable or vendor deposit. Also money returned to a customer.

Vendor Deposit / Vendor Retainer

Definition

A cash disbursement made to a vendor to be specifically applied against a future payable from the vendor.

Applied Disbursement / Reverse Applied Disbursement

Definition

A cash disbursement applied to a payable to show that the balance on the payable has been partially or fully paid.

Amortized Expense / Deferred Expense

Definition

An expense recognition method that records the expense in the accounting period in which the service was consumed instead of the period it was recorded as a payable (vendor invoice).

Current Accounts Payable Aging

Definition

An accounts payable aging is a report that shows what payables are unpaid or past due as of the report runtime. The payables are grouped in categories called “Aging Categories.” The Aging Categories are typically: Current, 1-30, 31-60, 61-90, Over 90.  However, a flexible accounting system will provide for other groupings.

Period Sensitive / Historical Accounts Payable Aging

Definition

A historical accounts payable aging is a report that shows what payables are unpaid or past due as of the end of a specific accounting period. The payables are grouped in categories called “Aging Categories.” The Aging Categories are typically: Current, 1-30, 31-60, 61-90, Over 90. However, a flexible accounting system will provide for other groupings. A historical aging report is used for audit purposes.

General ledger

Accounting Period

Definition

An accounting period is the span of time covered by a set of financial statements, typically 1 month.

GL Account / General Ledger Account

Definition

A data record used to classify, sort, and summarize a company’s accounting transactions.

Chart of Accounts

Definition

A list of all general ledger accounts. The list is ordered by the following types of accounts:

• Assets
• Liabilities
• Equity
• Revenues
• Expenses

GL Variable / Subaccount / Dimension

Definition

A data record used to classify, sort, and summarize a company’s accounting transactions in combination with a GL Account, or General Ledger Account, for a specific business unit or sub-category of a business such as:

• Divisions
• Departments
• Cost Centers
• Profit Centers
• Lines of Business
• Funds

Accounting Debits and Credits / Double Entry Accounting

Definition

A system of recording financial transactions where every entry to a GL Account requires a corresponding and opposite entry to a different GL Account or group of accounts. The double-entry has equal and corresponding sides known as debit and credit. Debits are recorded in the left-hand column or as positive entries in a single column. Credits are recorded in the right-hand column or as negative entries in a single column.

Banking Debits and Credits

Definition

Banking debits and credits are terms used by the bank in the context of increases or decreases to the balance in your bank account.

• When a bank credits your account, it increases your balance.
• When the bank debits your account, it decreases the balance.

Banking Debits and Credits are the chief agent of confusion for people trying to learn double-entry accounting since they are opposite of the debits and credits used to increase or decrease your accounting records for an adjustment to your cash general ledger account. These would be:

• A debit to cash would increase your cash balance in your ledger.
• A credit to cash would decrease your cash balance in your ledger.

Definition

The terminology used by your bank in a backwards way from your accounting system, causing great confusion and angst.

Cash Basis Accounting

Definition

A method of recording accounting transactions for revenues and expenses at the time cash is received or paid out.

Accrual Basis Accounting

Definition

A method of recording accounting transactions for revenue when earned and expenses when incurred. Accrual accounting is generally considered superior to cash basis accounting.

Modified Cash Accounting

Definition

A method of accounting that combines both accrual and cash basis. Modified Cash Basis Accounting is used by most small to midsize businesses that are not audited routinely.  A company will account for transactions primarily on an accrual basis, but will skip amortizing non-material revenues and expenses when they are not considered important for making business decisions.

Accrual

Definition

The recording of an accumulation or increase in value of the combination of an asset and revenue or a liability and expense. Used to record financial transactions in a specific period, either earned or incurred.

Bank Reconciliation / Bank Audit

Definition

A tool used to confirm that all cash transactions recorded at the bank are also recorded in the accounting system and vice-versa. Also used to highlight timing differences in recording transactions between the bank and your books.

GL Account Reconciliation / GL Account Audit

Definition

A process of proving the value of a balance sheet account at the end of an accounting period by comparing the balance to an outside statement, a summary from a related data table, or a schedule detailing the events that changed the balance from last month.

Fixed Assets

Definition

Plant, Property, and Equipment you purchase to operate a business that is used over multiple accounting periods

Allocation

Definition

The act of spreading expenses and/or revenue across sub accounts, business units, or projects.

Financial reporting

PnL / Profit & Loss / Income Statement

Definition

A core financial report that provides a summary of a company’s revenues, expenses, and profits/losses over a period of time.

Balance Sheet

Definition

An accounting report that shows a company’s assets, liabilities, and equity on a specific day.

Trial Balance

Definition

An accounting control report that combines the cumulative debits and credits for all general ledger accounts into one view for a specified period to make sure all debits and credits are equal.

Direct Cash Flow Statement

Definition

A cash flow statement that shows all of the actual cash transactions over a specified period of time. Generally considered the most useful format for analyzing cash flow from operations and for companies with simple cash management activity.

Indirect Cash Flow Statement

Definition

A cash flow statement that shows a reconciliation from net income or loss to net change in cash, adding back non-cash transactions and showing a net change in balance sheet accounts over a specified period of time. Generally considered more useful for publicly traded companies with complex cash management activities.

Trust Accounting

Definition 

Maintaining accounting records for assets and/or liabilities that you are the custodian of. These would be assets and liabilities that are owned by your clients, but you manage for them.

Multi-Ledger / Multi-Company

Definition

Accounting for multiple legal entities in a single database sharing master data tables such as Accounts, GL Accounts, Contacts, and Products.

Multi-National

 Definition

An organization that owns multiple legal entities in different countries with requirements to report financial results in two currencies for each subsidiary. Each foreign entity is typically required to keep their main accounting in the country’s local currency. However, the entity’s results need to be converted to the parent company’s currency as well as be consolidated in a single currency.

Consolidation

Definition

The act of adding up the results of multiple legal entities in a single currency but eliminating intercompany transactions between the entities while doing so.

Intercompany Transactions

Definition

Transactions between two or more legal entities that need to be eliminated to correctly report the combined financial results of the consolidated entities. The most common types of intercompany transactions are billing and payables between the entities, as well as when one entity loans money or invests in another.

Multi-company

Multi-Ledger / Multi-Company

Definition

Accounting for multiple legal entities in a single database sharing master data tables such as Accounts, GL Accounts, Contacts, and Products.

Multi-National

Definition

An organization that owns multiple legal entities in different countries with requirements to report financial results in two currencies for each subsidiary. Each foreign entity is typically required to keep their main accounting in the country’s local currency. However, the entity’s results need to be converted to the parent company’s currency as well as be consolidated in a single currency.

Consolidation

Definition

The act of adding up the results of multiple legal entities in a single currency but eliminating intercompany transactions between the entities while doing so.

Intercompany Transactions

Definition

Transactions between two or more legal entities that need to be eliminated to correctly report the combined financial results of the consolidated entities. The most common types of intercompany transactions are billing and payables between the entities, as well as when one entity loans money or invests in another.

Multi-currency

Ledger Base Currency

Definition

The currency in which all foreign transactions are converted into for unified financial reporting within the ledger.

Foreign Amount

Definition

An amount in a currency other than the ledger base currency.

Ledger Amount

Definition

The amount of a foreign transaction after it has been converted into the currency of the ledger.

Currency Exchange Rate / FX Rate / Foreign Exchange Rate

Definition

A factor used as a multiplier or divisor to convert an amount in one currency to another.

Realized Gain/Loss on Currency Exchange

Definition

The difference in exchange rates resulting in a gain or loss between an asset or liability when it is recorded and subsequently paid. For example, a customer invoice could be recorded using an exchange rate of X, while at the time cash is received, the exchange rate is Y. The amount of the invoice *(X-Y) is recorded as a realized gain or loss on currency exchange.

Unrealized gain or Loss on Currency Exchange

Definition

The hypothetical difference in exchange rates resulting in a gain or loss between an asset or liability when it is recorded and the exchange rate is verified at month’s end. To accurately value foreign assets and liabilities at month’s end, accountants will ask the question: What if this asset or liability was paid today? What would be the realized gain or loss on currency exchange using the prevailing FX rate at month end? This allows an accountant to record the increase or decrease to the asset or liability based on the difference in rates to more accurately reflect the true value of the asset or liability on the last day of the month.

Currency Translation

Definition

The act of converting the results of a child company to the same currency as the parent company for consolidation of the combined entities into one reporting currency.

Taxation

Nexus

Definition

When a government and/or taxation authority has declared that your business is subject to their tax jurisdiction.

Statutory Reporting

Definition

Reporting to a government or regulatory authority in a prescribed format dictated by their own regulations.

VAT/GST

Definition

Value Added Tax or Goods and Services Tax. A method of taxing sales and purchase transactions based on the difference between tax revenue collected on sales minus the tax paid to suppliers for purchases.

Orders & inventory

Sales Order

Definition

A sales order represents a bonafide customer order for your products and/or services. Sales orders represent real demand for your product or service which you need to fulfill for the customer.

Purchase Order

Definition

A formal communication sent to a seller of goods or services to purchase a set quantity of items with specific prices.

Work Order

Definition

A document outlining the tasks required to fulfill an organization’s commitment for sales or service of a specific offering.

Inventory Balance

Definition

The quantity of a product that’s physically on-site which can be shipped to a customer.

Inventory Valuation

Definition

A method used to calculate the cost of the inventory purchased, stocked, and sold. The most widely used, and considered the most valuable with little dispute, is the weighted average cost. Other valuations used are:

• FIFO – First In First Out
• LIFO – Last In First Out
• Standard Cost
• Specific Identification

BOM/Bill of Material

Definition

A list of raw materials with quantities used to create a manufactured product.

Multi-Layer BOM / Nested BOM

Definition

A list of raw materials with nested subassemblies and quantities used to create a manufactured product.

RMA (Return Merchandise Authorization)

Definition

A process defined by a manufacturer to allow a distributor to return or replace a damaged or defective product under the manufacturer’s warranty.

Serial Number

Definition

A unique identifier tag created by the manufacturer to identify a specific physical good.

Lot Tracking

Definition

A unique identifier tag created by the manufacturer to identify a specific batch of physical goods.

Vouchers Payable

Definition

A general ledger account used as a clearing account to record the receipt of a purchased product as a liability prior to receiving a vendor invoice for the good. Once the vendor invoice is received, the liability in vouchers payable is cleared or relieved.

Project accounting

Projects /Project Accounting / Job Costing

Definition

The accounting for a specific initiative, customer engagement, or event. Project accounting typically tracks revenue and expenses incurred against a budget. Some project accounting systems will allow you to track assets, liabilities, and cash flow to an individual project as well.

Project Task / Work Breakdown Structure

Definition

Subcategories of a project used for a more detailed level of tracking revenues and expenses against a budget.

Prevailing Wage

Definition

An hourly pay rate established by a regulatory agency based on a specific location or by conditions of work.

Cost Plus Billing

Definition

A billing method, typically used to bill the government, that captures the  actual cost incurred, as well as allocated overhead and multiplied by a predetermined markup factor.

Time & Material Billing

Definition

A billing method that calculates the amount due from a customer based on time incurred multiplied by an hourly billing rate, as well as expenses incurred multiplied by a markup factor.

Milestone Billing

Definition

A billing method used in fixed fee projects to bill a portion of the contract value based on a completed deliverable.

Project Percent Complete Revenue Recognition

Definition

A revenue recognition method that records incremental revenue based on the percentage of work that is considered complete for a project. Common measurements for calculating percent complete are:

• Labor hours incurred as a percent of budget
• Labor expense incurred as a percent of budget
• Total expense incurred as a percent of budget