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Accounts Definitions
Accountancy: is the art of communicating financial information about a business entity to users such as shareholders and managers.[1] The communication is generally in the financial´s form statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable
 
Financial accountancy: Is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.[1] The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.
 
Business (company, enterprise or firm): is a legally recognized organization designed to provide goods or services, or both, to consumers, businesses and governmental entities.[1] Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-owned enterprises. Businesses can also be formed not-for-profit or be state-owned.
 
A financial statement (or financial report): is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by accountants

For a business enterprise, all the relevant financial information, presented in a structured manner and in a form easy to understand, are called the financial statements. They typically include four basic financial statements:[1] Balance sheet: also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and Ownership equity at a given point in time. Income statement: also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time. Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. Statement of retained earnings: explains the changes in a company's retained earnings over the reporting period. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities.
 

shareholder or stockholder: is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. A company's shareholders collectively own that company and are the members of the company by signing the memorandum of association . Thus, the typical goal of such companies is to enhance shareholder value.
Stockholders are granted special privileges depending on the class of stock. These rights may include: The right to vote on matters such as elections to the board of directors. Usually, stockholders have one vote per share owned, but sometimes this is not the case.[citation needed] The right to propose shareholder resolutions. The right to share in distributions of the company's income. The right to purchase new shares issued by the company. The right to a company's assets during a liquidation of the company.
 
Supplier: A vendor, or a supplier, is a supply chain management term meaning anyone who provides goods or services to a company. A vendor often manufactures inventoriable items, and sells those items to a customer.
 
Customer: A customer, also called client, buyer, or purchaser, is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services. However, in certain contexts, the term customer also includes by extension any entity that uses or experiences the services of another. A customer may also be a viewer of the product or service that is being sold despite deciding not to buy them.
 
Assets: assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simplistically stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).[1] The balance sheet of a firm records the monetary[2] value of the assets owned by the firm. It is money and other valuables belonging to an individual or business.[3] Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.[4] Current assets include inventory, while fixed assets include such items as buildings and equipment.[5] Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs,[5] and financial assets, including such items as accounts receivable, bonds and stocks.
 

Liability: is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
All type of borrowing from persons or banks for improving a business or person income which is payable during short or long time.
They embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand;
The duty or responsibility obligates the entity leaving it little or no discretion to avoid it; and,
The transaction or event obligating the entity has already occurred.
 

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that can be inferred from a set of facts in a particular situation as opposed to a contractually based obligation.
 

The accounting equation relates assets, liabilities, and owner's equity:
Assets = Liabilities + Owner's Equity
 

Equity: is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.
At the start of a business, owners put some funding into the business to finance assets. This creates liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business.
 

Balance sheet or statement of financial position: is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.
Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing."
 
Liquidity: is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash on hand, is the most liquid asset.[1] An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity also refers both to a business's ability to meet its payment obligations, in terms of possessing sufficient liquid assets, and to such assets themselves.
 

Current Assets: Are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle (whichever is longer), without disturbing the normal operations of a business. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets:
 
Cash and cash equivalents — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts).
Short-term investments — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
Receivables — usually reported as net of allowance for uncollectable accounts.
Inventory — trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule. Prepaid expenses — these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries.
 
 
Deposit account: is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to the customer. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited.
 
 
Long-term investments

Often referred to simply as "investments". Long-term investments are to be held for many years and are not intended to be disposed of in the near future. This group usually consists of four types of investments:
Investments in securities such as bonds, common stock, or long-term notes.
Investments in fixed assets not used in operations (e.g., land held for sale).
Investments in special funds (e.g., sinking funds or pension funds).
 
 
Fixed assets: Also referred to as PPE (property, plant, and equipment), these are purchased for continued and long-term use in earning profit in a business. This group includes as an asset land, buildings, machinery, furniture, tools, and certain wasting resources e.g., timberland and minerals. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land assets). Accumulated depreciation is shown in the face of the balance sheet or in the notes.
 
Intangible assets: Intangible assets lack physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with the exception of goodwill
 
Tangible assets: Tangible assets are those that have a physical substance and can be touched, such as currencies, buildings, real estate, vehicles, inventories, equipment, and precious metals.
 
Liability: A liability can mean something that is a hindrance or puts an individual or group at a disadvantage, or something that someone is responsible for, or something that increases the chance of something occurring (i.e. it is a cause).
 
 

Accrued liabilities: are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. Examples would include accrued wages payable, accrued sales tax payable, and accrued rent payable.
There are two general types of Accrued Liabilities: Routine and recurring Infrequent or non-routine
 
 

Current liabilities: are considered liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle, whichever period is longer.
An operating cycle is the average time that is required to go from cash to cash in producing revenues.
For example, accounts payable for goods, services or supplies that were purchased for use in the operation of the business and payable within a normal period of time would be current liabilities.
Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities or long-term liabilities. However, the payments due on the long-term loans in the current fiscal year could be considered current liabilities if the amounts were material.
The proper classification of liabilities is essential when considering a true picture of an organization's fiscal health.
 

Long-term liabilities: are liabilities with a future benefit over one year, such as notes payable that mature longer than one year.
In accounting, the long-term liabilities are shown on the right wing of the balance-sheet representing the sources of funds, which are generally bounded in form of capital assets.

Examples of long-term liabilities are debentures, mortgage loans and other bank loans. (Note: Not all bank loans are long term as not all are paid over a period greater than a year, an example of this is a bridging loan.)

By convention, the portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities. For example, a loan for which two payments of $1000 are due, one in the next twelve months and the other after that date, would be 'split' into two: the first $1000 would be classified as a current liability, and the second $1000 as a long-term liability (note this example is simplified, and does not take into account any interest or discounting effects, which may be required depending on the accounting rules).
Also "Long-Term Liabilities" are a way to show that you have to pay something off in a time period longer than one year.
 
 
Fixed liability: is a type of debt. Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities
 
 
Creditor is a party (e.g. person, organization, company, or government) that has a claim to the services of a second party. It is a person or institution to whom money is owed. [1] The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property or service. The second party is frequently called a debtor or borrower. The first party is the creditor, which is the lender of property, service or money.
 
Revenue: is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover. Some companies receive revenue from interest, dividends or royalties paid to them by other company
Category: My articles | Added by: Palakurthi (2010-06-26)
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