Glossary of Accounting Terms
Letters E-K
Equity is what the company "owes" to owners.
Expenses are decreases in assets or increases in liabilities that result from operating activities undertaken to generate revenue.
External users are parties outside the reporting entity (company) who are interested in the accounting information.
Financial accounting provides information that is designed to satisfy the needs of external users. Such reporting is usually done in the form of financial statements.
Financial reporting is a process through which companies communicate information to the public.
First-in, first-out (FIFO) inventory costing method assumes that the costs of earliest inventories acquired are the first to be recognized as the cost of goods sold.
Gains are similar to revenues; however, gains result from incidental transactions rather than from operating activities.
General journal (book of original entry) contains records about all transactions of an entity. In particular, the journal includes such data as the event date, accounts involved, explanations and amount(s).
Generally Accepted Accounting Principles (GAAP) are common standards that indicate how to report economic events.
Gross margin is the difference between the sales revenue (i.e., revenue generated from sales) and the cost of goods sold. Gross margin shows what profit the company made after cost of goods sold, but before any other expenses (selling and administrative, etc.).
Historical cost is based on the dollar amount originally exchanged to acquire an asset. Such cost includes the purchase price and any additional costs necessary to obtain the asset and prepare it for the intended use. Additional costs (costs besides the purchase price) may include transportation costs, insurance for asset delivery and others. A historical cost also refers to an accounting principle requiring financial statements to be based on original costs.
Income statement presents revenues and expenses and resulting net income or loss for a period of time. An income statement is also called Statement of Operations, Earnings Statement, or Profit and Loss Statement (P/L).
Intangible assets may be represented by a piece of paper or document. The real value of such assets is the rights and privileges extended to their owners. Examples of intangible assets can be patents, trademarks and customer lists.
Interest expense is the charge that a business needs to take and record when using somebody's money. Interest expense is an income statement account which decreases equity.
Interest payable is a liability account that shows future interest payments for using somebody's money. For example, taking a long in a bank usually means that the borrower will pay the principal and interest. Such interest is show in the interest payable account until paid.
Interest receivable represents future cash receipts of interest by a company. Interest receivable account is shown on the asset side of the balance sheet.
Interest revenue is the amount of interest earned. Interest revenue (or just interest) may be earned on an investment such as a savings account or certificate of deposit. Interest revenue is an income statement account that increases equity.
Interest is excess of money over the initial invested amount (principal). Interest is usually set as a percentage to the principal.
Interest-bearing notes require an interest to be paid in addition to the face value. In other words, such notes require the borrower to pay the face value and interest at the maturity date.
Internal users are parties inside the reporting entity (company) who are interested in the accounting information.
Inventory is a current asset on a company's balance sheet. Inventory includes goods for resale, raw materials, spare parts, etc.
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