Glossary of Accounting Terms
Letters L-Q
Last-in, first-out (LIFO) inventory costing method assumes that the cost of latest inventories acquired are the first to be recognized as the cost of goods sold.
Ledger is a collection of all accounts a business maintains in its accounting system. With the development of computerized accounting systems, ledgers are often in the form of electronic records (databases).
Liabilities are debts and obligations of a company.
Long-term operational assets are defined as recourses with economic lives of more than a year that a business possesses and uses in generating revenue.
Losses are similar to expenses in the way that both decrease assets or increase liabilities; however, losses differ from expenses in that they are caused by incidental transactions, rather than from ordinary operating activities.
Lower of cost or market (LCM) rule states that if the market value of ending inventory is lower than the book value of such inventory, the resultant loss must be recognized in the current period.
Managerial accounting provides information that is useful in running a company by internal users. Such reporting is usually accomplished through custom designed reports.
Market value is the amount that would have been paid to replace the merchandise.
Merchandise inventory is goods that are held for resale by a merchandising company.
Multiple-step income statement shows numerous steps in determining a net income (or net loss). Each step provides a different measure of a company's results of operations.
Net income is the excess of asset increases (revenues) and asset decreases (expenses) for a period. Note that distributions do not fall under expenses caption and thus are not used in calculating the net income.
Net loss is the opposite of net income. Net loss results from the excess of asset decreases (expenses) over asset increases (revenues) for a period.
Net realizable value is what the company expects to collect from its customers. This value is determined by subtracting the estimate of uncollectible accounts (allowance for doubtful accounts)from accounts receivable.
Note payable is an obligation in the form of a written promissory note signed by the borrower. The note includes the information on the rate of interest, the term of maturity, and collateral pledged to secure the loan.
Notes receivable are claims that require a formal instrument as proof of the debt and usually provide for payment of interest by the debtor. Notes receivable are often long-term claims to be settled in more than 90 days.
Operating income is the difference between the gross margin and selling and administrative expenses.
Period costs are costs associated with a specific period and not a specific product. Period costs include selling and administrative expenses.
Periodic inventory system adjusts the inventory account only at the end of an accounting period. Purchases and sales do not affect the inventory account during the accounting period, but do affect at the period end.
Permanent accounts are balance sheet accounts. They are not closed each period. Their balances are carried forward into the next period. Permanent accounts are also called real accounts.
Perpetual inventory system means that the inventory account is adjusted perpetually. The inventory account is affected each time inventory is sold or purchased.
Posting is the process of transferring the accounting information from journals to the ledger. For example, all information from a cash journal is posted to the ledger to update the cash account(s).
Prepaid expenses are expenses paid in cash and recorded as assets before they are used or consumed. Prepaid expenses are usually shown in the assets section on the balance sheet.
Prepaid insurance is used to keep track of cash paid for insurance coverage that has not been expensed. Prepaid insurance is an asset account and presented in the assets section on the balance sheet.
Principal is the amount initially invested (or borrowed).
Product costs are costs required to produce inventory and make it ready for sale. Such costs are directly associated with inventory production.
Page 4 of 5
Location