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account: An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.

accounting: A service activity designed to accumulate, measure, and communicate financial information about economic entities for decision-making purposes.

accounting cycle: The procedures for analyzing, recording, classifying, summarizing, and reporting the transactions of a business.

accounting model: The basic accounting assumptions, concepts, principles, and procedures that determine the manner of recording, measuring, and reporting an entity's transactions.

accounting system: The set of manual and computerized procedures and controls that provide for identifying relevant transactions or events; preparing accurate source documents, entering data into the accounting records accurately, processing transactions accurately, updating master files properly, and generating accurate documents and reports.

account payable: An amount owed to a supplier for good or services purchased on credit; payment is due within a short time period, usually 30 days or less.

account receivable: A current asset representing money due for services performed or merchandise sold on credit.

account receivable turnover: A measure used to determine a company's average collection period for receivables; computed by dividing net sales (or net credit sales) by average accounts receivable.

accrual basis: Gross income is recognized when earned.

accrual-basis accounting: A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.

accrued expenses: Expenses that arise through adjusting entries when accounting for unrecorded expenses.

accrued liabilities: Liabilities that arise through adjusting entries when accounting for unrecorded liabilities.

accumulated depreciation: The total depreciation recorded on an asset since its acquisition; a contra account deducted from the original cost of an asset on the balance sheet.

acid-test ratio (or quick ratio): A measure of a firm's ability to meet current liabilities; more restrictive than the current ratio, it is computed by dividing net quick assets (all current assets, except inventories and prepaid expenses) by current liabilities.

adjusted gross income: An individual taxpayer's total income minus deductions (adjustments) for individual retirement plan contributions and alimony paid.

adjusting entries: Entries required at the end of each accounting period to recognize, on an accrual basis, revenues and expenses for the period and to report proper amounts for asset, liability, and owners' equity accounts.

adjustments to gross income: Amounts deducted from the gross income of an individual taxpayer in arriving at adjusted gross income; includes contributions to individual retirement plans and alimony paid.

adverse opinion: Audit report indicating the auditor believes the overall financial statements are so materially misstated or misleading that the statements do not fairly represent the financial position or results of the operations and cash flows.

aging accounts receivable: The process of categorizing each account receivable by the number of days it has been outstanding.

Allowance for Uncollectible Accounts: A contra account, deducted from Accounts Receivable, that shows the estimated losses from uncollectible accounts.

allowance method: The recording of estimated losses due to uncollectible accounts as expenses during the period in which the sales occurred.

amortization: The process of cost allocation that assigns the original cost of an intangible asset to the periods benefited.

annual report: A document that summarizes the results of operations and financial status of a company for the past year and outlines plans for the future.

annuity: A series of equal amounts to be received or paid at the end of equal time intervals.

arm's-length transactions: Business dealings between independent and rational parties who are looking out for their own interests.

articulation: The interrelationships among the financial statements.

asset turnover ratio: An overall measure of how effectively assets are used during a period; computed by dividing net sales by average total assets.

assets: Economic resources that are owned or controlled by an entity.

audit: The result of an independent accountant's review of the statements and footnotes to ensure compliance with generally accepted accounting principles and to render an opinion on the fairness of the financial statements.

audit committee: Members of a client's board of directors who are responsible for dealing with the external and internal auditors.

audit report: A report issued by an independent CPA that expresses an opinion about whether the financial statements present fairly a company's financial position, operating results, and cash flows in accordance with generally accepted accounting principles.

authorized stock: The amount and type of stock that may be issued by a company, as specified in its articles of incorporation.

available-for-sale securities: Debt and equity securities not classified as trading, held-to-maturity, or equity method securities.  

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