Financial Accounting Terms

Accounting is largely concerned with monitoring the flow of income and expenses in a business. To monitor this flow better, categories of debts and credits are used to clarify how money should flow into or out of the business. In a further refinement, short-term movements in accounts are monitored through accounts payable and accounts receivable.

An account is a detailed statement of receipts and payments of money that have taken place between two or more parties. Examples of accounts that monitor the flow of money into a business are revenue accounts and accounts receivable. Examples of accounts that track the flow of money from a business are expense accounts and accounts payable. Revenue accounts may track categories such as rents, sales, and miscellaneous income. Expense accounts may include salaries, supplies, materials, and utilities.

Much of this course is devoted to managing and monitoring money, to making financial decisions, and to reporting financial “vital signs” to interested persons within a company and to property owners. The following terms are used throughout this course:

• Accounting: the practice of classifying, recording, and summarizing financial transactions
• Invoice: an itemized bill presented to a buyer by a seller that specifies the price of goods sold or services delivered and the terms of the sale
• Cash: money in the form of currency (dollar bills), negotiable money orders, checks, and demand deposits
• Income: money or value received
• Revenue (receipts): income of various kinds coming into a business as cash, yield, tax credits, and other forms of income
• Expense (disbursements, expenditures): any business-specific cost incurred in operating a business or investment real estate. In accounting, an expense can sometimes be divided over more than one accounting period; in that case, the cost is said to be expensed.
• Cost: any expenditure of money, goods, or services for the purpose of acquiring goods or services

• Fixed Cost: price remains the same regardless of the amount of space leased. Examples include insurance and real estate taxes.

• Variable Cost: price changes with usage. Electricity and water are typical variable costs.

• Asset: one of a company’s economic resources. They include real property, cash, land, stocks, bonds, or equipment.
• Liability: a debt owed by an individual or a business
• Accounts Payable: monies due to others for services rendered or goods ordered and received
• Accounts Receivable: monies due from others for services rendered or goods ordered and delivered