Account: This is where you keep a detailed record of each asset, liability, revenue, or expense. An account will show the impact a particular transaction has on a specific element. There are two types of accounts: nominal and real.
1. Nominal Account: is a temporary holding place where transactions are stored for up to 1 year. They are then transferred into a real (or permanent) account. Examples of nominal accounts are: revenues, expenses, and dividends. They’re recorded on the income statement, with the exception of dividends.
2. Real Account: is a permanent account that retains and forwards its balance from one accounting period to the next. Examples of real accounts are: fixed assets, liabilities, equity, and retained earnings. These accounts are recorded on the balance sheet.
Accounting Period: The period of time that financial information is being tracked. Most businesses conduct monthly accounting periods, but they can also be done on a quarterly or annual basis.
Adjusting Entries: are made at the end of each accounting period (generally monthly) in order to bring all of the business’ accounts up-to-date. These entries help align the reported financial results with the overall position of the business.
Closing Entries: is the process of reducing all nominal accounts to zero. Whatever is left over, either net income or net loss, is then transferred into a permanent account.
Event: is generally either an internal or external cause in changes to a business’ assets, liabilities, and equity.
Journal: provides a detailed account for individual transactions, which is then summarized and entered into the company’s ledger.
Ledger: is a book or software program, depending on the company’s preferance, that contains all of the company’s accounts. There are two types of ledgers: general and subsidiary.
1. General Ledger: the master set of every account summarizing all transactions within the business.
2. Subsidiary Ledger: contains all details related to any given general ledger account.
Posting: the act of summarizing and transferring information from the business’ journal to the ledger.
Transaction: is an external event that involves an exchange between two or more parties. This has monetary impact on an entity’s financial statement. Examples: paying vendors’ bills and buying property.
