Accounting Definitions: Income & Expenses

A segregated list of the accounting definitions of income and expense terminologies furnishes the reader with a more organized resource for looking up meanings. As one is permitted to stay focused with the income and expense related terminologies, the learner will find it easier to grasp the principles and concepts related to cost incurrence and income generation. Basically, expense and income accounts are classified as nominal accounts, which denote that their nature is short-term which their account titles derive from the correct descriptions for a particular transaction.

At the finish of the accounting period, these nominal accounts will be zeroed-out and are used in the Loss and Revenue Summary. This is where the total result of the business operations is determined as favorable or not, either as a NET GAIN or Net Loss. It has been established Once, the ensuing amount will be studied up as a rise or loss of the administrative centre (Single Proprietorships) or the Retained Earnings accounts. Abatement – Denotes an approved reduction of the quantity of taxes, penalties, and surcharges to be paid.

Accelerated Cost Recovery System (ACRS) – This was a previously recommended method of depreciation using the declining balance as basis for recognizing depreciation expenses during the approximated useful life of a set asset. Accelerated Depreciation – This refers to the declining balance depreciation method that was later improved into double-declining or 200% declining balance method. The taxable income that was established in the end allowable deductions and modifications have been applied as reductions to the gross profits of the taxpayer, but before applying any exemptions.

Thereafter, the AGI will be the basis for determining the income tax still credited for payment. Allocate/Allocation – A cost treatment for dispersing out the expenses over a specific period of time, extending beyond the existing accounting period usually. Depreciation of fixed assets is the most popular method of cost allocation. Amortization – That is also a method of cost allocation that is used if the expense it pertains to is not just a fixed asset.

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It is also popular to make reference to the periodic payments made to negotiate a long-term responsibility. Example of an amortization not related to set assets is the price allocation of pre-operating expenditures incurred as start-up costs that will benefit future years. Bad Debt/Bad Debts Expense – This identifies the total accounts receivable already classified as past due and having very little chance of being retrieved or collected. The related expense account to recognize losing is DEBT Expense. Barter – A way of trading one’s goods or property in exchange for something that has relatively the same value as the product traded.

No cash outlay or in-flow should be booked, since it is not considered a purchasing or selling activity. Cafeteria Plan – A cafeteria plan is an IRS-approved system of providing supplemental employee benefits giving the employee the freedom to find the benefit that would serve him best. The mechanics of the system employs a flexible fund that is established particularly for the said purpose.

Accounting Definitions: Income & Expenses
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