1. systematic arrangement showing the effect of transactions and other events on a specific balance sheet or income statement item. An account is usually expressed in money. A separate account exists for each asset, liability, stockholders’ equity, revenue, and expense. Accounts are the way in which differing effects on the basic business elements are categorized and collected. Accounts are in the ledger (ledger account). Examples are cash, accounts payable, and dividend revenue. See also CHART OF ACCOUNTS.
2. relationship between one party and another. Examples are a depositor or borrower with a bank or thrift institution or a credit relationship with a seller of goods or services.
ACCOUNTABILITY – individual or departmental responsibility to perform a certain function. Accountability may be dictated or implied by law, regulation, or agreement. For example, an auditor will be held accountable to financial statement users relying on the audited financial statements for failure to uncover corporate FRAUD because of negligence in applying GENERALLY ACCEPTED AUDITING STANDARDS (GAAS).
ACCOUNT ANALYSIS – way to measure cost behavior. It selects a volume-related cost driver and classifies each account from the accounting records as a variable or fixed cost. The cost accountant then looks at each cost account balance and estimates either the variable cost per unit of cost driver activity or the periodic fixed cost. Account analysis requires a detailed examination of the data, presumably by cost accountants and managers who are familiar with the activities of the company, and the way the company’s activities affect costs. See also ENGINEERING ANALYSIS; HIGH-LOW METHOD; REGRESSION METHOD.
ACCOUNTANCY – British term referring to the activities and theories comprising accounting including practice, research, and teaching. It includes the guidelines, principles, and procedures accountants are to follow in conducting their tasks. Accountants have legal and ethical responsibilities to their clients and public. See also ACCOUNTING.
ACCOUNTANT – one who performs accounting services. Accountants prepare financial statements and tax returns, audit financial records, and develop financial plans. They work in private accounting (e.g., for a corporation), public accounting (e.g., for a CPA firm), not-for-profit accounting (e.g., for a governmental agency). Accountants often specialize in a particular area such as taxes, cost accounting, auditing, and management advisory services. ABOOKKEEPER is distinguished from an accountant as one who employs lesser professional skills. The bookkeeping function is primarily one of recording transactions in the journal and posting to the ledger. See also CERTIFIED PUBLIC ACCOUNTANT.
ACCOUNTANT IN CHARGE – professional responsible for the field engagement associated with an audit. Duties include the general supervision of the engagement, distributing the workload to assistants, reviewing audit findings, and drafting required field reports.
ACCOUNTANT, THE – journal published weekly in Surrey, England. Subject matter includes accounting, management, information systems and processing, corporate finance and treasury, and financial services.
ACCOUNTANTS FOR THE PUBLIC INTEREST (API) – organization dedicated to serving the public welfare. API provides objective analysis of public policy questions in terms of their fiscal, accounting, or financial implications. Services include technical support to nonprofit organizations that do not have the resources to afford such services.
ACCOUNTANTS’ INDEX – bibliography of accounting books and articles of interest to accounting professionals. It is published quarterly and annually by the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA). Included are publications on all phases of accounting, including auditing, tax, financial accounting, managerial accounting, and microcomputer applications.
ACCOUNTANTS INTERNATIONAL STUDY GROUP(AISG) – organization founded to examine and report on common interesting topics within the accounting discipline. This group consists of representatives from the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), CANADIAN INSTITUTE OF CHARTERED ACCOUNTANTS (CICA), and the INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES.
ACCOUNTANT’S LIABILITY – potential legal obligation of an accountant who commits fraud or is grossly negligent in the performance of professional duties. The term typically applies when an auditor conducting the ATTEST FUNCTION does not employ GENERALLY ACCEPTED AUDITING STANDARDS (GAAS) with sufficient care. To avoid liability, the accountant must be knowledgeable about the accounting profession’s authoritative pronouncements such as FASB statements and AICPA STATEMENTS ON AUDITING PROCEDURE as well as SEC ACCOUNTING SERIES RELEASES. An accountant who violates the established rules and guidelines can be held legally liable to parties retaining him and those relying on work performed (e.g., investors, creditors). Most accounting practitioners carry malpractice insurance. See also NEGLIGENCE.
ACCOUNTANT’S MAGAZINE, THE – journal founded in 1897, originally published monthly by the Aberdeen, Edinburgh, and Glasgow chartered accountants’ societies. The INSTITUTE OF CHARTERED ACCOUNTANTS IN SCOTLAND, founded in 1951, later adopted this magazine as its monthly journal. Subject matter includes international accounting, accounting education, information systems, financial accounting, managerial accounting, and legal topics.
ACCOUNTANT’S RESPONSIBILITY – ethical obligation to those relying upon the accountant’s professional work. The accountant has a duty to management, investors, creditors, and regulatory bodies to exercise due care in performing the accounting and ATTEST FUNCTIONS. The accountant must follow with competence the promulgations of the ACCOUNTING PRINCIPLES BOARD (APB) and FINANCIAL ACCOUNTING STANDARDS BOARD (FASB), among others.
ACCOUNT FORM – balance sheet structure showing assets on the left, liabilities and stockholders’ equity on the right. The alternative form, called the REPORT FORM, positions assets above liabilities and stockholders’ equity.
1. umbrella term encompassing the multitude of disciplines including auditing, taxation, financial statement analysis, and managerial accounting. Accounting-related functions include financial accounting, cost accounting, not-for-profit accounting, and financial planning.
2. process of recording, measuring, interpreting, and communicating financial data. The accountant prepares financial statements to reflect financial condition and operating performance. Also, the accounting practitioner renders personal accounting services to clients such as preparing personal financial statements and tax planning.
ACCOUNTING CHANGE – change in: (1) accounting principles (such as a new depreciation method); (2) accounting estimates (such as a revised projection of doubtful accounts receivable); or (3) the reporting entity (such as a merger of companies). When an accounting change is made, appropriate FOOTNOTE disclosure is required to explain its justification and financial effect, thereby enabling readers to make appropriate investment and credit judgments. Proper justification for a change in accounting principles may be the issuance of a new FASB pronouncement, SEC ACCOUNTING SERIES RELEASE (ASR), or IRS regulation. Changes in estimates are justified by changing circumstances such as a greater degree of wear and tear of a fixed asset than originally anticipated. Generally, the consistent use of accounting principles and procedures is essential in appraising an entity’s activities and in the projection of future results; however, changes in the reporting entity have to be retroactively reflected for comparative purposes.
ACCOUNTING CONTROL – procedures used to assure accuracy in the record keeping function. Controls exist to make certain source data placed in the system are proper and correct.
ACCOUNTING CONVENTION – methods or procedures employed generally by accounting practitioners. They are based on custom and are subject to change as new developments arise. A new accounting or tax requirement, such as an SEC ACCOUNTING SERIES RELEASE (ASR), may make a convention inappropriate. The accountant in performing the reporting function should follow existing accounting conventions that apply to the given situation. See also ACCOUNTING PRINCIPLES.
ACCOUNTING CUSHION – overstating an expense provision. This provides a larger balance in the estimated liability or allowance account so as to minimize the amount of an expense provision for a later period. It understates the current period’s profit and in effect overstates the earnings in the period when the anticipated event occurs. For example, a company’s allowance for bad debts from accounts receivable may substantially increase even though the company’s bad debt write-off experience has become much better. In this case, the overstatement of bad debt expense unjustifiably understates the present year’s net income. Because less of a bad debt expense provision will be needed next year due to the overstated allowance account, net income will be higher next period. The auditor should upwardly adjust net income for the charges creating the accounting cushion. It should be noted, however, that for tax purposes companies must use the direct write-off method for bad debts. See also INCOME SMOOTHING.
ACCOUNTING CYCLE – series of steps in recording an accounting event from the time a transaction occurs to its reflection in the financial statements; also called bookkeeping cycle. The order of the steps in the accounting cycle are: recording in the journal, posting to the ledger, preparing a trial balance, and preparing the financial statements.
ACCOUNTING ENTITY – business or other economic unit (including subdivisions) being accounted for separately. A system of accounts is kept for the entity. An accounting entity is isolated so that recording and reporting for it are possible. Examples of accounting entities are corporations, partnerships, trusts, and industry segments. A distinction should be made between an accounting entity and a legal entity. For example, a proprietor’s accounting entity might be the business whereas the legal entity would include personal assets. Also, in the corporate environment, affiliated companies can be differently organized for legal and accounting purposes (e.g., industry segments). See also CONSOLIDATED FINANCIAL STATEMENT.