Glossary > GLOSSARY

GLOSSARY

Account

Each category of asset, liability, equity, income or expense for which transactions are recorded separately. Accounts can have a normal debit or credit balance. Account records are usually kept as separate pages in a book called a ledger. Accounts are sometimes called ledger accounts, or general ledger accounts.

Accounting Equation

The basis for the entire accounting process: (Assets = Liabilities + Equity) or (Equity = Income ?Expenses)

Accounting Period

This is the period of time over which income is calculated and adjustments are made. Most accounting systems have an accounting period of one month.

Accounts Payable

Money owed by the company for goods and services provided on credit by its suppliers.

Accounts Receivable

Money owed to the company by its customers for goods and services provided on credit.

Accrual Method

A method of stating income for an accounting period which involves matching income and expenses to the period in which the sale or debt occurred.

Accrued Expenses

Expenses which have accrued but have not yet been recorded in the books because no invoice has been received. Or, they may be recorded in the books in accrual account(s), which are then reversed when the actual invoices are received.

Accrued Overhead

Overhead expense which automatically accrues as job costing transactions are performed, based on an overhead factor such as a burden percentage on labor. Accrued overhead is a credit balance which offsets the actual overhead debit balances. Accrued overhead and actual overhead never fully match; at month end an adjustment is made to a variance account to bring them into balance.

Acknowledgment

A printout of a sales order which looks similar to an invoice. It serves as a hard copy reprint of the sales order and can be sent to customers as verification of their orders or used as an internal file copy.

Adjustments

Journal entries to record accrued expenses, depreciation, accrued income, accrued overhead, bad debts and other items which must be recorded at the end of the accounting period in order to accurately state income. The journal entries to record adjustments are called adjusting entries.

Assets

All the physical things and other items of value owned by a company. Assets include finished and unfinished inventory, land, buildings, cash, and money owed to the company from credit sales.

Audit Trail

The cross-referencing of business records and documents that allows an accountant to trace a transaction to its origin.

Backorder

A sales order line item field that indicates a quantity that failed to ship with the rest of its shipment, meaning it was put on backorder to be shipped later.

Backward Scheduling

See Finite Scheduling.

Bad Debts

The amounts not received when a customer does not pay all or part of what is owed by him. It is recorded as an expense by an adjusting entry.

Balance Sheet

A summary of what a company owns and owes at any given point in time. It has three main categories: assets, liabilities, and owner's equity.

Bill of Material

A listing of the components and quantities required that comprise a subassembly or finished good. This is often referred to as a single level bill of material. A product or assembly can be comprised of many subassemblies, and subassemblies can have their own subassemblies. An overall listing of all these bills of material is referred to as a multi-level bill of material. A printout of a multi-level bill of material with each level identified is referred to as an indented bill of material. A printout of a multi-level bill of material with each component consolidated into a single quantity with no levels specified is referred to as a "summarized" bill of material.

Cash Disbursement

A record of cash payments.

Cash Disbursements Journal

Records AP check transactions (including manual checks) and CD type transactions from GL-B, Enter/Post General Journal Trxns.

Cash Flow Statement

The statement of changes in financial position for funds defined as cash; primarily used for internal decision making.

Cash Receipt

A record of the receipt of cash sales and other sources.

Cash Receipts Journal

Records CR type entries from GL-B, cash terms type transactions from invoice posting (SO-F or SO-G), and receipt of payment by check from AR-C, Record Payments.

Chart of Accounts

An index or listing of the accounts in the ledger by their account number. See also Ledger.

Classified Statements

Financial statements that group accounts into sets that give similar information. See also Balance Sheet, Income Statement, and Cash Flow Statement.

Clearing Account

An account used for transactions when a General Ledger account code is not found during posting.

Closing the Books

The process of adjusting income and expense accounts so that they have a zero balance, and that the net amount is applied to Retained Earnings at the end of an accounting year. It is done to ensure that the books are ready to record the next accounting year's transactions.

Contra Account

An account whose balance is on the opposite side of the account to which it is related. Examples include accumulated depreciation, which is a contra asset, sales discounts, which is a contra income, purchases returns and accrued overhead, which are contra expenses, and discount on bonds payable, which is a contra liability.

Cost Accounting

A system of allocating costs or expenses incurred to a particular job, department or project so that a company's management can quickly determine if the project is meeting its budget or earning the company any profits. In manufacturing cost accounting often deals with allocating labor and overhead rates across work centers to accurately cost manufactured products.

Cost of Goods Sold (COGS)

The cost of the raw materials, direct labor, outside processing, and factory overhead incurred in producing all the goods sold during the period.

Current Assets

Assets which are converted into cash or realized in the ordinary course of business, usually within one year.

Current Liabilities

Liabilities that become payable within one year of the balance sheet date.

Credit (CR)

Increasing the balance of an account with a credit balance is called crediting, as is decreasing the balance of an account with a debit balance.

Credit Memo

An AR voucher entry through which you can credit a customer's account, or an AP voucher entry which inputs a credit from a vendor into the AP transaction file.

Credit Sales Order

A sales order with negative line item quantities entered, intended to offset the effect of a posted invoice. Sometimes called a Reversing sales order.

Data File

Any of the files containing accounting and manufacturing information generated by the system programs.

Debit (DR)

Increasing the valance of an account with a debit balance is called debiting, as is decreasing the balance of an account with a credit balance.

Depreciation

Allocation of the cost of a physical asset (such as a piece of equipment) over its useful life. It is recorded as an expense.

Direct Labor Costs

Wages paid to employees (laborers and supervisors) who work directly on the product being manufactured.

Division

See Payroll Division.

Double Entry System

An accounting system that requires recording the dual aspects of every business transaction. Each transaction affects at least two accounts and requires recording an equal dollar amount of debits and credits.

Earnings

The accumulated total of after-tax profits and losses from operations over the life of the company. Profits add to the total and losses subtract from it. If the company has had more losses than profits, the amount will be negative. See also Retained Earnings.

EPay

An electronic payment made to a supplier without printing a check

Expenses

The amount a company spends to provide goods and services to its customers or to carry on its business, excepting amounts spent to acquire assets.

Financial Statements

The balance sheet, income statement, and cash flow statement.

Finite Scheduling

A scheduling technique where start and due dates are determined by existing plant capacity. The program looks at the loads on each work center and determines each operation's projected finish date based on estimated production time, average queue (waiting) time, outside processing lead time, and weekends and holidays defined in the shop calendar. Forward Scheduling is where a start date is specified and the program calculates the finish date. Backward Scheduling is where the finish date is specified and the program calculates the start date.

Fiscal Year

The twelve month period which the company chooses as its year for accounting purposes. It is not necessarily the same as a calendar year.

FICA (Federal Insurance Contribution Act)

Social Security withheld from the employee and expensed to the employer.

Fixed Assets

Assets such as land, buildings, equipment and trucks that are used in operating the business and which have a long life.

Flag

A term used to describe a program status setting. Typically, a decision is made by the program depending on the value of the flag. The Rdy? field in the sales order header is an example of a flag.

Forward Scheduling

See Finite Scheduling.

FUTA (Federal Unemployment Tax Act)

Employer's annual Federal unemployment tax paid by the employer.

General Ledger

The collection of all permanent and temporary accounts of a business. The information in the ledger is recorded by a process called posting.

General Journal

A chronological record of non-cash transactions, such as adjustments.

Gross Profit on Sales

The profit made on selling the inventory before the selling and administrative expenses are taken into account. It is the value of sales minus cost of goods sold.

History

See Transaction History.

Income

The amount that a company earns by selling goods and services.

Income statement

A statement which shows the income and expenses for a specified period of time.

Indented Bill of Material

See Bill of Material.

Infinite Scheduling

A scheduling technique where operation due dates are established without regard for plant capacity. The work order start date and finish date are set by the user and the program calculates due dates on each operation accordingly.

Inventory

The goods a business has available for sale to its customers. For retailers or wholesalers, the goods themselves are not modified in any major way from the time they are received until the time they are sold. A manufacturing company's inventory will consist of raw materials, work in process, and finished products manufactured but not yet sold. See also Non-Inventory and Work-in-Process.

Inventory Location

Multiple inventory locations allow independent tracking of units on hand, on sales order, on backorder, on purchase order, on work order, allocated, and in work-in-process from differing physical sites or profit centers.

Invoice

A document that describes the sale of a product or service and transfers ownership to the purchaser. It specifies the product, price, and the terms of the sale.

Job

A term which is often used by people to mean Work order. In this system, a production order is referred to as a work order, not a job. There is a Job Number field, which allows several work orders, sales orders, or purchase orders to be assigned to an overall job number for tracking purposes, which would refer to an overall project.

Job Costing

A term used to describe the process of gathering and reporting work order costs. Job costing elements include labor, materials, outside processing, and overhead.

Journal

An accounting record in which business transactions are recorded in chronological order as they occur. All transactions are coded with a journal type code and can be listed separately by journal type. Journal types include general, cash receipts, cash disbursements, sales, purchases, payroll, other, and work orders. See also Journal Entry.

Journal Entry

A systematic record of a business transaction showing the accounts affected and the amounts of debits and credits and containing sufficient other information to describe the transaction completely.

Ledger

An historical record of all of the balance sheet and income statement accounts. Entries are made to the ledger through a process called posting. See also Account.

Liabilities

All the debts and money owed to others by the company. Liabilities include loans from banks, loans from shareholders, and unpaid amounts owed to suppliers and others.

Line Item

Any individual line that will print in the invoice body on an invoice form. The same term is used to refer to individual lines on acknowledgments and packing slips.

Location

See Inventory Location.

Long Term Liabilities

Liabilities that are not due to be paid during the next 12 months.

Lot Control

A means of identifying and tracking batches of raw material and finished goods by lot number.

Manual check

A check typed or written by hand as opposed to one that is printed by a computer.

MRP (Material Requirements Planning)

MRP refers to a program which takes basic demand for products, assemblies, and materials (sales orders, forecasts, and work order bills of materials) and explodes those requirements down through all levels of the bills of material. MRP will suggest purchase orders and work orders as required and will inform when existing orders need to be rescheduled.

Net Sales

See Income.

Non-Cash General Ledger Account

An account not directly affected by the receipt or disbursement of cash, such as depreciation and amortization.

Non-Destructive Close

A process of calculating the Current Earnings and Retained Earnings from the Income and Expense accounts without setting the account balances to zero. This can be done continually without undesirable effects.

Non-Inventory

A item number type within inventory (type N) which keeps track of sales and price but disregards units on hand.

NSF Check

A check for which there are not sufficient funds to cover, and which a bank consequently refuses to honor.

Opening the Books

The process of setting up a new set of books with the correct balance sheet, account balances, and zero balances in the income and expense accounts. When this is done, the new books are ready to record the upcoming accounting year's transactions.

Outside Processing

Services such as plating, painting, etc. that are performed by outside vendors during the course of production.

Other Journal

Records inventory adjustment changes and bank account funds transfer.

Owners' Equity

The interest or stake the owners have in a company. It is the owners' original investment plus the accumulation of all profits that have been retained in the company since its conception. It may be calculated by subtracting the value of the liabilities from the value of the assets.

Packing Slip

An intermediate document used by warehouse operations to stage and fill orders. A copy of the packing slip is usually included with the goods.

Parent Product

A term which refers to a product or assembly which has a bill of material. That item is the parent product of its components. Manufactured items on work orders are often referred to as parent products, as are items with estimates.

Payroll Division

A way of assigning different sets of payroll deductions to different groups of employees, or the name given to such a set of deductions.

Pick List

A document used by warehouse operations to gather and record raw materials and assemblies needed and used by work orders.

Prepaid Expenses

Expenses which are paid for in advance. Insurance and rent are typical prepaid expenses.

Product Structure

An alternate term for referring to a Multi-level bill of material. See Bill of Material.

Profit

See Income.

Profit Center

A department, sales region, project or any other part of a company for which income and expenses can be identified to determine if the division is earning profits.

Purchase Order

A document to convey to a vendor that a commitment has been made to purchase a product at a specific price under specified terms.

Purchases Journal

Records all non-cash transactions from Accounts Payable, including sales and payroll tax transfers.

Ready to Ship

A status field in sales order line items that indicates if items are ready for invoicing or packing slip printing.

Recurring Transaction

Any transaction such as a lease payment or bank charge that occurs on a regular periodic schedule. These can be handled by voucher, invoice, or General Journal entry, whichever is most appropriate.

Release

See Sales Order Release.

Retained Earnings

The accumulated total of after-tax profits and losses over the life of the corporation. If a corporation had more losses than profits, the amount of Retained Earnings will be negative. Any dividends paid are also subtracted from Retained Earnings. See also Earnings.

RFQ (Request for Quote)

A request for a price quotation from an outside vendor. This can be in the form of a document that looks very much like a purchase order.

Routing

A listing of the labor and outside processing operations that are needed to manufacture a finished good or subassembly. The routing includes operational detail which describes the various processes. Routing information is often printed on a shop traveler. See Shop Traveler.

Sales

See Income.

Sales Journal

Records all non-cash invoicing transactions generated within the Sales Orders module.

Sales Order

An unshipped customer order. The sales order holds prices, due dates, and backorder information on line items. Work orders can optionally be generated from sales orders. Invoices are processed from sales orders as shipments are made.

Sales Order Release

The process of tagging sales order line items (by setting the ready-to-ship flag to Y) for packing slip printing and invoicing.

Scrap

Scrap is any planned or unplanned excess material used during the course of a work order, or any parent products that have to be thrown out (scrapped) for quality reasons. Raw material scrap can be anticipated and planned for by specifying a scrap percentage in the parent product's bill of material. This will insure that enough material gets allocated to accommodate the planned scrap.

SDI

State Disability Insurance (payroll deduction category).

Setup

The labor involved in setting up a machine or work center prior to performing a labor operation. Setup is tracked as a separate cost category.

Shop Paper

A term often used to describe work order documents, including the shop traveler, pick list, and labor tickets/labels.

Shop Traveler

A printed document which contains all the information needed by production to manufacture an item. It is called a raveler?because it often travels with the order around the shop floor. The traveler contains work order header information, a routing, and a bill of material.

Soft Close

See Non-Destructive Close.

Source Document

An invoice, a bill, or other physical document on which the transaction recorded by the journal entry is based.

Subsidiary Ledger

A system in which a particular ledger account (e.g., Accounts Receivable) has its own ledger called a subsidiary ledger. There is generally an account in the subsidiary ledger for each customer (or supplier or employee).

SUTA(State Unemployment Tax Act)

State unemployment security, a statutory assessment.

Template (Recurring Transactions)

General Journal transactions, invoices, and vouchers that are repeated on a periodic basis can be saved as a template, or general format, to be generated at the appropriate time.

Terms of a Sale

The manner and time in which a purchase is to be paid.

Transaction History

The record kept of transaction data after the transactions are posted. A history of this kind can be used to void paid checks or enter reversing transaction later. See Credit Sales Order.

Trial balance (or Detailed Trial Balance)

The process of totaling the debit and credit balances of all the accounts in the ledger to ensure that there have been no posting or adding mistakes and that the total debits equal the total credits.

Units Allocated

The unissued quantity of an inventory item needed for all open work orders.

Units in Work-in-Process

The quantity already issued of an inventory item (component) required for the remaining (uncompleted) quantity of open work orders.

Units on Back Order

Inventory units in the sales order backorder column that have been sold but have not yet shipped.

Units on Hand

Inventory units that are physically on hand and have not yet been issued or shipped.

Units on Purchase Order

Inventory units which have been ordered but not received.

Units on Sales Order

Inventory units in the sales order Ship Qty column that have been sold but have not yet shipped.

Units on Work Order

The uncompleted quantity of all open work orders for an inventory item.

Voucher (AR, AP)

A method of cash control requiring that all expenditures must be approved before checks are issued in payment.

Withdrawal

The money taken out of a company by a proprietor or partner.

Work Center

The factory is organized into work centers for costing and scheduling purposes. A work center can be a machine, group of machines, or department. Each work center can have its own rates for setup, labor, and overhead. Routing operations are assigned to specific work centers.

Work-in-Process

Open work orders and the corresponding inventory value of the costs incurred to-date are referred to as work-in-process. Work-in-process is an inventory asset account in the General Ledger.

Work Order

An order to the factory to produce a specific finished good or subassembly. The printed work order is called a Shop Traveler. Work orders are integral to the scheduling, costing, and inventory control functions.

Work Orders Journal

A listing of all the General Ledger transactions, in chronological order, generated by work order processing.

Work Sheet

An accounting tool used from preparing end-of-period procedures without disturbing the books of account.