DATA STRUCTURE - DICTIONARY
- The accounting equation, (aka the balance sheet equation) states that “Assets = Liabilities + Net Assets”.
- An asset is what you own; tangible or intangible property like cash, inventory, accounts receivable, etc.
- A liability is what you owe, like payroll due or loan payments due
- Net assets (aka equity) are the difference between what you own and what you owe.
- Proper accounting practices seek to maintain the accounting equation – in other words, to balance the books. Each transaction has an equal amount of debits (recorded as positive numbers) and credits (recorded as negative numbers). This convention is known as "double-entry accounting", which helps prevent errors and ensures that each transaction keeps the organization's accounting equation in balance .
- Revenue results from the sale of goods or the rendering of services, and is recorded (and so increases net assets) when earned, not necessarily when payment is received.
- An expenditure is a cost incurred in order to provide the goods or services an organization provides, and is recorded (and decreases net assets) at the time the cost is incurred, regardless of when payment is made.
- Net assets (along with assets and/or liabilities) change as revenue is earned and as expenses are incurred.
- Journal entries are used to record such financial transactions in the general ledger - the repository of the debits and credits that is used to create financial statements. Some journal entries are performed manually by individual Finance System users, while others are uploaded through automated processes from subsystems.
- A fiscal year is a one-year period in which financial activity occurs, is recorded in the general ledger, and is summarized on financial statements, and it does not necessarily follow the calendar year. CU's fiscal year begins July 1st and ends June 30th.
- An accounting period refers to each single month in the fiscal year. Since CU's fiscal year begins in July, July is known as "accounting period 1", August is "accounting period 2" and so on..
- Financial statements show where an organization’s money came from, where it went, and where it is now. Two universal financial statements are:
- The balance sheet, which shows what an organization owns (assets), what it owes (liabilities), and the difference (net assets) at a fixed point in time. The balance sheet changes as revenue and expenses are incurred.
- The income statement, which shows how much money an organization made (revenue) and spent (expenditures) over a period of time. For the same reasons that we balance our checkbooks each month to ensure that the bank recorded our banking transactions correctly, it is imperative that financial managers at all levels review the financial statements related to their departmental activity, at least monthly, to ensure that transactions are recorded accurately and completely.
- CU's income statement, called the Revenue and Expense Statement Summary, further divides revenue and expenditures into different states, or "ledgers":
- Budget, which means a planned amount of revenue or expenditure. Some speedtypes don't have budgets, so this column would contain zeros.
- Actual, which means a realized amount of revenue or expenditure. If no actual revenues or expenditures have occurred, the actuals columns would contain zeros.
- Encumbrance, which means a planned expenditure that commits university dollars but has not been realized yet. Examples of expenses that are encumbered are employees' future salaries and benefits,and purchase orders that have not been recieved.
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