Accounting Terms and Conventions
Page 1 of 2 Account – An account is a place for a series of transactions to be recorded. Chart of accounts – A listing of all of the available accounts. Many organizations have a chart of accounts which not only lists all of the available accounts but also explains what items are correctly recorded in each account. General ledger – This report will normally show all of the detail activity in each account and may have additional information about individual transactions. Balance Sheet – This is a snap shot of a series of asset and liability accounts at a point in time. Normal accounts found on the balance sheet are Cash, Accounts receivable, Accounts Payable, Accrued Payroll (amounts owed to employees but not yet paid), deferred income (Money paid for services yet to be provided) and equity or fund balances. Income Statement – This is a summary of the revenue and expense accounts. Normal accounts that will be found on this statement in the revenues section are tuition, fees, donations, parish support etc. Items on the income statement in the expense categories will be salaries, benefits, janitorial textbooks etc. The process of subtracting expenses from the revenue will give you the net income number. Cash basis of accounting – This method of accounting does not record revenue until collected in cash or expenses until paid in cash. Therefore when tuition is paid it is recorded as revenue. So, if a family chooses to pay tuition for the entire school year on July 1 the revenue would be recorded on July 1 and there would be no recognition of the fact that the School owes services throughout the remaining school year. This method of accounting does not normally provide an accurate picture of the entities financial position or activity because it does not accurately reflect the net income for a period. With St Francis this is especially true since the school collects registration fees for the 2005/06 fiscal year during the 2004/05 fiscal year. Accrual Basis of accounting – This method of accounting records revenues and expenses when they are earned or incurred. This is the method of accounting preferred by most financial reporting professionals. An example of a material item at ST Francis that would be treated differently under the accrual basis of accounting is registration fees that are paid in the year prior to them being earned and would therefore be recorded as deferred revenue.
Accounting Terms and Conventions
Page 2 of 2 Modified basis of accounting – This method of accounting will recognize certain items on the accrual basis of accounting while treating other items are recorded on the cash basis. This most closely resembles what St Francis has been using to report starting with the 2005/06 fiscal year. Diocese personnel have recorded deferred revenue at June 30, 2005 in the amount of $ 41,162.50. However, there is no recognition of accounts receivable or accounts payable until the items are received or paid. In addition, you will see account 360 · Student Activities Clearing which is the amount that the School has in their bank accounts on behalf of the Classroom funds, Sports Accounts, Student Body and Parents Club funds. Accounts Receivable – Amounts that are owed to the entity that have yet to be paid. At St Francis this would be tuition or fees that are due but not yet paid. Accounts payable – Amounts that the entity has been billed for goods or services but has yet to pay. Examples would be telephone, electricity, textbooks etc.