accounting

An act or a system of making up or settling accounts, consisting of a statement of account with debits and credits arising from relationship of parties. State ex rel. King v. Harvey, Miss., 214 So.2d 817, 819.

Rendition of an account, either voluntarily or by order of a court.

In the latter case, it imports a rendition of a judgment for the balance ascertained to be due. The term may include payment of the amount due.

In partnership law, is equitable proceeding for a complete settlement of all partnership affairs. The methods under which income and expenses are determined for tax purposes.

Major accounting methods are the cash basis and the accrual basis. Special methods are available for the reporting of gain on installment sales, recognition of income on construction projects (i.e., the completed-contract and percentage-of-completion methods), and the valuation of inventories (i.e. last-in first-out and first-in first-out). The various types of accounting methods appear below:

Accrual method.

A method of keeping accounts which shows expenses incurred and income earned for a given period, although such expenses and income may not have been actually paid or received. Right to receive and not the actual receipt determines inclusion of amount in gross income. When right to receive an amount becomes fixed, right accrues. Obligations payable to or by taxpayer are treated as if discharged when incurred. H. Liebes & Co. v. Commissioner of Internal Revenue, C.C.A.9, 90 F.2d 932, 936.

Entries are made of credits and debits when liability arises, whether received or disbursed. Insurance Finance Corporation v. Commissioner of Internal Revenue, C.C.A.3, 84 F.2d 382.

See also accrual basis

- accrue (taxation).

Cash method.

The practice of recording income and expense only when cash is received or paid out; used in contradistinction to accrual method.

See cash basis accounting.

Completed contract method??.

A method of reporting profit or loss on certain long-term contracts. Under this method of accounting, gross income and expenses are recognized in the tax year in which the contract is completed. This method should be used only when the conditions or terms of the contract do not permit use of the percent of completion method.

Cost method.

The practice of recording the value of assets in terms of their cost.

See also cost (cost accounting).

Fair value method??.

Valuation of assets at present value, meaning same as actual value or market value. Kerr v. Klinchfield Coal Corp., 169 Va. 149, 192 S.E. 741, 744.

Flow through method.

Type of calculation of depreciation used by regulated utilities for income tax purposes. Federal Power Commission v. Memphis Light, Gas, & Water Division, 411 U.S. 458, 93 S.Ct. 1723, 36 L.Ed.2d 426.

Installment method.

Procedure applied in reflecting collection of sales price in installments.

Price level accounting.

Modern method of valuing assets in a financial statement which requires use of gross national product to reflect current values.

See also change in accounting method.

See also Generally Accepted Accounting Principles

- Generally Accepted Auditing Standards

- installment method

- interim statements

- percentage of completion method

- purchase method of accounting

- T-account

- trial (trial balance).

2 noun

Allocation of income and expense, which has been earned or incurred but not yet collected or paid out, to the accounting period in which the income is earned or expense incurred