# Accounting

> Accounting, 0 to 1: one month of one company, from the first entry to the close.

Source: https://lopifi.com/learn/accounting
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How do the books work, from a debit to a signed set of statements?** Accounting, 0 to 1: one month of one company, from the first entry to the close.

1. [Why the books exist](https://lopifi.com/md/learn/why-the-books-exist) — 7 min. What is bookkeeping actually for? Bookkeeping is a system built so that errors show up and every figure traces back to something that happened.
2. [The accounting equation](https://lopifi.com/md/learn/the-accounting-equation) — 7 min. What is the accounting equation and why does it always balance? Assets = liabilities + equity is true after every entry, not just at period end. That is what makes the books provable.
3. [Accounts, and the five types](https://lopifi.com/md/learn/accounts-and-the-chart) — 9 min. What is a chart of accounts and what are the five account types? Every account is one of five types, and the type decides which side increases it. Get the type right and the entry follows.
4. [Debits and credits](https://lopifi.com/md/learn/debits-and-credits) — 8 min. What do debit and credit actually mean in accounting? Debit means left and credit means right. Stop translating them into plus and minus and everything else gets easier.
5. [Recording the month](https://lopifi.com/md/learn/recording-the-month) — 12 min. How do you write a journal entry for a transaction? Fourteen things happened to Northwind in September. Here is each one as an entry, with the reasoning behind it.
6. [Posting to the ledger](https://lopifi.com/md/learn/posting-to-the-ledger) — 8 min. What does it mean to post a journal entry to the ledger? The journal is in date order and the ledger is in account order. Posting re-sorts one into the other, turning a list of events into balances you can report.
7. [The trial balance](https://lopifi.com/md/learn/the-trial-balance) — 10 min. What is a trial balance and what does it actually prove? Every account netted onto one side, with both columns added up. It proves the arithmetic, and you need to know what it doesn't prove.
8. [Cash, accrual and cut-off](https://lopifi.com/md/learn/cash-versus-accrual) — 9 min. What is the difference between cash and accrual accounting? Cash accounting records when money moves. Accrual records when value moves. Most of the hard questions in this course live in the gap between them.
9. [Adjusting entries](https://lopifi.com/md/learn/adjusting-entries) — 11 min. What are adjusting entries and why are they needed at month end? Five entries nobody sends an invoice for, made on the last day of the month, that turn a list of transactions into a set of accounts.
10. [The income statement](https://lopifi.com/md/learn/the-income-statement) — 10 min. How do you build an income statement from a trial balance? Two of the five account types, laid out so each subtotal answers a different question about how the month went.
11. [The balance sheet](https://lopifi.com/md/learn/the-balance-sheet) — 10 min. How does the balance sheet connect to the income statement? The other three account types at one moment, including the line where the month's profit lands and ties the two statements together.
12. [The cash flow statement](https://lopifi.com/md/learn/the-cash-flow-statement) — 12 min. Why is a profitable company short of cash? Northwind earned $1,747.40, and its operations consumed $647.40. The third statement explains the difference line by line.
13. [Closing the month](https://lopifi.com/md/learn/closing-the-month) — 10 min. What does it mean to close the books for a month? The close proves every balance against something outside the ledger, then locks the period so the numbers can't change after sign-off.
14. [Revenue recognition and deferred revenue](https://lopifi.com/md/learn/revenue-recognition-and-deferred-revenue) — 12 min. How does revenue recognition work under ASC 606, and what is deferred revenue? The five steps of ASC 606, run on Northwind's October: a deposit earned on delivery, and a bundle split into a kit sold today and servicing earned month by month.
15. [Prepaid and accrual schedules](https://lopifi.com/md/learn/prepaid-and-accrual-schedules) — 13 min. How do you keep a prepaid expense schedule and reverse an accrual? Lesson 9's adjustments, run forward: the insurance released to zero, a mid-month prepaid on two conventions, and September's power accrual reversed and trued up when the bill arrives.
16. [Fixed assets and depreciation](https://lopifi.com/md/learn/fixed-assets-and-depreciation) — 9 min. When should a startup capitalize a purchase, and how does depreciation work? A capitalization policy, two October purchases on either side of it, the van's schedule over its whole life, and what selling it does to the books.
17. [Inventory and cost of goods sold](https://lopifi.com/md/learn/inventory-and-cost-of-goods-sold) — 10 min. How do you calculate cost of goods sold and value inventory? October's drills, costed FIFO and by weighted average, counted against the record, and written down to what they will sell for.

## Terms this track teaches

- [Double-entry](https://lopifi.com/md/glossary/double-entry): Recording every transaction as equal debits and credits, so the ledger proves itself
- [Single-entry bookkeeping](https://lopifi.com/md/glossary/single-entry-bookkeeping): Recording each transaction once, as a line in a running list — usually of cash — with no second side to check it against. It says what happened to cash, not what happened to the business, and an error in it does not show
- [Accounting cycle](https://lopifi.com/md/glossary/accounting-cycle): The loop a period of books runs through: record transactions as entries, post them, prove the trial balance, adjust, prepare the statements, close
- [Transaction](https://lopifi.com/md/glossary/transaction): A business event — a payment, a sale, a purchase
- [Journal entry](https://lopifi.com/md/glossary/journal-entry): A balanced set of debit and credit lines posted to the GL
- [General ledger](https://lopifi.com/md/glossary/general-ledger): The complete set of accounts, holding every posted entry
- [Basis](https://lopifi.com/md/glossary/basis): Cash or accrual
- [US GAAP](https://lopifi.com/md/glossary/us-gaap): Generally accepted accounting principles in the United States — for nongovernmental entities, the FASB Accounting Standards Codification; for SEC registrants, also the SEC's rules and interpretive releases
- [Accounting equation](https://lopifi.com/md/glossary/accounting-equation): Assets = liabilities + equity. True after every entry, not only at period end.
- [Asset](https://lopifi.com/md/glossary/asset): A present right of the entity to an economic benefit (FASB CON 8 ¶E16)
- [Liability](https://lopifi.com/md/glossary/liability): A present obligation of the entity to transfer an economic benefit (FASB CON 8 ¶E37)
- [Equity](https://lopifi.com/md/glossary/equity): The residual interest in the assets that remains after deducting liabilities (FASB CON 8 ¶E61)
- [Balance sheet](https://lopifi.com/md/glossary/balance-sheet): Assets, liabilities and equity at a point in time, proving the accounting equation
- [Retained earnings](https://lopifi.com/md/glossary/retained-earnings): Accumulated net income not distributed to owners — where the P&L lands on the balance sheet
- [SAFE](https://lopifi.com/md/glossary/safe): Cash from an investor in exchange for a right to shares in a future priced round, usually at a valuation cap or a discount. Not debt and not yet stock; because a SAFE can require cash on a change of control, it is often classified as a liability under ASC 480 and remeasured at fair value — the terms decide
- [Account](https://lopifi.com/md/glossary/account): A GL account in the chart of accounts. Always qualify when a bank account is meant.
- [Chart of accounts](https://lopifi.com/md/glossary/chart-of-accounts): The account structure
- [Normal balance](https://lopifi.com/md/glossary/normal-balance): The side that increases an account — debit for assets and expenses, credit for liabilities, equity and revenue, inverted for a contra account
- [Contra account](https://lopifi.com/md/glossary/contra-account): An account with the opposite normal balance to its type, presented as a deduction from its parent — accumulated depreciation against PP&E, the allowance against AR
- [Accumulated depreciation](https://lopifi.com/md/glossary/accumulated-depreciation): The contra-asset holding every dollar of a fixed asset's cost already charged to depreciation — credited each period, presented beneath the asset's cost, and removed with the asset when it is sold or scrapped
- [Revenue](https://lopifi.com/md/glossary/revenue): Inflows or other enhancements of assets, or settlements of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when control transfers, not when cash arrives
- [Expense](https://lopifi.com/md/glossary/expense): Outflows or other using up of assets, or incurrences of liabilities, from delivering or producing goods, rendering services or carrying out other activities — recognized when incurred, not when paid
- [Debit](https://lopifi.com/md/glossary/debit): The left column. It increases assets and expenses, and decreases liabilities, equity and revenue.
- [Credit](https://lopifi.com/md/glossary/credit): The right column. It increases liabilities, equity and revenue, and decreases assets and expenses.
- [T-account](https://lopifi.com/md/glossary/t-account): The two-column sketch of one account — debits left, credits right
- [Inventory](https://lopifi.com/md/glossary/inventory): Goods held for sale, or being made for sale, carried as an asset at cost until sold — when the cost moves to cost of revenue
- [Accounts payable](https://lopifi.com/md/glossary/accounts-payable): What we owe vendors for bills already received
- [Journal](https://lopifi.com/md/glossary/journal): The chronological record of entries, before they are summarized by account
- [Posting](https://lopifi.com/md/glossary/posting): Committing an entry to the ledger, making it immutable
- [Accounts receivable](https://lopifi.com/md/glossary/accounts-receivable): What customers owe us for invoices already issued
- [Deferred revenue](https://lopifi.com/md/glossary/deferred-revenue): Consideration received, or unconditionally due, before the goods or services are transferred — a liability until the performance obligation is satisfied. ASC 606 calls it a contract liability
- [Performance obligation](https://lopifi.com/md/glossary/performance-obligation): A promise in a contract to transfer a distinct good or service, or a series of substantially the same ones — the unit revenue is recognized by
- [Perpetual inventory](https://lopifi.com/md/glossary/perpetual-inventory): Updating the inventory account with every purchase and every sale, so cost of revenue is recorded sale by sale; the periodic alternative works it out at period end from a count
- [Sales tax payable](https://lopifi.com/md/glossary/sales-tax-payable): Sales tax charged to customers and not yet remitted to the state — a liability from the moment it is collected, never revenue, when the entity has elected to exclude such taxes from the transaction price
- [Transaction price](https://lopifi.com/md/glossary/transaction-price): The consideration an entity expects to be entitled to for the contract, including estimated variable consideration and excluding amounts collected for third parties such as sales tax
- [Exemption certificate](https://lopifi.com/md/glossary/exemption-certificate): The document a buyer gives a seller to claim a sales tax exemption — resale, manufacturing, an exempt organization — which the seller keeps to prove why it did not collect. New Mexico's version is the nontaxable transaction certificate (NTTC)
- [Payroll liabilities](https://lopifi.com/md/glossary/payroll-liabilities): What an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxes
- [Dividend](https://lopifi.com/md/glossary/dividend): A distribution of earnings to shareholders, declared by the board — a liability from the declaration date and a reduction of retained earnings, never an expense
- [Revenue recognition](https://lopifi.com/md/glossary/revenue-recognition): Deciding when, and how much, revenue is recorded — under US GAAP, when (or as) control of a promised good or service transfers to the customer, at the consideration the entity expects to be entitled to
- [Cost of revenue](https://lopifi.com/md/glossary/cost-of-revenue): The direct costs of producing the goods or delivering the services sold in the period — the line gross profit is measured after
- [Matching principle](https://lopifi.com/md/glossary/matching-principle): Recognizing an expense in the same period as the revenue it helped produce
- [Subledger](https://lopifi.com/md/glossary/subledger): The detail, by customer, vendor or asset, whose total must equal its control account in the GL
- [Control account](https://lopifi.com/md/glossary/control-account): A GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from it
- [Reversal](https://lopifi.com/md/glossary/reversal): An offsetting entry that undoes a posted entry
- [Evidence](https://lopifi.com/md/glossary/evidence): Documentation supporting a recorded amount
- [Audit trail](https://lopifi.com/md/glossary/audit-trail): The immutable record of every state change
- [Trial balance](https://lopifi.com/md/glossary/trial-balance): Every account's balance in two columns, proving that total debits equal total credits
- [Materiality](https://lopifi.com/md/glossary/materiality): Whether a misstatement or omission would likely change the judgment of a reasonable user of the statements — judged on size and nature together, never a fixed percentage
- [Suspense account](https://lopifi.com/md/glossary/suspense-account): A temporary holding account for an amount that must be posted before its correct account is known — cleared to zero before close, never reported
- [Transposition error](https://lopifi.com/md/glossary/transposition-error): Two digits swapped when an amount is keyed — 54 entered as 45. The trial balance goes out by a difference that is always divisible by nine; for two adjacent digits, the difference ÷ 9 is the gap between them times the place value (54 − 45 = 9 → a gap of 1 in the units), which is how it is found
- [Error of commission](https://lopifi.com/md/glossary/error-of-commission): The right amount posted to the wrong account of the right type — a payment applied to the wrong customer, an expense coded to the wrong department. Debits still equal credits, so the trial balance will not find it
- [Error of principle](https://lopifi.com/md/glossary/error-of-principle): An entry posted to the wrong type of account in breach of an accounting rule — a repair capitalized as an asset, a loan receipt booked as revenue. The trial balance still balances; only review finds it
- [Error of omission](https://lopifi.com/md/glossary/error-of-omission): A transaction never recorded at all — an unbilled delivery, a bill left in a drawer. Nothing was posted to either side, so the trial balance still balances; a cut-off test or a reconciliation finds it
- [Error of original entry](https://lopifi.com/md/glossary/error-of-original-entry): The wrong amount entered on both sides of an entry — the source document misread, so debits and credits agree and both are wrong
- [Compensating error](https://lopifi.com/md/glossary/compensating-error): Two unrelated errors of equal size on opposite sides that cancel, so the trial balance agrees and both survive
- [Reversal of entries](https://lopifi.com/md/glossary/reversal-of-entries): An entry posted with its debit and credit swapped — the right accounts and amount, each on the wrong side. Debits still equal credits
- [Accrual basis](https://lopifi.com/md/glossary/accrual-basis): Recognizing revenue when earned and expense when incurred, regardless of when cash moves
- [Cash basis](https://lopifi.com/md/glossary/cash-basis): Recognizing revenue and expense only when cash moves. Not GAAP for any entity — it is a special purpose framework (AICPA AU-C 800), and for tax a method IRS Pub. 538 and IRC §448 limit by entity type and gross receipts
- [Cutoff](https://lopifi.com/md/glossary/cutoff): Recording each transaction in the period in which it occurred — the boundary tested at every period end
- [Period](https://lopifi.com/md/glossary/period): A fiscal reporting window
- [Prepaid expense](https://lopifi.com/md/glossary/prepaid-expense): Cash paid before the benefit is consumed — an asset until it is. "Prepayment" is the UK and IFRS word for the same asset; a customer paying us early is a customer advance or deposit, a liability
- [Unbilled receivable](https://lopifi.com/md/glossary/unbilled-receivable): Revenue recognized where the right to payment is unconditional but the invoice has not yet been issued — a receivable, not a contract asset
- [Adjusting entry](https://lopifi.com/md/glossary/adjusting-entry): A close entry to apply accrual accounting
- [Accrual](https://lopifi.com/md/glossary/accrual): An expense incurred, or revenue earned, before it is invoiced — recorded at period end so it lands in the right period
- [Deferral](https://lopifi.com/md/glossary/deferral): Cash paid or received ahead of the expense or revenue it relates to, held on the balance sheet — as a prepaid or deferred revenue — until consumed or earned
- [Accrued liability](https://lopifi.com/md/glossary/accrued-liability): An obligation for goods or services received but not yet invoiced or paid — wages, interest, professional fees — recorded by an accrual
- [Depreciation](https://lopifi.com/md/glossary/depreciation): Spreading the cost of a fixed asset over the periods it serves
- [Amortization](https://lopifi.com/md/glossary/amortization): Spreading the cost of a finite-lived intangible, a prepaid or a debt discount over the periods it serves
- [Useful life](https://lopifi.com/md/glossary/useful-life): The period over which an asset is expected to contribute to cash flows, which sets the depreciation period — an estimate, revised prospectively
- [Salvage value](https://lopifi.com/md/glossary/salvage-value): The amount expected from disposing of an asset at the end of its useful life, net of disposal costs — the floor depreciation stops at
- [Net book value](https://lopifi.com/md/glossary/net-book-value): Cost less accumulated depreciation and impairment — the carrying amount of an asset
- [Reversing entry](https://lopifi.com/md/glossary/reversing-entry): An entry dated the first day of the next period that exactly offsets a period-end accrual, so the real invoice can be coded normally without double-counting
- [Roll-forward](https://lopifi.com/md/glossary/roll-forward): Opening → movements → closing, proven
- [Accrued revenue](https://lopifi.com/md/glossary/accrued-revenue): Revenue earned and recognized before it is invoiced. ASC 606 splits it: an unbilled receivable where only time stands between it and payment, a contract asset where the right still depends on further performance
- [Allowance for credit losses](https://lopifi.com/md/glossary/allowance-for-credit-losses): The contra-asset holding the expected credit losses on receivables, so AR is presented at the amount expected to be collected
- [Bad debt expense](https://lopifi.com/md/glossary/bad-debt-expense): The P&L charge that builds the allowance for credit losses — the provision, not the write-off
- [CECL](https://lopifi.com/md/glossary/cecl): Current expected credit losses — the ASC 326 model that books lifetime expected losses from day one using history, current conditions and reasonable forecasts. ASU 2025-05 adds a practical expedient for current AR and contract assets
- [Write-off](https://lopifi.com/md/glossary/write-off): Removing an uncollectible receivable against the allowance for credit losses — under the allowance method it has no P&L effect; the expense was taken in the provision
- [Straight-line](https://lopifi.com/md/glossary/straight-line): Allocating an amount evenly across the periods it covers — cost less salvage value divided by useful life for depreciation; equal monthly amounts for a prepaid or a ratable subscription. One systematic and rational method among several
- [True-up](https://lopifi.com/md/glossary/true-up): The adjustment that replaces an estimate with the actual amount once it is known
- [P&L](https://lopifi.com/md/glossary/p-and-l): Performance over a period
- [Gross profit](https://lopifi.com/md/glossary/gross-profit): Net revenue less cost of revenue, as an amount
- [Operating income](https://lopifi.com/md/glossary/operating-income): Gross profit less operating expenses — the result of the core business before interest, other income and tax
- [Net income](https://lopifi.com/md/glossary/net-income): Revenues and gains less expenses and losses, including income tax, for the period — the bottom line of the P&L, before any allocation to non-controlling interests
- [Gross margin](https://lopifi.com/md/glossary/gross-margin): Gross margin is a profitability metric, calculated as (Revenue − COGS) ÷ Revenue.
- [For the period ended](https://lopifi.com/md/glossary/for-the-period-ended): The label for a P&L or cash flow
- [Temporary account](https://lopifi.com/md/glossary/temporary-account): An account that measures one period only — revenue, expense, gain, loss, dividends declared — and is closed to retained earnings at year end
- [Income tax expense](https://lopifi.com/md/glossary/income-tax-expense): The P&L charge for income taxes — current tax payable for the period plus the change in deferred tax assets and liabilities
- [As at](https://lopifi.com/md/glossary/as-at): The point-in-time label for a balance sheet
- [Current asset](https://lopifi.com/md/glossary/current-asset): An asset expected to be realized, sold or consumed within twelve months of the balance sheet date or the operating cycle, if longer
- [Current liability](https://lopifi.com/md/glossary/current-liability): An obligation expected to be settled with current assets, or by creating another current liability, within twelve months or the operating cycle, if longer
- [Working capital](https://lopifi.com/md/glossary/working-capital): Working capital is a liquidity and working-capital metric, calculated as Current assets − Current liabilities.
- [Current ratio](https://lopifi.com/md/glossary/current-ratio): Current ratio is a liquidity and working-capital metric, calculated as Current assets ÷ Current liabilities.
- [Closing entry](https://lopifi.com/md/glossary/closing-entry): The year-end entry that zeroes every temporary account — revenue, expense, gains, losses, dividends or drawings — into retained earnings, so the new year's P&L starts at nil. Most ledger software performs it virtually
- [Permanent account](https://lopifi.com/md/glossary/permanent-account): A balance sheet account — asset, liability or equity — whose closing balance carries forward as the next period's opening balance
- [Cash flow statement](https://lopifi.com/md/glossary/cash-flow-statement): Where the cash went in a period — receipts and payments classified as operating, investing or financing, reconciling opening to closing cash, with operating cash also reconciled to net income
- [Capital expenditure](https://lopifi.com/md/glossary/capital-expenditure): Cash spent acquiring or improving long-lived assets in the period — the investing outflow free cash flow subtracts
- [Free cash flow](https://lopifi.com/md/glossary/free-cash-flow): Free cash flow is a cash and runway metric, calculated as Operating cash flow − Capital expenditures.
- [Runway](https://lopifi.com/md/glossary/runway): Runway is a cash and runway metric, calculated as Cash ÷ net monthly burn.
- [Indirect method](https://lopifi.com/md/glossary/indirect-method): Presenting operating cash flows by starting from net income and adjusting for non-cash items and changes in working capital — the method most entities use. ASC 230 also calls it the reconciliation method
- [Direct method](https://lopifi.com/md/glossary/direct-method): Presenting operating cash flows as gross receipts and payments by major class — cash from customers, cash paid to suppliers and employees. Encouraged by ASC 230, but it must still be accompanied by the reconciliation from net income
- [Non-GAAP financial measure](https://lopifi.com/md/glossary/non-gaap-financial-measure): A numerical measure of performance, position or cash flow that adjusts a GAAP figure — EBITDA, free cash flow, adjusted net income. A registrant publishing one must reconcile it to the most comparable GAAP measure
- [Close](https://lopifi.com/md/glossary/close): The process of finalizing a period
- [Reconciliation](https://lopifi.com/md/glossary/reconciliation): Comparing our record to an external party's
- [Tie-out](https://lopifi.com/md/glossary/tie-out): Proving a GL balance against supporting evidence
- [Outstanding check](https://lopifi.com/md/glossary/outstanding-check): A check recorded as paid in the books but not yet presented to the bank — deducted from the bank balance in a reconciliation
- [Deposit in transit](https://lopifi.com/md/glossary/deposit-in-transit): A receipt recorded in the book cash account but not yet on the bank statement — added to the bank balance in a reconciliation
- [Sign-off](https://lopifi.com/md/glossary/sign-off): Formal approval that a section is complete
- [Segregation of duties](https://lopifi.com/md/glossary/segregation-of-duties): Splitting authorization, recording, custody of assets and reconciliation across different people, so no one person can both commit and conceal an error or fraud — at minimum, preparer ≠ approver
- [Flux analysis](https://lopifi.com/md/glossary/flux-analysis): Explaining period-over-period variances
- [Restatement](https://lopifi.com/md/glossary/restatement): Revising previously issued statements to correct an error material to them ("Big R") — comparatives are relabeled Restated and the error disclosed
- [Revision](https://lopifi.com/md/glossary/revision): Correcting an immaterial prior-period error that would be material if corrected in the current period by adjusting the comparatives ("little r") — labeled As revised, no reissuance
- [Out-of-period adjustment](https://lopifi.com/md/glossary/out-of-period-adjustment): Correcting a prior-period error in the current period, permitted only when the error is immaterial to both periods
- [Lead schedule](https://lopifi.com/md/glossary/lead-schedule): The working paper that lists each GL account in a balance sheet or P&L caption with its balance and the schedule or reconciliation that supports it
- [Soft close](https://lopifi.com/md/glossary/soft-close): A period state in which routine posting has stopped and only adjusting entries by a controller are accepted. In common usage also an abbreviated month-end that estimates rather than fully reconciles — directional numbers, never the basis for external reporting
- [Hard close](https://lopifi.com/md/glossary/hard-close): A close in which every step is done — reconciliations, accruals, review, sign-off — and the period is locked against posting, so its statements can go to lenders, investors and auditors
- [ASC 606](https://lopifi.com/md/glossary/asc-606): Topic 606, Revenue from Contracts with Customers — five steps: identify the contract, identify the performance obligations, determine the transaction price, allocate it, recognize revenue as each obligation is satisfied
- [Contract with a customer](https://lopifi.com/md/glossary/contract-with-a-customer): An agreement that creates enforceable rights and obligations — written, oral or implied by customary practice — accounted for under Topic 606 only once it is approved, each party's rights and the payment terms can be identified, it has commercial substance and collection is probable
- [Variable consideration](https://lopifi.com/md/glossary/variable-consideration): Any part of the price that can change — discounts, rebates, refunds, credits, usage, bonuses, penalties — estimated and included only to the extent a significant reversal is not probable
- [Standalone selling price](https://lopifi.com/md/glossary/standalone-selling-price): The price at which an entity would sell a good or service separately — the basis for allocating the transaction price across performance obligations
- [Over-time recognition](https://lopifi.com/md/glossary/over-time-recognition): Recognizing a performance obligation's revenue as it is satisfied, measured by progress — required when the customer receives and consumes the benefit as the entity performs, controls the asset as it is built, or the asset has no alternative use and the entity has an enforceable right to payment to date
- [Point-in-time recognition](https://lopifi.com/md/glossary/point-in-time-recognition): Recognizing a performance obligation's revenue on the date control passes, judged by indicators: a present right to payment, legal title, physical possession, the risks and rewards of ownership, acceptance
- [Contract asset](https://lopifi.com/md/glossary/contract-asset): Revenue recognized ahead of an unconditional right to payment — the right still depends on something other than the passage of time
- [Remaining performance obligations](https://lopifi.com/md/glossary/remaining-performance-obligations): Transaction price allocated to obligations not yet satisfied — deferred revenue plus contracted, unbilled amounts — disclosed with when it is expected to be recognized
- [Principal versus agent](https://lopifi.com/md/glossary/principal-versus-agent): Whether the entity controls a good or service before it passes to the customer — a principal reports revenue gross, an agent reports only its fee or commission net
- [Fixed asset](https://lopifi.com/md/glossary/fixed-asset): A tangible asset held for use in operations over more than one period — property, plant and equipment — carried at cost less accumulated depreciation
- [Capitalization](https://lopifi.com/md/glossary/capitalization): Recording a cost as an asset rather than an expense because it brings a future benefit — then allocated to expense over that benefit
- [Capitalization threshold](https://lopifi.com/md/glossary/capitalization-threshold): The written dollar amount, and minimum useful life, below which an entity expenses a purchase that would otherwise be an asset. GAAP sets no amount — its provisions need not be applied to immaterial items; many US companies align it with the IRS de minimis safe harbor
- [De minimis safe harbor](https://lopifi.com/md/glossary/de-minimis-safe-harbor): An annual tax election to deduct, rather than capitalize, tangible property costing up to $2,500 per invoice or item — $5,000 with an applicable financial statement — provided the books expense the same amounts under an accounting policy in place at the start of the year
- [Gain or loss on disposal](https://lopifi.com/md/glossary/gain-or-loss-on-disposal): Proceeds from selling or scrapping a long-lived asset less its net book value on that date — presented outside revenue, with the asset's cost and accumulated depreciation removed together
- [Temporary difference](https://lopifi.com/md/glossary/temporary-difference): A difference between an asset or liability's tax basis and its book carrying amount that will reverse in future years — the source of deferred taxes
- [Section 179 expensing](https://lopifi.com/md/glossary/section-179-expensing): An election to deduct the cost of qualifying equipment and software in the year it is placed in service — up to $2,560,000 for 2026, phased out dollar for dollar above $4,090,000 of purchases, and limited to taxable business income
- [Bonus depreciation](https://lopifi.com/md/glossary/bonus-depreciation): Additional first-year tax depreciation under §168(k) — 100%, permanently, for qualified property acquired after January 19, 2025, under the OBBBA. Not limited to taxable income, so it can create an NOL; book depreciation is unaffected, creating a temporary difference
- [FIFO](https://lopifi.com/md/glossary/fifo): The cost-flow assumption that the oldest units leave inventory first, so cost of revenue carries the earliest costs and the shelf the latest. When prices rise, FIFO reports the lower cost of revenue and the higher inventory
- [Weighted-average cost](https://lopifi.com/md/glossary/weighted-average-cost): The cost-flow assumption that every unit carries the average cost of what is on hand — in a perpetual record, recomputed after each purchase and applied to each issue
- [Shrinkage](https://lopifi.com/md/glossary/shrinkage): The units a physical count finds missing against the perpetual record — loss, theft, damage, miscounted receipts — taken out of inventory at cost as a loss of the period
- [Net realizable value](https://lopifi.com/md/glossary/net-realizable-value): Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. FIFO and average-cost inventory is carried at the lower of cost and NRV, and the shortfall is a loss of the period it arises in
- [Inventory turnover](https://lopifi.com/md/glossary/inventory-turnover): Inventory turnover is a liquidity and working-capital metric, calculated as COGS ÷ Average inventory.

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