Here is the next installment of accounting vocabulary terms, D-F.

Learning the vocabulary involved within accounting practices is important because again, it allows for a deeper level of education, whether the reader is a consumer, a student or even an accountant.

Accounting does not need to be hard to understand. With the right vocabulary and clear definitions, it can be simple and concise, informing consumer decisions in a very important and thorough way.

Debit : an accounting entry on the left or top of a balance sheet. Usually an increase in assets or a reduction in liabilities. Every debit has a balancing credit.

Deferred income — a liability that arises when a company is paid in advance for goods or services that will be provided later.

Depreciation — an expense that is supposed to reflect the loss in value of a fixed asset. For example, if a machine will completely wear out after ten year’s use, the cost of the machine is charged as an expense over the ten-year life rather than all at once, when the machine is purchased.

Discounted cash flow — a system for evaluating investment opportunities that discounts or reduces the value of future cash flow. (See present value.)

Dividend — a portion of the after-tax profits paid out to the owners of a business as a return on their investment.

Double entry –a system of accounting in which every transaction is recorded twice — as a debit and as a credit.

Earnings per share — a company’s net profit after taxes for an accounting period, divided by the average number of shares of stock outstanding during the period.

Equity — the owners’ share of a business.

Expenditure — an expenditure occurs when something is acquired for a business — an asset is purchased, salaries are paid, and so on. An expenditure affects the balance sheet when it occurs. However, an expenditure will not necessarily show up on the income statement or affect profits at the time the expenditure is made.

Expense — an expenditure which is chargeable against revenue during an accounting period. An expense results in the reduction of an asset. All expenditures are not expenses.

Fiscal year — an accounting year that begins on a date other than January 1.

Fixed cost — a cost that does not change as sales volume changes (in the short run.) Fixed costs normally include such items as rent, depreciation, interest, and any salaries unaffected by ups and downs in sales.