Salon Business Terminology

General Accounting Terms and Definitions

Throughout the course of owning your business, you're bound to come across the following accounting terms. By decoding these accounting terms, you will be able to understand the lingo that describes the state of your business.


Accounting Cycle - Composed of several Accounting Periods spanning over twelve consecutive months. The accounting cycle used in Salon Accounting is from January 1st to December 31st.

Accounting Period - Expenditure and revenue measurement within a pre-determined time frame. There may be several Accounting Periods in an Accounting Cycle

Amortization - The measure of an intangible asset's loss of value over time by a mathematical formula to properly match revenues against the appropriated value of the asset. This is done for patents, copyrights, and organizational costs.

Assets - Tangible or intangible property that a Corporation controls.

Fixed Assets - Purchases whose historic cost is above the Corporation established threshold or $1,000.00. This may include furniture, office equipment (e.g. copiers, computers, fax machines, and telephone systems), trade fixtures (items attached to the building or real estate such as signs), and vehicles.

Intangible - Assets that cannot be physically measured: goodwill, patents, copyrights, and organizational costs.

Liquid Assets - Assets that can be readily spent or transferred to cash such as bank accounts (e.g. checking accounts, savings accounts, certificates of deposit, money market accounts, and current asset management accounts), and securities (e.g. stocks and bonds).

Tangible Assets - Assets that may be physically measured by inventory: furniture, office equipment, and vehicles.

Budget - A detailed maximum spending plan by line-item covering a time period.

Capitalized - Purchases, modifications, improvements, or repairs exceeding a Corporation’s established threshold

Consideration - An exchange of goods or services for other goods or services.

Contract - A written or verbal agreement for services or goods with specific terms.

Depreciation - Mathematical formula measure of a tangible asset's loss of value over time to properly match revenues against the appropriated asset’s lost value (estimated expense). This is done for office equipment, furniture, and vehicles.

Employee - A compensated individual authorized to perform duties for the Corporation where the Corporation incurs expenditures related to Employee Benefits.

Expenditure - The use of assets to obtain an established goal.

Fiscal Year - Twelve consecutive months designated as the operational year that is not a calendar year. The State of West Virginia uses a governmental accounting year beginning on July 1 and ending June 30.

Footnote - Additional information that offers insight to financial statement readers concerning specific events, transactions, or decisions that the Corporation has made.

Historic Cost - The original total purchase price (including freight and taxes).

Liability - A debt or outstanding balance owed to another party requiring a future cash flow for satisfaction or extinguishment. This may be considered short-term (less than twelve months) or long term (greater than twelve months).

Line-Item - A specific account that categorizes or groups common expenditures.

Related Party Transactions - A term used to define the close relationship between individuals who have entered into or executed a contract. The relationship may include but not limited to, closely related family members (e.g. spouse, parent, sibling, grandparent, aunt, uncle, and cousin) and someone having a vested interest in the other party (e.g. agent, stockholder, employee, and board members). These transactions may have tax implications.

Report - Information compiled to communicate an idea or to state a fact that covers a specific time period. Management uses these tools to make decision concerning the Corporation's future operations. Readers may use these reports to make financial decisions (e.g. credit decisions) about the Corporation. Reports should be compiled and reported on a cash basis. Accrual basis reports are completed after the final cash basis report is issued to PDS (at the conclusion of the fiscal year - June 30; and prior to the CAFR audit).

Asset Report - A Balance Sheet is a report listing the total assets, liabilities, and equity of a business.

Budget Report - Report concerning the current or future spending plans of the Corporation. Normally detailed by line-item, budgets can be made for an accounting cycle and budgets may be allocated over several accounting periods.

Expenditure Report - A line-item report detailing the amounts spent.

Variance Report - A line item report that compares differences between the budget and expenses.

Personal Services - Account class that includes ACompensation paid to full-time, part-time, temporary or intermittent employees with payroll deductions, e.g., Federal or State withholding, social security, retirement, etc. This does A...not include fees or contractual payments paid to consultants or to independent contractors.

Temporary Help - Employment related to a time period such as seasonal or task oriented. Does not include fees paid to temporary employment agencies.

Employee Benefits - Account class that includes expenditures. Normally paid by the employer as a direct cost of employment, such as social security matching, workers' compensation, unemployment compensation, pension and retirement contributions.

Health Insurance - Medical coverage payments, on the employees’ behalf, to a third party.

Pension Contribution - Payments paid on the employee’s behalf to a third party for the benefit of receiving retirement funds.

Compensation - Payments to a Workers' Compensation Fund or insurance program to cover employees’ work-related injuries.

Supportive Services - Account class that includes services purchased on a contract or consulting

Computer Personnel/Consulting - Contract fees for equipment and software maintenance, consulting services, and payments for service contracts.

Administrative Support - Account class related to the Corporation’s business operations: association dues, professional memberships, continuing education, training, development of skills, and travel. Administrative support is directly related to the management and operation of the Corporation by employees, Board members, or volunteers.

Education: Training & Development - Costs associated with the training, development, and education of non-lawyers or lawyers attending training that is not case or CLE related.

Office - Account class relating to the Corporation’s daily operations including non-capitalized expenditures, office and storage costs, equipment rental, utilities, telecommunications, and nonhealth insurance premiums (e.g. fire, flood, theft, & liability).

Insurance - Includes insurance costs except for those costs that fit the description of Employee Benefits.

Office & Storage Costs - Costs incurred for operational space including rents, lease payments, or other expenditures. This account is split into Rent: Office and Rent: Storage.

Telecommunications - Costs incurred for a communication network including telephone, Internet, paging, cellular, digital, or other means of communications. This account is split into Telephone and Internet.

Utilities - Utility costs including A...Natural gas, electric, fuel oil or other substance used for heating, cooling, light, sanitation fees, trash/garbage disposal, fire service, septic tank maintenance, cable TV charges, and purchase of bottled water.

Computer Software - Costs associated with software purchase (not Internet services) under the Corporation's established threshold or $1,000.00. Software should not be depreciated.

Office Supplies - Administrative costs: pencils, pens, markers, correction fluids, paper, envelopes, notebooks, ink, binders, paper clips, tape, staples, file folders, push pins, ink cartridges, and typewriter ribbons. This may not include adding machines, calculators, office furniture, or office equipment.

Postage - Delivery services payments associated with letters or packages including postage stamps, bulk mailings, and freight charges. This does not include envelopes or supplies.

Printing - Costs for reproduction or production of materials including envelopes, letterhead, posters, transparencies, and letters.

Rent Equipment - Fees paid for usage of office equipment.

Other - Account class used when all other accounts have been reviewed.