Accounting and finance key defenitions.

Accounting

is a system of recording and processing business events and reporting to people on the performance of a business

What is double entry accounting

For every debit entry in one ledger account there is a corresponding and equal credit entry in another ledger account.

Accounting entity

A business is separate from the owner of the business. The personal actions of the owner are not recorded in the accounting system of a business.

Monetary

All business events can be valued in terms of money. A business event must be be given a value in money before it is recorded in the accounting system

Historical cost

An asset is recorded in an accounting system at its acquisition value and this value is not changed as time passes.

Materiality

ensures financial statements include all relevant information that could influence users' decisions. If omitted or misstated, material information must be disclosed.

Going concern

A business will exist for the foreseeable future.

This assumption allows assets to be valued at their purchase price in a balance sheet

Assets

is a present economic resource controlled by the entity as a result of past events.

Liabilities

is a present obligation of the entity to transfer an economic resource as a result of past events

Equity

is the residual interest in the assets of the entity after deducting liabilities

Current assets

are cash and other assets that will be consumed or converted into cash in 12 months or less

Non current assets

are assets, other than cash, that will be used by a business for more than 12 months

Current liabilities

will be settled/paid for in 12 months or less.

Non current liabilities

will be settled/paid for in more than 12 months.

Income

is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities

Income recognition criteria

1. it is probable that an inflow of future economic benefits will occur.

2. The value of the income can be measured reliably.

Expenses

decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities

Expenses recognition criteria

1. It is probable that an outflow of future economic benefits will occur.

2. The value of the expense can be measured reliably.

Financial performance

measures the overall standing in categories such as assets, liabilities, equity, expenses, revenue, and overall profitability

financial position

refers to a snapshot of a businesses particular financial health at a specific time, it shows what the assets the business owns, liabilities, of the business, and the owners equity.

Liquidity

it measures how quickly and easily a company can convert its assets into cash to pay off liabilities

General and administration expenses

are expenses that cannot be classified as selling and distribution or financial expenses

Selling and distribution expenses

are expenses generated from the sale of the inventory and delivering the inventory to customers

Financial expenses

will include only borrowing costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.

Cash expenses

Is recorded when the money changes hands

Accrual accounting

Records the transaction when the transaction occurs, regardless whether the money has changed hands.

Accoutning period

divided into intervals of time. a balance sheet is prepared on the last day.