Week 2

Statement of Profit or Loss

A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period.

Revenue

Inflow of economic benefits from the sale of goods or services.

Expenses

Outflow of economic benefits that decrease assets or increase liabilities.

Depreciation

The allocation of the cost of a tangible asset over its useful life.

Accruals

Accounting system where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Prepayments

Payments made in advance for goods or services to be received in the future.

Bad Debt

A debt that is deemed irrecoverable, typically due to bankruptcy or insolvency of the debtor.

Doubtful Debt

A debt that is uncertain if it will be paid, indicating potential difficulties in collection.

Matching Convention

Accounting principle that expenses should be matched to the revenues they help generate in the same period.

Accrued Expenses

Expenses that have been incurred but not yet recorded or paid.

Unearned Revenue

Cash received before services are performed, recorded as a liability.

Gross Profit

Revenue minus the cost of goods sold.

Operating Expenses

Expenses incurred during normal business operations, excluding cost of goods sold.

Investment Income

Income earned from investments, such as interest or dividends.

Financial Statement

A structured report that summarizes the financial performance and financial position of a business.

Carrying Value

The value of an asset as it appears on the balance sheet, calculated as the cost minus accumulated depreciation.