Section 3: Basic Accounting Vocabulary

Vocabulary terms and definitions related to basic accounting principles, stakeholders, assets, liabilities, and financial statements based on Unit 1 Section 3.

Stakeholders

Different groups of people, also known as users of accounts, who want to find out about how well an organisation is performing by looking at its financial statements.

Owners/Shareholders

Users who look at accounts to work out the level of return they are receiving on their investment to identify whether it should be kept or sold.

Suppliers

Users who look at accounts to work out if they are likely to be paid if they offer credit to an organisation.

Banks

Users who look at accounts to identify whether a company is a good credit risk for agreeing a loan request.

Staff

Users who look at the security of their jobs and whether they are likely to receive a bonus based on the success of the organisation.

Customers

Users who check that an organisation is likely to still be trading in a year or two when they want to buy further supplies.

Accounting system

The overall process of recording all transactions in a meaningful and logical way to produce a set of accounts summarizing the organisation's position at the end of an accounting period.

Asset

A resource that is owned or controlled by the organisation, including property, vehicles, computers, inventory, and cash.

Fixed (or non-current) asset

An asset which is owned for more than $1$ year, such as an organisation delivery van.

Current asset

An asset which is owned for less than $1$ year, such as books in a storeroom for selling to customers.

Liability

An amount owed by the organisation to a third party, including bank loans, overdrafts, amounts owed to suppliers, and unpaid tax (such as VAT).

Income

Sales made by the organisation to their customers for physical products or services, also referred to as 'revenue', 'income' or 'turnover'.

Expense

Costs incurred by the organisation, such as purchases of goods for resale, salaries of employees, or rent.

Trade receivables (debtors)

A customer who owes the organisation money for goods or services.

Trade payables (creditors)

A supplier that the organisation owes money to for goods or services.

Capital income

Funds received from the organisation owner or from the sale of non-current assets.

Revenue income

Funds received from the sale of goods or services, rent received, or bank interest received.

Capital expenditure

Amounts spent on non-current assets such as motor vehicles, machinery, buildings, office equipment, and computer equipment.

Revenue expenditure

Amounts spent on day-to-day operational expenses such as electricity, wages, insurance, travel costs, motor expenses, rent, rates, printing, and stationery.

Statement of Financial Position (SFP)

One of the two main documents contained within an organisation's financial statements.

Statement of Profit or Loss (SPL)

One of the two main documents contained within an organisation's financial statements.