CAIE AS Level Accounting (9706) Vocabulary

Comprehensive vocabulary flashcards generated from the CAIE AS Level Accounting (9706) theory notes covering bookkeeping, financial accounting, partnerships, limited companies, and cost/management accounting.

Debtor

A customer (or other party) who owes the business money.

Creditor

Suppliers (or other parties) to whom the business owes money.

Trade discount

A reduction in the selling price of goods made by one trader to another who is in the same line of business.

Cash (or settlement) discount

An allowance given by a seller to a customer to encourage the customer to pay an invoice before its due date for payment.

Invoice

A document that a business issues to its customers, asking them to pay for the goods and services supplied to them.

Credit note

A receipt given to a customer who has returned goods, which can be offset against future purchases.

Debit note

A document issued by the entity receiving goods, cross-referred to the credit note issued by the supplier.

Remittance advice note

A proof of payment document sent by a customer to a business.

Books of Prime Entry

Books used to list all transactions of a specific kind chronologically before being posted to ledgers.

Trial Balance

A list of balances on each account extracted from ledger accounts at a particular date to check if the total debit side equals the total credit side.

Errors of Omission

Errors occurring when transactions are completely omitted from the accounting books.

Errors of Commission

Errors where transactions are posted to the wrong account but within the same class.

Errors of Principle

Errors where transactions are posted to an incorrect account that is not in the same class.

Errors of Original Entry

Errors where an incorrect amount is initially entered into the journal.

Sole trader

An individual owner who runs a business on their own.

Duality Concept

The accounting concept that every transaction has two aspects: a debit aspect and a credit aspect.

Business Entity Concept

The principle that a business and its owner are regarded and treated as separate entities.

Prudence Concept

The accounting principle stating that profits should not be overstated and potential losses should be provided for as soon as they are recognized.

Going Concern Concept

The accounting assumption that a business will continue operating without the intention to cease operations in the foreseeable future.

Substance Over Form

The principle stating that transactions should be recorded based on their commercial and economic reality rather than strictly their legal form.

Accruals

Expenses due within an accounting period that remain unpaid at the end of the period, reported as other payables under current liabilities.

Prepayments

Payments made by a business in advance for benefits to be derived in future accounting periods, reported as other receivables under current assets.

Suspense account

A temporary account opened in the general ledger to balance the trial balance when debit and credit totals do not agree.

Capital expenditure

Funds spent by a company to acquire non-current assets that provide benefits to the business over more than one financial year.

Revenue expenditure

Funds spent to cover regular, day-to-day operational expenses that recur every financial year.

Depreciation

The portion of the cost of a non-current asset consumed during the period of its use.

Straight Line Method

A method of calculating annual depreciation using the formula: $\frac{\text{Cost of non-current asset} - \text{residual value}}{\text{period of usefulness in years}}$.

Reducing Balance Method

A depreciation method applying a fixed annual percentage rate to the net book value (written down value) of an asset.

Irrecoverable debt

A debt due from a customer that is expected to never be paid, such as when a debtor becomes bankrupt.

Provision for doubtful debts

An estimated allowance set aside for customer debts where payment is uncertain, preventing overstatement of trade receivables.

Bank Reconciliation Statement

A periodic statement prepared to reconcile differences between the bank balance in the business cash book and the balance on the bank statement.

Unpresented cheques

Cheque payments recorded in the cash book that have not yet appeared on the bank statement.

Control accounts

Accounts that contain the summary totals of all individual postings made to accounts within a specific ledger.

Incomplete Records

Any method of recording financial transactions that does not fully follow the double-entry bookkeeping system.

Net Realisable Value

The expected selling price of goods minus any costs incurred to put those goods into a saleable condition.

Margin

Gross profit expressed as a percentage or fraction of the selling price.

Mark-up

Gross profit expressed as a percentage or fraction of the cost of sales.

Partnership

A business structure formed when two or more people carry on business together with the objective of making a profit.

Appropriation account

An account prepared after the income statement to show how the profit for the year is shared among partners.

Goodwill

An intangible asset representing the amount by which the total value of a business as a going concern exceeds the net value of its individual assets.

Realisation account

An account opened upon partnership dissolution to record book values of assets and liabilities and the actual proceeds or payments made.

Limited company

A separate legal entity whose members' financial liabilities are limited to the amount paid or unpaid on their shares.

Articles of Association

The constitutional document of a company defining its internal existence, management structure, and control.

Memorandum of Association

A founding document defining a limited company's relationship and boundary with external parties.

Authorised share capital

The maximum share capital a company is legally authorized to issue to the public.

Bonus share issue

An issue of free shares distributed to existing shareholders in proportion to their current holdings using capital or revenue reserves.

Rights issue

An offer of new shares to existing shareholders at a discounted price below current market value to raise further capital.

Direct costs

Costs that can be specifically and directly identified with the production of a specific unit of good or service.

Indirect costs

Costs (overheads) that cannot be directly traced to a single unit of production.

Fixed costs

Costs that remain constant in total regardless of changes in the level of activity or output.

Variable costs

Costs that change in direct proportion to changes in the level of production or output.

Contribution

The excess of sales revenue over variable costs, calculated as: $\text{selling price} - \text{variable cost per unit}$.

Break even point

The output level at which total revenue equals total costs, resulting in neither a profit nor a loss.

Margin of safety

The difference between total budgeted or actual sales units and the break-even level of output.

Limiting factor

Any resource constraint (e.g., raw materials, labor hours) that restricts the maximum output a business can produce.

Budget

A short-term financial plan setting expected costs and revenues for a future period to guide resource allocation and control.

Budgetary control

The system of setting departmental targets, monitoring actual performance against budgeted figures, and taking corrective actions.