Accounting Definitions

revenue

an increase in assets or a decrease in liabilities that causes an increase in owner’s equity, excluding capital

expense

a decrease in assets or an increase in liabilities that causes a decrease in owner’s equity, excluding drawings

asset

a resource under the control of the business, as a result of a past transaction or event, that will provide future economic benefits for the business

liabilitiy

obligations of the business as a result of past event, that will lead to future outflow of economic benefits

stakeholders

people interested in the performance of the business

owner’s equity

represents the owner’s claim on the net assets (Assets less Liabilities) of the business.

documents

verify transactions, proof and evidence that they occurred.

change in cash

cash receipts less cash payments

balance sheet

reports assets and equities at a specific point in time; where assets = equities.

cash flow statement

informs of cash inflows (receipts) and cash outflows (payments). reports on the change in cash and cash at end. over the reporting period.

income statement

takes into account revenue and expenses. reports both the gross and net profit. over the reporting period.

net profit

difference between all revenue and all expenses.

gross profit

difference between sales and the cost of goods sold

trading businesses

businesses that buy and sell inventory

sole traders

businesses that are owned by one person

inventory cards

Records inventory movements at cost price.

markup

used to determine selling price; usually in %

equities

who has an interest or ownership in the assets

Internal equities

equities internal to the business; owner’s equity

External equities

equities external to the business; liabilities

Reporting period

period of time over which you calculate profit

accounting process

Start of the reporting period. Transactions evidenced by documents. Prepare accounting records (inventory cards and transaction analysis table). end of the reporting period. Prepare accounting reports (cash flow statement, income statement, balance sheet). Analyse