Key words

Accountant

A professional who are responsible for the preparation and analysis of financial statements

accruals

the concept that states that revenues and expenditure should be matched to the time period in which they were earnt or incurred

accrued expenses

an amount owed for an expense that has been used in this financial year, but which has not yet been paid

additional incomes

revenues that come from places other than the selling of the core products or services

arithmetical error

an error which causes debit and credits to not equal in the trial balance

asset

a resource owned by a business

bank reconciliation statement

a statement that explains the difference between the balance of the bank account recorded in the cash book and the balance shown on the bank statement.

bank statement

the source document that evidences all bank transactions

bookkeeper

the person who records the financial transactions within the books of prime entry and the ledgers

books of prime entry

the books in which information from source documents are summarised and organised. they are the first place in which transactions are recorded

capital

the resources that have been invested into the business by the owner

carriage inwards

the delivery costs of the goods purchased by a business

carriage outwards

the delivery costs of the goods sent to the customer

cash

money that is available for spending

cash receipts

the source document which evidences a cash purchase

cheque counterfoil

the source document which evidences a cheque issued

closing inventory

the value of inventory held at the financial year end

compensating error

when an error on the debit side cancels an error made on the credit side

contra entries

two entries made that are offset against one another

cost of sales

the cost of the inventory that has been sold within the financial year

credit

an entry made into the right side of a ledger account. this represents either an increase in liabilities, income, or capital. it also represents a decrease in assets or expenses.

credit note

the source document which evidences a return has been made

credit transfers

electronic payments made through a bank account

current assets

assets that are expected to be converted into cash within one financial year

current liabilities

debts that are due to be repaid within 12 months

debit

an entry made into the left side of a ledger account. this represents either an increase in drawings, assets, or expenses. it can also represent a decrease in liabilities or income.

depreciation

the fall in value of a non-current asset over its useful economic life

direct debits

a method of authorising a business to automatically collect a regular payment from your bank account.

discount allowed

a cash discount which is given to trade receivables for paying with agreed terms

discount received

a cash discount which is given to a business by a trade payable for paying within the agreed terms.

dishonoured cheques

a cheque that has been rejected by the bank, e.g. there are insufficent funds in the issuers account

double entry bookkeeping

a system which records all financial transactions on the basis that each has an equal debit and credit

drawings

the resources that an owner takes out of the business for personal use

error of commission

when an entry has been made in the correct class of account but under the wrong name

error of omission

whereby a whole transaction has not been recorded in the books.

error of original entry

where an error is made when recording the details from the source document in the books of prime entry e

error of partial omission

whereby either the debit or credit side of a transaction has not been recorded, resulting in a single entry

error of principle

whereby an entry is made into the wrong class of account

error of reversal

whereby the account that should have been debited has been credited and vice versa

financial accounting

the area of accounting that focusses on preparing financial statements for external users

financial statements

the set of final accounts created ie, the income statement, the statement of financial position and for a company also the statement of changes in equity

general journal

the book of prime entry that records the transactions that are not recorded in the other books of prime entry

general ledger

the ledger which records non routine transactions

gross profit

the difference between the revenue earned and the cost of the inventory that has been sold

income statement

one of the financial statements. it is put together to calculate profit for the year

inventory

the items, goods or materials a business holds for the purpose of selling them to customers or using them in the productions of goods for sale

irrecoverable debt

an amount owed to the business from a trade receivable, which has been written off

ledgers

the books or computer file in which the double entry ledger accounts are recorded within

liability

money that a business owes

management accounting

the areas of accounting that focusses on providing information to help managers make informed business decisions

non-current assets

resources of value that are brought to use to help generate profit. they are not expected to be turned into cash within 12 months

non-current liabilities

debts that have over a year in which to be paid back

opening inventory

the value of inventory held at the start of the financial year (brought down from the previous financial year)

overdraft

a source of finance that allows a business to go below 0 in their bank account, up to an agreed limit

payables ledger

the ledger which records the accounts of the trade payables

paying-in slip counterfoils

the source document that evidences a deposit made at the bank

posting error

when one side of the transaction is posted to the wrong side of the account. e.g., a debit entry is accidently recorded as a credit entry. the credit entry has been correctly recorded

prepaid expenses

expenses have not been used within the financial year but have been paid for

profit for the year

the total profit made in a year

purchases invoice

the source document which evidences a credit purchase

purchase ledger control account

an account that summarises all transactions which relate to trade payables. its closing balance shows the total amount owed to trade payables.

purchases

raw materials or inventory that have been bought with the intention of being sold

purchases returns journal

the book of prime entry that details return outwards

purchases journal

the book of prime entry that details credit purchases

receivables ledger

the ledger which contains the accounts of the trade receivables

returns inwards

also known as sale returns, refers to when the customers return goods to the business after a sale has been made

returns outwards

also known as purchase returns, refers to the inventory returned to the supplier

revenue

the amounts earned by a business through providing a service or selling a product

sales invoice

the source document which evidences a credit sale

sales journal

the book of prime entry that details credit sales

sales ledger control account

an account that summarises all transactions which relate to trade receivables. its closing balance shows the total amount owed by trade receivables

sales returns journal

the book of prime entry that details returns inwards

sole trader

a business that has one owner. it may have employees

source documents

these are the documents that provide proof of a financial transaction

standing order

an instruction to the bank to allow a regular fixed payment to be taken by a third party

statement of financial position

a financial statement that shows a company’s financial position at a specific point in time. it details, assets, liabilities and capital.

straight line depreciation

a depreciation method where the deprecation charge is the same amount each year (unless NCA assets are sold or bought)

suspense account

a temporary ledger account that is opening when arithmetical errors have occurred. used to correct these errors.

three column cash book

the ledger account which records the cash and bank ledger accounts side by side. it also acts as the book of original entry for cash discounts( allowed and received)

till roll

the source document which evidences cash sales

total contribution

the total amount of revenue left over after variable costs have been covered. this amount will go towards the payment of fixed costs. once fixed costs are covered the amount will go towards total profit

trade payables

suppliers from whom the business has bought from on a credit basis

trade receivables

customer who have bought on a credit basis

transposition error

an error where two digits in a number are accidentally swapped

trial balance

a summarised list of all the debit and credit balances, brought forward from the ledger accounts

unequal posting error

when the debit and credit recorded for a transaction are for unequal amounts

accrued revenues

income that has been earnt, but the money for which has not yet been received.

authorised share capital

the maximum amount of share issue that a company has agreed can be issued

bonus issue

the issuing of additional shares to existing shareholders at no cost

break-even chart

a diagram which shows the point at which a business will make neither a profit or loss (at the point where the total revenue and total costs lines intersect)

break-even point

the point at which revenue is equal to total cost meaning neither a profit nor loss is made. can also be defined as the point at which total contribution covers total fixed costs

budget

a financial plan for a specific accounting period

budget centre

a department, product or project for which a separate budget is prepared

business entity

the concept which states the transactions recorded in an organisations accounts can only relate to that organisation. all personal transactions must be recorded separately

capital expenditure

amounts spent on the purchases of non-current assets. this can also include any costs involved in buying the asset (e.g. legal charges) and amounts spent on improving the non-current asset

capital gearing

the accounting ratio that assesses the proportion of finance that comes from fixed return sources

capital income

income from sources other than regular day-to-day operations

capital reserves

these are amounts set aside out of profits that are made from the non-trading activities of a business. they are not available to use for payment of cash dividends

cash budget

a financial plan of receipts (cash inflows) and payments (cash outflows)

cash discounts

a discount that is given to customers to encourage early payment of amounts owed