Accounting Vocab

Absorption costing

The cost of products including all the direct costs of production and a proportion of the indirect costs of production based on normal levels of output

Accountability

Managers provide an account of how they have managed resources placed in their care. In this way, those appointing managers can assess how well their managers have looked after the resources entrusted to them

Accounting

The summarizing of numerical data relating to past events and presenting this data as information to managers and other interested parties as a basis is for both decision making and control purposes

Accounting equation

Assets - liabilities = equity

Accruals

Expenses incurred during an accounting period but not paid for until after the accounting period end are recognized as a liability in the statement of financial position and as an expense in the statement of profit or loss

Accruals based accounting

All income and expenditure are recognized in the accounting period in which they occurred rather in the accounting period in which cash is received or paid

Activity-based costing

Overhead costs are allocated to products on the basis of activities consumer; the more activities that are consumed by a particular product, the more overhead is allocated to that product and so the higher its cost and selling price will be

Actual v budget comparisons

A comparison of fore-cast outcomes with actual outcomes on a monthly basis as a means of exercising control over operations

Adverse variances

Unfavorable variances

Annual General Meeting (AGM)

A meeting help every year by limited liability companies at which shareholders consider and vote on various significant resolutions affecting the company

Allowance for receivables

The allowance for receivables is calculated as a percentage of trade receivables after deducting known as an irrecoverable debt This allowance is an application of the prudence concept assuming that not all trade receivables will pay what is owed, also referred to as the provision of doubtful debts.

Articles of association

A document that covers the internal regulations of a company and governance the shareholders relationships with each other

Assets

Defined in the IASB conceptual framework for financial reporting as a present economic resource controlled by the entity as a result of past events

Attainable standard

A standard that can be achieved with effort the standard is neither too easy nor so difficult as to be unattainable

Balance sheet

Another term for the statement of financial position

Bond

A long-term loan to an organization with a fixed rate of interest and a fixed repayment date

Bonus issue

An issue of shares at par value to shareholders from retained earnings. A bonus issue does not raise any cash.

Breakeven point

The point of which sales revenue equals fixed plus variable cost at the break even pointed, and she makes neither a profit nor a loss break even point can be expressed in pounds or units of sales break even point cannot be used when more than one product or service is produced and sold the break even point is calculated by dividing total fixed cost by the contribution per unit of sales

Budget

Expression of a plan and money terms that plan is a prediction or forecast of future income, expenditure, cash, receipts, and cash payments

Budgetary control

Comparisons between budgeted and actual outcome to determine the cause of variances between budgeted and actual results, the causes of differences are then identified to enable remedial action to be taken

Budgeting

The process of drawing up the budget

Business entity

Any organization involved in business. Business entities may be sole traders, companies with limited liabilities or partnerships

Business entity convention

The business is completely separate from its owners. Only business transactions are included in the business’s financial financial statements

Capital account

The equity part of the statement of financial position for sole traders. The capital account is the sum of the opening capital balance plus the profit for the year (minus a loss for the year) minus any drawings made by the sole trader during the year

Capital investment

The acquisition of new non-current assets with the aim of increasing sales, profits and cash flows to the long-term benefit of a business

Capital investment appraisal

An evaluation of the long-term cash generating capacity of capital investment projects to assist decision makers in allocating scarce investment capital resources to projects to maximize long run profits

Carrying amount

Cost or fair value of a non-current assets - the accumulated depreciation on that non-current asset. Net book value is an equivalent term that you might also come across to describe the result of deducting accumulated depreciation from the cost or fair value of a non-current asset

Cash budget

A detailed summary on a month-by-month basis of budgeted cash inflows and cash outflows

Cash conversion cycle

Inventory days + receivables says - payables says. Also known as the working capital cycle or the operating cycle

Cash flow cycle

The time it takes a business to convert inventory into a sale and to collect cash either at the point of sale or from trade receivables with which to pay payables

Cash flows from financing activities

One of the three sections in the statement of cash flows. This section represents the cash raised from the issue of share capital and loans and the cash spent in repaying borrowings and paying interest to lenders and dividends to shareholders.

Cash flows from investing activites

One of the three sections in the statement of cash flows. This section represents the cash spent on buying new non-current assets, the cash received from selling surplus non-current assets and the cash received from interest and dividends on investments made

Cash flows from operating activities

One of the three sections in the statement of cash flows. This sections represents the cash generated rom sales less the cash spent in both generating those sales and running the organization

Comparability

An enhancing qualitative characteristic of financial information. Information should be comparable over time. The usefulness of information is enhanced if it can be compared with similar information about other entities for the same reporting period and with similar information about the same entity for other reporting periods. Comparability does not mean consistency, although consistency of presentation and measurement aof the same items in the same way from year to year will help to achieve comparability. Similarly, comparability does not mean uniformity of presentation

Consistency

The presentation or measurement of the same piece of accounting information on the same basis each year

Contribution

Selling price less the variable costs of making that sale

Corporate governance

The system by which companies are directed and controlled

Cost allocation

The process of allocating costs, both direct and indirect, to products or services

Cost centre

A division of an entity to which attributable costs are allocated

Cost drivers

The level of activity associated with each cost pool used to allocate costs to products under activity-based costing

Cost of capital

The level of return on an investment that is acceptable to a business given the level of risk involved. Also known as the hurdle rate of return

Cost of sales

The direct costs attributable to the sale of particular goods or services

Cost pools

The allocation of indirect costs of production associated with particular activities in an activity-cased costing system

Cost-volume-profit analysis

A management account technique used to determine the relationship between sales revenue, costs and profit. Abbreviated to CVP

Costing

The process of determining the cost of products or services

Creditors

Persons to whom entities ow money

Credits

A term used in double entry bookkeeping. Credits represent liabilities, capital and income as well as reductions in assets and expenses

Current assets

Short-term assets that will be sued up in the business within one year of the year end date. Examples, include inventory, trade receivables, prepayments and cash

Current liabilities

Short-term liabilities due for payment within one year of the year end date. Examples include trade payables, taxation and accruals

Current ratio

Current assets divided by current liabilities. Used in the assessment of the entity’s short-term liquidity. This ratio should be used with caution in the evaluation of an entity’s liquidity.

Debenture

A long-term loan to an organization with a fixed rate of interest and a fixed repayment date

Debits

A term used in double entry bookkeeping debits reposent assets and expenses as well as reductions in liabilities, capital and income

Debt ratio

Total liabilities divided by total assets. An indicator of how reliant an entities is upon external parties to fund its assets

Debtors

Persons who owe money to an entity

Depreciation

The allocation of the cost of a non-current asset to the accounting periods benefiting from that non-current asset’s use within a business. Depreciation is not a way for reflecting the market value of assets in financial statements and it does not represent a loss in value

Direct costs

The costs of a product or services that are directly attributable to the production a product or the delivery of a service. Direct costs can be fixed or variable

Direct labour efficiency variance

The time taken to make the foods actually produced compared with the standard time should have been taken to make those goods multiplied but he standard rate per hour

Direct labour rate variance

What labour hours actually cost compared with what the standard says the labour hours should have cost for that level of production

Direct material usage variance

The actual quantity of matter la soused to make the goods actually produced compared with the standard quantity that should have been used to make those goods multiplied by the standard cost per unit of material

Direct method

An approach to preparing the statement of cash flows that involves disclosing the forms cash receipts from sale and the gross cash payments to suppliers of goods and services

Directors

Persons appointed by the shareholders at the annual general meeting to run a limited company on their behalf

Discounting

Future cash inflows and outflows are discounted to their present value using and entity’s cost of capital

Discounts allowed

An allowance given to trade receivables to encourage early payments of amounts owed. Discounts allowed not taken up by summoners are added to revenue when customer payments are received

Discounts received

Suppliers reward their customers with discounts either for early payments of what is owed

Distributable reserves

Retained earning available for distribution to shareholders as a dividend

Distribution

A distribution of retained profits to shareholders as a dividend. A distribution is not an expense of a company but a deduction from retained earnings.

Dividend

A distribution of profits to shareholders

Dividend cover

A comparison of the total dividend for an accounting period to este profit after taxation and after preference dividends. This ratio is used to assess the expected continuity of dividend payments. The higher the ratio, the more likely the dividend payments will continue into the future.

Dividend per share

The total dividend for a period dividend by the number of ordinary shares in issue multiplied by 100 to five a furie of dividends per share in pence

Dividend yield

The dividend per share as a percentage of the current share price

Double entry

An accounting methodology which recognizes that every transaction affects two figures in the financial statements

Drawings

Amounts taken out fo a business by a sole trader for personal rather than business use. Drawings are in effect a repayment of the amounts owed by the business to the owner. Drawings are not an expense of the business but a deduction from capital. Drawings are not permitted in limited liability companies.

Dual aspect

The recognition that each accounting transaction has a double effect on the amounts stated in the financial statements

Duality principal

Each transaction has an equal and opposite effect on two or more accounts

Earnings per share

The profit after taxation and after preference dividends divided by the number of ordinary shares in issue multiplied by 100 to give a figure of earnings per share in pence

Economic resource

Définies in IASB”s Conceptual Framework for Financial Reporting as a ‘right that has the potential to produce economic benefits’

Efficiency Ratio

Measures of non-current asset turnover and revenue and profit per employee to determine how well an organization has used its resources to generate profits

Equity

The capital of an entity on its statement of financial position. Equity is, in theory, the amount the owners of the business would receive if all the business assets and liabilities were sold and settles amounted states in the statement of financial position ‘residual interest in the assets of the entity after deducting all its liabilities’

Equity share capital

This is an equivalent term for ordinary shares capital

Expenses

Decreases in assets or increases in liabilities, that result in decreases in in equity other than those relating to distributions to holders of equity claims

Extraordinary general meeting

A meeting called by the directors of a limited company to request the approval of shareholders for certain business transactions.

Fair value

The amount at which an asset could be sold or a liability settled in the open market

Favorable variances

Differences between actual and budgeted results arising from higher income or lower expenditure

Financial accounting

The reporting or past information to parties external to the organization

Fixed cost

A cost that does not vary in line with production or sales over a given period time

Fixed overhead expenditure variance

The difference between the actual fixed overhead expenditure incurred and the budgeted level of fixed overhead expenditure

Gearing ratio

Long and short-term borrowings divided by the total statement of financial position equity figure x 100. A measure designed to help financial statement users assess whether an entity has borrowed too much money. The gearing ratio should be used in conjunction with the interest cover ratio in making this assessment.

Going concern

A business that has sufficient demand for its products and sufficient sources of finance to enable its products and sufficient sources of finance to enable it to continue operating for the foreseeable future.

Gross profit

Sales less the direct costs of making those sales

Gross profit %

The gross profit of an organization divided by the sales figure x 100%

Historic cost

The original cost of an asset or liability at the time it was purchased or incurred

IASB

International Accounting Standards Board

Ideal Standard

The best that can be achieved. Ideal standard tend to be unrealistic and unachievable as they would only ever be attained in a perfect world

Income

Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims

Income statement

An equivalent term for the statement fo profit or loss

Indirect cost

Costs that cannot be attributed directly to units of production. Also known as overheads

Indirect method

An approach to preparing the statement of cash flows that ignores total inflows and outflows of cash from operations. Instead the operation profit for a period is adjusted for increases or decreases in inventory trade receivables, prepayments, payables and accruals and for the effect of non-cash items such as depreciation and profits and losses on disposal of non-current assets in order to determine the cash flows from operations

Insolvency

The inability of an entity to repay all that is owes to its creditors

Interest cover

Trading profit divided by finance cost (interest payable). This ratio shows how many times interest payable on borrowings is covered by operating profits. The higher the ratio, the more likely entities will be able to continue paying the interest on their borrowings

Internal rate of return

The discount rate applied to the cash flows fo a capital investment project to produce a net present value for the project of $nil