ACCA Financial Accounting (FA) Vocabulary Flashcards

Comprehensive vocabulary flashcards covering the ACCA Financial Accounting (FA) syllabus, including conceptual framework definitions, accounting standards, ledger techniques, and consolidated financial statements.

Financial Reporting

The process of recording, analysing, and summarising financial data to produce statements for external reporting.

Sole Trader

A business owned and operated by one individual where no legal distinction exists between the owner and the business entity.

Partnership

A business structure where at least two owners collectively receive profits and carry unlimited liability for business debts.

Limited Liability Company

A separate legal entity from its owners, managed by a board of directors, where shareholders are not personally liable for company debts.

Financial Accounting

The recording, classification, and summarisation of transactions to produce annual financial statements for external stakeholders.

Management Accounting

The identification and interpretation of information used for formulating strategy, planning activities, and internal decision-making.

Asset

A present economic resource controlled by the entity as a result of past events.

Liability

A present obligation of the entity to transfer an economic resource as a result of past events.

Equity

The residual interest in the assets of the entity after deducting all of its liabilities.

Income

Increases in assets or decreases in liabilities that result in increases in equity, excluding contributions from holders of equity claims.

Expense

Decreases in assets or increases in liabilities that result in decreases in equity, excluding distributions to holders of equity claims.

Economic Resource

A right that has the potential to produce economic benefits.

Relevance

A fundamental qualitative characteristic where information has the capacity to influence the economic decisions of users.

Faithful Representation

A characteristic requiring information to be complete, neutral, and free from error, representing the economic substance of transactions.

Materiality

The concept that information is significant if its omission or misstatement could influence the decisions of primary users.

Prudence

The exercise of caution when making judgements under uncertainty so that assets/income are not overstated and liabilities/expenses are not understated.

Going Concern

The assumption that an entity will continue to operate for the foreseeable future, usually taken as the next twelve months.

Accrual Accounting

Recording transactions in the period in which revenues are earned and expenses are incurred, regardless of the timing of cash receipts or payments.

Duality

The principle that every transaction has two effects and must be recorded twice in the accounting records, forming the basis of double-entry bookkeeping.

Historical Cost

The original monetary value of a transaction at the date that transaction was entered into.

Trade Discount

A reduction in the unit price of goods given to encourage volume purchases, deducted from the cost at the point of sale.

Settlement Discount

A reduction offered to credit customers to encourage prompt payment within a specified time limit.

Sales Tax (Output Tax)

Tax charged and collected on sales by a business, which is then paid over to the relevant tax authority.

Sales Tax (Input Tax)

Tax suffered by a business on its purchases, which may be recoverable from the tax authority.

Net Realisable Value (NRV)

The estimated selling price of inventory less any further costs expected to be incurred to achieve the sale.

FIFO (First In, First Out)

An inventory valuation method assuming the oldest items of inventory are sold first, leaving the most recent purchases in stock.

AVCO (Average Cost)

A method of inventory valuation where the cost of an item is calculated by taking the average cost of all similar inventory held.

Depreciation

The systematic allocation of the depreciable amount of an asset over its estimated useful life.

Straight-line Method

A depreciation method resulting in a consistent annual charge, calculated as $(\text{Cost} - \text{Residual Value}) \times \text{Useful Life}$.

Reducing Balance Method

A depreciation method where a fixed percentage is applied to the carrying amount of an asset each year.

Carrying Amount

The original cost of a non-current asset less its accumulated depreciation.

Intangible Asset

An identifiable non-monetary asset without physical substance, such as patents or development costs.

Research

Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge.

Development

The application of research findings to a plan or design for new or improved materials or products prior to commercial production.

Amortisation

The systematic allocation of the cost of an intangible asset over its useful life, following a pattern similar to depreciation.

Accrual

An adjustment made when an expense has been incurred during the accounting period but has not yet been paid.

Prepayment

An adjustment made when an expense has been paid during the current period but relates to a future accounting period.

Irrecoverable Debt

A debt which is written off by removing it from the accounts because it is considered uncollectable.

Allowance for Receivables

A credit balance created to recognize a possible loss from receivables where collectability is doubtful but not yet irrecoverable.

Provision

A liability of uncertain timing or amount recognised when a present obligation exists and a reliable estimate can be made.

Contingent Liability

A possible obligation arising from past events whose existence depends on uncertain future events beyond the entity's control.

Rights Issue

The offer of new shares to existing shareholders in proportion to their holding at a stated price, typically below current market value.

Bonus Issue

The issue of free shares to existing shareholders in proportion to their current holding by capitalising reserves.

Bank Reconciliation

The process of identifying and explaining differences between the cash at bank general ledger account and the bank statement balance.

Trial Balance

A list of ledger account balances as at a specific date, prepared to check the arithmetic accuracy of double-entry bookkeeping.

Suspense Account

A temporary account used to hold one side of a double-entry when the correct destination is unknown or if a trial balance fails to agree.

Gross Profit Margin

A profitability ratio calculated as $(\text{Gross Profit} \times \text{Revenue}) \times 100$.

Operating Profit Margin

A profitability ratio calculated as $(\text{Operating Profit} \times \text{Revenue}) \times 100$.

ROCE (Return on Capital Employed)

A measure of efficiency calculated as $(\text{Profit Before Financing and Income Tax} \times \text{Capital Employed}) \times 100$.

Current Ratio

A liquidity ratio measuring the ability to meet short-term liabilities, calculated as $\text{Current Assets} : \text{Current Liabilities}$.

Quick Ratio (Acid Test)

A liquidity measure calculated by dividing liquid assets (current assets minus inventory) by current liabilities.

Receivables Collection Period

The average number of days it takes to collect cash from credit customers, calculated as $(\text{Trade Receivables} \times \text{Credit Sales}) \times 365$.

Gearing

A measure of financial position assessing the level of external debt compared to equity finance.

Parent

An entity that controls one or more other entities, the subsidiaries.

Subsidiary

An entity that is controlled by another entity, the parent, usually through holding the majority of voting rights.

Goodwill

The difference between the value of an acquired entity and the aggregate of the fair values of its identifiable assets and liabilities.

Non-controlling Interest (NCI)

The equity in a subsidiary not attributable, directly or indirectly, to the parent company.

Associate

An entity over which an investor has significant influence, typically indicated by a $20$ to $50$ percent shareholding.

Equity Accounting

A method used for associates where an investment is recorded at cost and adjusted for the share of post-acquisition profits or losses.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash.