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Glossary of Terms - FA1 & MA1
Absorption costing - focuses on the total cost of producing one unit of output, includes fixed production overheads in valuation cost of production.
Account An account is a location where all items relating to one particular group are recorded. For example, cash items are recorded in the cash account.
Account code is a unique group of numbers and/or letters that is used to identify an item and classify it into a particular group.
Accounts receivable These are accounts for customers who are given credit terms - ie they have the goods in advance of payment. They then owe the business money and this money is receivable by the business.
Accounting equation The accounting equation is a formula underlying the statement of financial position. The accounting equation is: ASSETS – LIABILITIES = CAPITAL. The expanded accounting equation is derived from it as: ASSETS+DRAWINGS+EXPENDITURE = CAPITAL+LIABILITIES+INCOME
Aged receivables Analysis showing all the outstanding amounts of money owed by each customer divided by the date it is due, so it is clear how overdue the amounts are.
Aged payables Analysis showing all the outstanding amounts of money owed to each supplier and how overdue it is.
Analysed cash book This type of cash book analyses the money coming in and money going out according to the type of transaction. Also known as analysed column cash book.
Analysed column cash book This type of cash book analyses the money coming in and money going out according to the type of transaction. Also known as analysed cash book.
Asset An asset is a resource controlled by a business as a result of something that happened in the past from which economic benefits (things which make the company better off financially) are expected to flow in the future.
Back-up It is good practice to maintain a second copy of the records in case anything happens to the original set. In computerised accounting, this might be on hard drives kept off-site or in cloud storage.
BACS "automated bank transfer BACS, or ACS, is a way to transfer money directly from a bank account for one-off payments. BACS stands for bankers automated clearing services in the UK. Internationally, it may be known as an ACS, for automated clearing system.
Balance The difference between the incoming cash and outgoing cash.
Balance brought down (balance b/d) The balance brought down (also known as the balance brought forward b/f) is the balance on an account at the beginning of an accounting period. It equals the balance carried down from the end of the last accounting period.
Balance carried down (balance c/d) The balance carried down (also known as the balance carried forward c/f) is the balance on an account at the end of an accounting period. It becomes the balance brought down at the start of the following accounting period.
Balance off (the account) - See "close off (the account)."
Bank reconciliation A bank reconciliation is a statement that reconciles the bank account balance in the general ledger with the balance of cash held at the bank as shown on the bank statement.
Bankruptcy Bankruptcy is the legal status of a person or entity who cannot pay their debts. It is imposed by the court.
Batch posting Collecting transactions or tasks together to process in a group (a batch)
Bonus An additional amount paid to an employee above their standard rate of pay
Bookkeeping Bookkeeping is the act of recording financial transactions.
Book(s) of prime entry (Also known as day books or books of original entry) The books of prime entry are the first place that original documents are recorded. For example in the sales day book the sales invoices will be recorded in the sales day book.
Book value the accounting value of an asset or liability that is shown in the business's accounting records.
Business A business is a commercial enterprise - it may be in the form of a sole trader, partnership or company.
Capital Capital is the owner’s interest in the business. It is made up of the cash or assets introduced to the business by the owner (known as capital introduced), the profits generated by the business in previous years less any amounts that the owner has withdrawn from the business (known as drawings).
Capital expenditure Capital expenditure is the purchase of non-current assets.
Chart of Accounts - A chart of accounts is a listing of the names of the accounts that a company has identified and made available for recording transactions in its general ledger. A company has the flexibility to tailor its chart of accounts to best suit its needs, including adding accounts as needed
Cash account The cash account is the account in the general ledger where the cash transactions of the business are recorded. The information will be transferred from the cash book.
Cash book The cash book is the book of prime entry in which the bank transactions are recorded by the business. This may be divided into the cash payments book and the cash receipts book.
Cash purchase A cash purchase is one which is made for cash. The liability for the item purchased is discharged immediately, rather than being on credit terms and paid for after an agreed period.
Cash sale A sale which results in a transfer of goods or services for immediate cash payment to the seller.
Cheque A pre-printed document which instructs the payer's bank to pay the payee the amount inserted on the cheque. There is a standard format which requires certain items, such as account code, date, and so on to be present.
Cheque clearing system This is the system which operates country-wide where banks use a central agency to transfer the cheques that they have received between each other and transfer the money to pay the cheques raised.
Cheque requisition form They will use this form as authorisation to issue a cheque made payable to ‘Cash’ so that the petty cashier can obtain the cash to put back in the petty cash tin.
Close off This means work out the difference between money received and money paid out. The difference is then carried down to the next accounting period.
Closing balance The closing balance on an account is the amount in the account at the close of the time period - often a month.
Commission Commission is an amount paid to a business for enabling a transaction to happen. For example a bank charges commission on foreign exchange transactions. This is how it makes an income from the activity
Compensating errors A compensating error occurs when there are two errors that cancel each other out (or ‘compensate’).
Contra entry A contra entry is when you have a customer account in the sales ledger and the same customer is also a supplier with a supplier account in the purchase ledger.
Control account A ledger control account is a general ledger account that records the total entries made to the individual ledger, such as the payables ledger or the receivables ledger.
Cost centre A cost centre is an activity or area of responsibility in an organisation which generates costs, but is not responsible for generating revenue or producing direct profit. In other words, it only adds costs.
Cost per unit This is the cost of making a single unit of product, often abbreviated as "CPU".
Cost unit is a unit of a product or service to which costs can be related
Coding This is a system adopted so that items of a similar type can be grouped together because they all have a similar code. For example general ledger accounts may all start with GL; all customers may be allocated a code which starts with SL.
Cost behaviour is the way that costs react as a result of changes in the level of activity – for example, the number of units produced.
Credit A credit entry is made on the right hand side of a T account.
Credit (transaction) Credit transactions happen when the goods are given to the customer in exchange for an invoice, and money is due within an agreed period of time, often 30 days.
Credit check A business or bank which is considering trading with another business, will carry out checks on the creditworthiness of the business. This will include checking if there are any outstanding legal proceedings, a history of bad payments and so on.
Credit note(s) A document created by the supplier which shows that an amount which was previously owed is no longer owed by the customer. This may be due to for example, faulty, incorrect or damaged goods.
Credit rating A credit rating is given to a customer, and determines how much credit the customer will be allowed. It will be based on the references that are received from their bank and other suppliers. If a customer has an excellent reputation for paying on time, then a large credit rating can be given. If the customer has not been a reliable payer, then it may be best not to offer credit terms, or a very low limit until a good relationship is developed
Credit purchase Credit purchases are transactions where the supplier provides goods to the business before they are paid for.
Credit sale Credit sales are transactions where the business provides a customer with goods before they are paid for.
Cross cast Cross casting is used in a table (such as the analysed column cash book). In this context casting is another word for totalling. It means that all the individual column totals are totalled and agreed to the total of all the rows.
Current account A current account (also called a checking account in some countries) is the bank account which is used on a daily basis for all bank transactions.
Current asset Current assets are those assets that will be converted into money or consumed by the business within the next 12 months.
Current liabilities Current liabilities are those that will be settled (paid) in less than 12 months.
Day book Day books are books of prime entry that record specific transactions.
Debit A debit entry is made on the left hand side of a T account.
Debit card A debit card is issued by a bank, and payments made using the card will immediately be deducted from the current account. Compare this to a credit card which is issued by a credit card company and payment is made on a monthly basis.
Delivery note This document accompanies the goods that are delivered and is signed by the customer when delivered. It can also be used by the supplier to check that the correct goods are being sent.
Deposit account A deposit account (also called a timed deposit) is where money is lodged which is not needed immediately and can attract interest payments from the bank
Depreciation Depreciation is the expense charged to the statement of profit or loss in each accounting period to reflect how much of the economic benefit associated with a tangible non-current asset has been used up in the accounting period. It is the spreading of the depreciable amount of a tangible non-current asset over its estimated useful economic life.
Direct Debit A direct debit is set up to enable a third party demand money from our bank account. It is often a regular payment which may change depending on level of purchases from the third party. For example many mobile phone companies require direct debits be set up so that they can take the correct amount from their customer accounts each month.
Direct cost - cost that can be traced in full to a cost unit, for example a kilogram of flour can be traced to a batch of bread.
Discount allowed (column) We may offer a business a discount for early settlement of their bills, this is called a discount allowed - for example 3% discount if they pay within 10 days, instead of the usual 30 days.
Discount received (column) We may be offered a discount by a supplier for early settlement of our bill to them, this is called a discount received - for example 5% discount if we pay within 7 days, instead of the usual 30 days.
Dishonoured cheque If there are insufficient funds, the cheque is not signed correctly, or is drawn fraudulently, then the paying bank will not make the payment and will return it to the recipients bank explaining that the cheque will not be honoured.
Double entry bookkeeping Double entry is a method of recording transactions in the general ledger. Each transaction is entered as both a debit and a credit, to reflect the duality of every action. For example a purchase of a car will be entered as a debit on the non-current asset account and a credit on the cash account.
Drawings Drawings are cash or assets withdrawn from a business by the owner for their own personal use.
Employer Any business who has employees working in the business is called an employer
Employment contract A contract between an employer and employee. Most countries have a standard contract which applies if there is no written contract between the two parties. It will specify such terms as job title, working hours, holiday entitlement, type of work to be done etc
Error of commission An error of commission is when an equal debit and credit is posted but one of the transactions has been posted to the wrong account of the same ‘type’.
Error of omission An errorof omission is when something is ‘omitted’ - left outor simply not posted to the accounts.
Error of principle An error of principle is when an equal debit and credit is posted but the transaction has been posted to an account of a different ‘type’.
Errors of transposition Transposition errors occur when you post a number with the figures the wrong way round. For example 965 is posted as 956. If the error is divisible by 9 then often it is a transposition error.
Expense(s) Expenses are the amounts that a business incurs in order to run the business (including things that it intends to sell as well as general running costs).
Fixed overhead absorption rate - to calculate uner/overabsorption of fixed overheads divide the budgeted fixed overheads by the budgeted number of units to produce (level of activity)
Float In the petty cash box there will normally be a small amount of cash available to make payments, this is called a float.
Gains income This is non-standard income for the business. Their trade may be in selling clothing, but occasionally they may sell an asset, such as a van or piece of equipment, and it will give rise to a gain. This is gains income, and may also be called a profit on sale of a non-current asset.
General ledger The general ledger is a ledger containing the asset, liability, capital, expense and income accounts of a business.
Good(s) These are the items which the business sells. For example in a clothing business the goods will be the clothing and accessories that they hold in inventory. The alternative would be services - a firm of accountants provides accounting services.
Goods Received Note (GRN) This is an internal document that the customer would complete as an extra check that everything has been received that was ordered.
Gross (figure) Gross is the term used to describe sales or purchase prices that are inclusive of sales tax. See also "gross pay."
Gross pay is the amount of money earned before tax and other deductions are made.
Human Resources Department (Also known as the Personnel Department) This department deals with employee issues, such as payroll, recruitment and so on.
Imprest petty cash system This is where the petty cash fund is a set amount of money, and is regularly replenished to the original value at the beginning of each week or month.
Income Income is economic benefit received by a business either in the form of cash or assets.
Indirect cost is a cost that cannot be easily traced directly to a specific cost unit.
Input tax Input tax is sales tax payable on a purchase of goods or services
Insolvency When a business (or individual) does not have sufficient funds to repay its debts on time.
Inventory Inventory is the value of the goods that a business holds at a point of time for sale to its customers. They may be finished goods, work in progress or raw materials.
Inventory system An inventory system is a way of valuing inventory. There are number of methods that can be used.
Investment centre - business unit that has control over costs, revenue and capital investment.
Invoice(s) Is a legal contract which shows the name and address of the customer and supplier, the date of the transaction and the goods sold details. It tells the customer how much they owe the supplier for the goods purchased on credit
Irrecoverable debt An irrecoverable debt is a debt due from a customer which it is considered will not be recovered.
Journal A journal is a book of prime entry. It is used for recording unusual or non- regular transactions. These are called journal entries; sometimes shortened to journal.
Ledger accounts Ledger accounts are where individual transactions are posted.
Liability A liability is an amount that is owed by the business, which will result in a payment of money at some point in the future.
Marginal costing - focuses on the variable cost of producing one additional unitof output, does not includefixed production overheadsin the valuation of cost units and instead treats them as a cost of the period.
Memorandum account A memorandum account is one which may look like a General ledger account, but does not form part of the double entry. An example would be the payables ledger.
Mnemonic A way of remembering important facts - it takes the first letter of each fact and rearranges them to make a saying (eg: DEAD CLIC, used to remember items which are on each side of a T account.)
Net (figure) A term used to describe sales or purchase prices that are exclusive of sales tax.
Net pay The amount received by the employee after all the deductions from gross pay.
Non imprest petty cash system In this system an amount of money is put into petty cash on a regular basis. No reconciliation is done to ensure that all receipts are retained. Compare this to the imprest system.
Non-current asset Non-current assets are assets that the business does not expect to be used up, sold or collected in a short period (generally less than 12 months).
Non-current liabilities Non-current liabilities are those that will be settled (paid) in more than 12 months
Opening balance The opening balance on an account or statement is the amount in the account on the day the account or statement started. Often this will be the first day of the month.
Output tax Tax charged on the goods you sell to your customers in your business.
Outstanding lodgement An amount that in the cash book has been listed as a receipt, but it has not yet been recorded in the bank account. It will form part of the reconciling items in a bank reconciliation.
Overdraft An overdraft occurs when the cash held at the bank on behalf of the business falls below zero as a result of cash being withdrawn that exceeds the amount of deposits. The bank will usually charge for this service.
Overdrawn (bank balance) When more money is spent than is available in the bank account. The bank may honour the payment if there is an overdraft limit in place, resulting in the account becoming overdrawn.
Overheads Overheads are costs which are not directly related to the product, but necessary for the business to function, such as rent and rates, heat and light.
Overstated This means that an amount has been posted was incorrect and the result is a figure that is too high.
Overtime Overtime is paid when an employee works more than their contracted hours.
Own, owned The business has assets which it owns, such as its inventory, the money it has in cash or in the bank
Owe, owed The business has liabilities which it owes, such as owing suppliers for purchases.
Payables ledger The payables ledger is a memorandum ledger in which individual payables’ accounts are recorded. The total of all individual balances in this ledger will equal the balance of the payables ledger control account in the general ledger. Any differences will be investigated. Refer to the definition of the payables ledger control account reconciliation. The payables ledger is sometimes called the purchase ledger or the personal ledger for suppliers.
Payables Control Account The payables ledger control account is a general ledger account that records the total entries made to the individual payables ledger. It is also known as the purchase ledger control account.
Payee The specific person or company a cheque is made out to.
Paying-in book We can bank cash and cheques using a paying-in book that the bank gives us when we set up an account.
Paying-in slip A paying-in slip is part of a paying-in book. We complete a paying-in slip to pay in cash and cheques received.
Payroll Payroll is the department or role responsible for paying the wages (also known as pay) to staff who work for the business.
Period end routines Period end routines are procedures/checks that are carried out at the end of the month and at the end of the accounting year end.
Petty cash Petty cash is a tin (or other small container) of money (cash) that is used to pay for low value items.
Petty cash book The petty cash book is a book of prime entry that records the petty cash transactions for the business.
Petty cash control account The T account in the general ledger that contains the totals from the petty cash ledger.
Petty cash tin A physical container for the petty cash. Should be lockable and a single person be accountable for the issue of petty cash. That person may be called the petty cashier.
Petty cash voucher A petty cash voucher is a small form used to document payments from petty cash. (also known as petty cash receipt)
Petty cashier The person who is authorised to give out petty cash.
Piecework Piecework is where an employee is paid according to how much they produce (per unit) and not for the amount of time worked.
Post(ed) (transaction to an account) This is the act of putting a record into the accounts.
Posting The process of recording transactions in the ledger accounts.
Prime cost - total sum of the direct costs. This is sometimes referred to as simply the total direct cost.
Profit Profit is the difference between a business’s income and expenses.
Profit centre is an activity or area of responsibility in an organisation to which costs and revenue can be attributed
Production Overhead Costs These are the indirect costs incurred in the production process including Indirect material, Indirect Labour and Indirect Expenses.)
Purchase(s) A purchase will be used in the business to create income. It may be paid for in cash, or be on credit terms from a supplier.
Purchase day book The purchase day book is the book of prime entry in which the business records the credit purchases made.
Purchase invoice A purchase invoice is an invoice received from a supplier who you have bought goods or services from on credit.
Purchase ledger The purchase ledger is another name for the payables ledger.
Purchase order The document that is completed by the customer and sent to the supplier showing what they would like to order.
Purchase returns day book Purchase returns day book is a book in which the goods returned to suppliers are recorded. All purchase return vouchers are recorded in this book. It is also called returns outward book or purchases returns book.
Purchase returns account This is an account which records the items which have been returned to suppliers due to a fault, or if an incorrect item has been received.
Quotation A document that shows how much an item or items will cost.
Receipt(s) A receipt is a document to confirm the company has received money and given the customer the goods.
Receivables A receivable balance arises when a business is owed money. Receivable balances may be trade receivables or other receivables.
Receivables Control Account The receivables ledger control account is a general ledger account that records the total amount owed to the business by its credit customers. It is also known as the sales ledger control account.
Receivables ledger The receivables ledger is a memorandum ledger in which individual receivables’ accounts are recorded. The total of all individual balances in this ledger will equal the balance of the receivables ledger control account in the general ledger. Any differences will be investigated.
Reconciling A reconciling item is one which helps explain the difference between the statement and the account
Reconciliation A reconciliation is done to explain the differences between the external statement and the position in the accounts of the business. For example a bank reconciliation compares the bank statement with the cash book. Differences are investigated and listed, so that the change can be fully explained.
Record(s) These are a source of information and evidence.
Reimbursed expenses If an employee makes payments on behalf of the business.
Remittance Advice The remittance advice shows how much the customer is paying and which invoices and credit notes it relates to.
Responsibility accounting – managers should only be judged or held accountable for costs they are able to influence or control.
Revenue expenditure Revenue expenditure is the day-to-day costs of running a business.
Revenue Revenue is income that is generated the ordinary activities of the business, also known as trading activities.
Reversal of entries Reversal of entries occurs when equal debits and credits have been posted, but to the wrong side of the relevant account.
Safe This is a secured physical location which may be accessed only by persons who have a key, or code to open the safe.
Salary/salaries A salary is a fixed payment (often monthly) of employment irrespective of actual hours worked. It tends to apply to managers and administrative employees, who are not in production departments.
Sales day book The sales day book is the book of prime entry in which the business records the credit sales made.
Sales ledger The sales ledger is also known as Receivables ledger.
Sales returns day book The sales returns day book is the book of prime entry in which the business records the return of goods sold, by the customer.
Sales revenue Sales revenue is the income generated by a business from its normal trading activities, also known as just sales, or just revenue.
Sales tax Sales tax is a tax imposed by tax authorities or governments. A percentage is charged on goods sold.
Set of accounts (Also known as financial statements or financial accounts). A set of accounts is a formal statement which includes the current financial state of the business as well as how it has performed during a period of time (usually a year).
Settlement discount A settlement discount is a discount given to a customer in return for settling their outstanding receivable earlier than the usual credit terms.
Staff Employees of the business
Standing order This is a regular payment for a set amount which is paid automatically by the bank on the account holder's instruction, until it is cancelled by the account holder.
State benefit contribution Many governments expect employers to deduct contributions towards state benefits from the payroll of their employees.
Statement of financial position Shows the assets, liabilities and capital of the business.
Statement of profit and loss The difference between income and expenses – this difference equals profit. Shows sales revenue and profit.
Supplier A business purchases goods and services from its suppliers.
Supplier statement A supplier statement is a statement from the supplier to a business which shows the balance outstanding at a point in time (usually a month end). It usually includes the opening balance for the month, plus the invoices raised by the supplier, less the amounts of money that the supplier has received in settlement.
Supplier statement reconciliation A supplier statement reconciliation is a reconciliation between a third party + supplier statement and the balance of that supplier's individual account in the purchase ledger.
Suspense account A suspense account is a temporary account that an entry is posted to when a bookkeeper is unsure where an entry should be debited or credited. It may also be created when there is a difference on the trial balance and the suspense account is opened to post the difference so the trial balance agrees.
Once the posting errors in the general ledger are found and corrected, the suspense account should be cleared to a balance of zero.
Tax An amount payable to the tax collecting body of the government.
Telegraphic Transfer or TT An electronic method of bank payment. In the UK CHAPS and internationally SWIFT would be examples of this.
Terms In this context terms means the conditions agreed between the buyer and the seller. For example 30 days credit is a term.
A Three column cash book records money coming in and money going out. It does not include invoices on credit because they have not yet been paid. The third column shows any discounts received or allowed.
Totalled The adding together of a list of numbers to give a total.
Total unit cost on the marginal cost card is also the total variable production cost.
Trade discount A trade discount is one given to a customer at the point of sale. It is often given for buying a bulk order.
Trade payables (or accounts payables) A trade payables balance arises when a business buys goods (or services) from its suppliers on credit. The balance represents the amount owed by the business to the supplier.
Trade receivables (or accounts receivables) A trade receivable balance arises when a business has sold goods to its customers on credit. The balance represents the amount owed to the business from the customer.
Transaction(s) An activity which results in the exchange of money for an asset. Transaction(s) An activity which results in the exchange of money for an asset. +
Transposed When two numbers are input in the incorrect order, for example 765 entered as 756.
Trial balance The trial balance is a list of balances extracted from the accounts in the general ledger, with debit balances in one column and credit balances in the other.
Understated This means that a posting error has been made and that not enough has been posted to an account, so the figure shown is too small.
Unpresented cheque A cheque which has not yet been paid into the bank.
Wage(s) Money that is paid to employees for their work. Usually paid every week or
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