Glossary of terms for FA2 and MA2
Accounting concepts - Accounting concepts are used as the basis for development of accounting rules.
Accounting equation - The accounting equation is a formula underlying the statement of financial position. It can be expressed most simply as: Assets – liabilities = capital.
Accumulated depreciation - Accumulated depreciation is the total of the depreciation charged on a tangible non-current asset from its date of purchase.
Accrual - An accrual is an expense of the business that has been incurred during the financial period but which has not been paid for at the end of the financial period. An accrual for an expense is recognised when a business pays for the expense in arrears and at the year-end has incurred expense which has not been invoiced or paid.
Accrued income - Accrued income arises when a business receives its income in arrears of earning it and at the year-end has earned income which has not been received.
Allowance for receivables - An allowance of receivables arises where there is some uncertainty surrounding whether a receivable will pay.
Appropriation - The term appropriation refers to the allocation of profit for a business. For example, the payment of drawings to a sole trader is a form of appropriation of profit.
Appropriation of profit statement - The appropriation of profit is a statement produced as a working after the net profit for the period has been calculated. It shows how much of the net profit each partner is entitled to in accordance with the profit sharing arrangements.
Asset - An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. This would include all types of assets owned and used by an entity which can be reliably measured.
Asset – alternative An asset is a resource that a business controls and which is expected to bring economic benefits to it in the form of profit. An asset must be capable of being measured reliably.
AVCO - AVCO stands for Average Cost and is a method of inventory valuation. In this method the purchase cost used to value inventory is an average for the
accounting period. There are two AVCO methods: the continuous weighted average method and the periodic weighted average method. In the continuous method the average cost per unit is recalculated each time a purchase or sale of inventory is made. In the periodic method the average cost per unit is recalculated at the period end.
Balance brought down – The balance brought down(also known as the balance brought forward) 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 – The balance carried down (also known as the balance carried forward) 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.
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. Book keeper – A book keeper is a person who is responsible for the recording of accounting transactions within a small business.
Book of prime entry – A book of prime entry is a book or electronic record in which lists of transactions are recorded before they are posted to the general ledger.
Book value - Book value is the carrying value (also known as carrying amount) of an asset or liability in the statement of financial position. It is the accounting value of an asset or liability.
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 account - The capital account of the business shows the amount of capital belonging to the owner of the business. This is reflected in the closing balance on the account.
Capital expenditure - Capital expenditure relates to the assets of a business which will be recorded in the statement of financial position.
Capital introduced - Capital introduced is cash or assets introduced into a business by its owner.
Cash in hand and at bank - Cash in hand and at bank is the heading shown in the current asset section of the statement of financial position reflecting the amount of cash held at the bank on behalf of the business and in petty cash on the business premises.
Cash at bank - Cash at bank is the balance of money held by the bank on behalf of the business.
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 payments book - The cash payments book is the book of prime entry in which the business records the payments made from the business bank account
Cash receipts book - The cash receipts book is the book of prime entry in which the business records the receipts into the business bank account
Casting error – A casting error is an error made when adding up a list of numbers.
Contra - When a business has a balance owed to a customer who is also a supplier there will be a receivables account and a payables account for the same business in the individual ledgers. The contra is to set off the two balances to recognise an overall receivable or payable in the final accounts.
Cost of goods sold – The cost of goods sold is the purchase cost of the goods sold by a business in the year.
Cost of inventory - The cost of inventory is defined as all expenditure incurred in bringing an item of inventory to its present location and condition.
Cost of sales - The cost of sales is the total cost of the goods sold by a business in the year. This will include the cost of goods sold and any additional costs incurred.
Cost structure - The cost structure is the basis of how a business includes profit in its selling price.
Credit balance – A credit balance is a balancing amount on an account in which the total of the credit entries exceeds the total of the debit entries.
Credit controller – A credit controller is a member of the finance department who is responsible for collecting overdue amounts from credit customers.
Credit notes - A credit note is a document produced by a seller for a buyer cancelling some or all of an invoice.
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 books - Day books are books of prime entry that record specific transactions.
Debit balance – A debit balance is a balancing amount on an account in which the total of the debit entries exceeds the total of the credit entries.
Deferred income - Deferred income arises when a business receives its income in advance of earning it and at the year-end has received income which relates to the following year.
Depreciable amount - Depreciable amount is the cost of the tangible non-current asset less any expected residual value.
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.
Depreciation charge - The depreciation charge is the amount of depreciation expense that is included in the statement of profit or loss each year.
Disposal account – The disposal account is a ledger account within the general ledger. It is used to record the disposal of tangible non-current assets. The entries into the account are the sale proceeds and the carrying amount of the tangible non current asset. The balance on the disposal account will be the profit or loss on disposal of the asset.
Double entry - Double entry is a method of recording transactions in the general ledger. The process is called 'bookkeeping'.
Drawings - Drawings are cash or assets withdrawn from a business by the owner for their own personal use.
Expense - An expense is a cost incurred by a business on the day-to-day running of the business.
Extended trial balance - An extended trial balance is a method of completing the final accounts. It starts with an initial trial balance and then makes the necessary adjustments and correction of errors in one working paper.
FIFO - FIFO stands for first in, first out. It is a method of inventory valuation. In this method it is assumed that inventory items are sold in strict rotation and that items purchased first are sold first. Any inventory remaining at the year end should be valued using the latest purchase costs.
Final accounts - The Final accounts of a business are prepared at the end of the accounting period. They consist of the statement of financial position, the statement of profit or loss, the statement of cash flows and supporting notes.
Financial period - The financial period is the period for which the final accounts of a business are prepared. It is usually a year, but could be shorter or longer depending on the circumstances of the business.
General ledger - The general ledger is a ledger containing the asset, liability, capital, expense and income accounts of a business. It is also known as the nominal ledger.
Going concern - Going concern is an accounting concept that assumes a business will continue in operation for the foreseeable future without curtailing the scale of its activities. The implication of this principle is that assets are recognised at cost in the final accounts.
Goodwill - Goodwill is the difference between the value of the separable net assets of the business and the total value of the business.
Gross - Gross is the term used to describe sales or purchase prices that are inclusive of sales tax.
Gross profit - Gross profit is sales less cost of sales in a year.
Guaranteed Minimum Share (Partnership agreement) It is possible to include a section in the profit sharing agreement that specifies that a certain partner should have at minimum profit from the business. The profits will be shared out in the normal manner, and then the totals allocated to each will be considered. If one partner has a guaranteed minimum, and the initial share gives him less than this, then an adjustment will be made. Each of the other partners will contribute, in their profit sharing ratio, an amount to this partner to bring his share up to the minimum agreed. For example, if C has a guaranteed minimum of 20,000 dollars, and the initial share only allocates 15,000 to him then he is entitled to a further 5,000. If the profit sharing ratio is 3:2:1 for partners A, B and C, then 3,000 of B's initial share and 2,000 of C's initial share will be reallocated to A.
IAS - IAS is an abbreviation for International Accounting Standards. These contain specific rules in respect of accounting for transactions. IAS’s were written many years ago and are being replaced by IFRSs.
IFRS - IFRS stands for International Financial Reporting Stand ards. These contain specific rules in respect of accounting for transactions. IFRS’s are the most recently written accounting standards.
Income - Income is economic benefit received by a business either in the form of cash or assets.
Initial trial balance – The initial trial balance is the list of closing balances taken directly from the accounts in the general ledger.
Input tax - Input tax is sales tax payable on a purchase of goods or services.
Interest - Interest is a sum paid by a borrower of cash to a lender of cash. A business may have interest payments and interest receipts in its accounts.
Inventory - Inventory is the value of the goods that a business holds at a point of time for sale to its customers.
Irrecoverable debt - An irrecoverable debt is a debt due from a customer which it is considered will not be recovered.
Lease - A lease is a contractual arrangement between two parties for the use of an asset.
Ledger - A ledger is a collection of accounts that are of a similar type. In modern accounting systems these will be computerised, but traditionally they were large books with separate pages for each account.
Ledger account - A ledger account is an account in a ledger that holds records of transactions.
Liability - A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. This would include balances owed to suppliers, banks and other business entities who are external to the business.
Liability – alternative A liability is an amount that is owed by the business, which will result in an outflow (or payment) of money at some point in the future.
Limited company – A limited company is a business that is legally separate from its owner/(s).
Liquidation - Liquidation occurs when a business fails and is forced to cease operations. Also known as receivership or bankruptcy.
Lodgement – A lodgement is an amount of cash paid into the business’s bank account held at the bank.
Margin – A margin is the amount of profit expressed as a percentage based on the sales value of a transaction. Mark-up - A mark-up is the amount of profit expressed as a percentage based on the cost value of a transaction.
Net - A term used to describe sales or purchase prices that are exclusive of sales tax.
Net assets - Net assets are total assets less total liabilities.
Net book value - Net book value is a term used in connection with tangible non current assets. It is the difference between the cost of the asset and its accumulated depreciation. Net book value is also known as carrying value or carrying amount.
Netting off - Netting off is the deduction of one number from another.
Net realisable value (NRV) - The net realisable value of an item of inventory is what it could be sold for after all further costs to complete the item and to then sell it have been taken into account.
Non-current asset - Non-current assets are those that are purchased for use within the business and which will be used to generate profits over more than 12 months.
Non-current liabilities - Non-current liabilities are those that will be settled (paid) in more than 12 months.
Opening net assets - Opening net assets is the total of assets minus liabilities at the start of the accounting year.
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.
Other income - Other income is income generated by a business other than from their normal trading activities.
Other payables - Other payables arise from situations where a business owes money which is not as a result of normal trade. For example, amounts owed to the tax authority.
Other receivables - Other receivables arise from situations where a business is owed money but not from normal trade. For example, from an employee.
Output tax - Output tax is sales tax chargeable on a sale of goods or services. Partner – A partner is one of the owners of a partnership.
Partner’s capital account - The partner’s capital account is a general ledger account that records the capital introduced and withdrawn by a partner.
Partner’s current account - The partner’s current account is a general ledger account that records the profit share and drawings of a partner.
Partnership - A partnership is a business where two or more individuals carry on a trade jointly with a view to making a profit.
Partnership agreement – A partnership agreement is an agreement made between partners of a partnership. It contains, among other provisions, details of how the partnership profits will be shared between the partners.
Partnership loan - A partnership loan is one made to the partnership by a partner. It is not capital as it will be repaid to the partner in the future.
Payables - A payables balance arises when a business owes money. Payables may be trade payables or other payables.
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 ledger 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.
Payables ledger control account reconciliation - A payables ledger control account reconciliation is where the payables ledger control account balance from the general ledger is compared and reconciled to the total of the individual accounts in the payables ledger on a particular date.
Personal accounts - Personal accounts are used to record outstanding balances with credit customers and credit suppliers (receivables and payables).
Petty cash book – The petty cash book is a book of prime entry that records the petty cash transactions for the business.
Plant – Plant is a category of tangible non-current asset. It means any such asset which is fixed into place and is part of the operations of an organisation. An example of plant would be a production line in a manufacturing business.
Prepayment - A prepayment arises where a business has already paid for an expense which relates to the next accounting period. A prepayment for an expense is recognised when a business pays for expenses in advance and at the year-end paid for expenses that relate to the following year.
Proforma - A proforma is a prescribed format for any of the financial statements.
Profit or loss account - The profit or loss account is the financial statement that shows the financial performance of the business, as shown by the profit or loss that it has made for the accounting period. It includes the income and expenses of the business.
Profit-sharing arrangements - Profit-sharing arrangements are set out in the partnership agreement and prescribe how the profit or loss of the partnership for an accounting period will be shared between the partners. They may include amounts for salary, interest on capital and drawings and the profit-sharing ratio.
Proprietor – A proprietor is the owner of a business.
Pro rata - The term pro rata describes a proportionate allocation. Provisions - A provision is a liability of uncertain timing or amount. Purchase cost - The purchase cost of goods is the price paid to acquire them.
Purchase day book - The purchase day book is the book of prime entry in which the business records the credit purchases made.
Purchase ledger - The purchase ledger is another name for the payables ledger.
Purchase returns day book - The purchase returns day book is the book of prime entry in which the business records the return of goods made to suppliers.
Receivable - A receivable balance arises when a business is owed money. Receivable balances may be trade receivables or other receivables.
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. Refer to the definition of the receivables ledger control account reconciliation. The receivables ledger is sometimes called the sales ledger or the personal ledger for customers.
Receivables ledger 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 control account - A receivables ledger control account reconciliation is where the receivables ledger control account balance from the general ledger is reconciliation compared and reconciled to the total of the individual accounts in the receivables ledger on a particular date.
Reducing balance depreciation - Reducing balance is a method of calculating depreciation. In this method, the depreciation charge is calculated as the carrying
value of the asset at the start of the year multiplied by the depreciation percentage. In the reducing balance method, depreciation charges are higher in early years.
Returns - Returns are goods sold that have been returned to a business.
Revenue – Revenue is the income generated by a business from its normal trading activities, also known as sales.
Revenue expenditure - Revenue expenditure relates to the expenses of a business and will be deducted from income when calculating profit in the statement of profit or loss.
Sales - Sales is the income generated by a business from its normal trading activities, also known as revenue.
Sales day book - The sales day book is the book of prime entry in which the business records the credit sales made.
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 tax - Sales tax is a tax imposed at the point that goods and services are sold.
Security - Security is usually required when a business borrows money. The security will usually take the form of an asset. If the business does not repay the borrowings then the lender can sell the asset to settle the amount due.
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.
SFP - SFP stands for statement of financial position.
Sole trader - A sole trader describes a business that is owned and controlled by one person.
SPL - SPL stands for statement of profit or loss.
Standing order - is a way of paying a regular amount to someone, without having to take action every time that it needs to be paid. For example, if you are due pay 30 each month then you can set this up with your bank for them to pay this amount for you automatically.
Statement of financial position - The statement of financial position is a primary statement that shows the financial position of a business. This includes the assets owned, liabilities owed and capital balance.
Statement of profit or loss - The statement of profit or loss is a primary statement that shows the financial performance of a business. This is the reported profit or loss for the year.
Straight line depreciation - Straight line is a method of calculating depreciation. In this method, the deprecation charge is calculated as the cost of the asset less any depreciation divided by the useful economic life of the asset. The depreciation charge will be the same in each year under this method.
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.
Tangible non-current asset register – The tangible non-current asset register can be defined as a memorandum document where each individual asset is listed and which will include detailed information about each asset.
Tangible non-current assets - Tangible non-current assets are those assets which have physical form and which are used by the business to generate economic benefit over more than 12 months.
The accounting equation - The accounting equation is total assets minus total liabilities equals capital.
Third party - A third party a person or group who is acting from outside the business and who is involved in a transaction or event.
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 – 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 receivable – 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. Trading account - The trading account is the section of the statement of profit or loss in which the cost of goods sold is compared to the revenue in order to arrive at the gross profit for the accounting period.
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.
Working paper - Working papers are documents used to prepare accounting records.
Write off - Write off is a term used when an asset is no longer recognised in the statement of financial position and is expensed in the statement of profit or loss.
THUY NGUYEN, ACCA
TÀI LIỆU HỌC TẬP DÀNH CHO KHÓA HỌC MA2-FA2
CHÚC CÁC BẠN LUÔN HẠNH PHÚC LUÔN THÀNH CÔNG!
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