Accounting Terms

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purpose of accounting

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to provide financial information to assist decision-making

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financial data

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raw facts and figures upon which financial information is based

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financial information

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financial data that has been sorted, classified and summarised into a more useable and understandable form

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transaction

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an exchange of goods or services with another party

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source document

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paper or electronic documents that provide both the evidence that a transaction has occurred and the details of the transaction itself

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reporting

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the preparation of financial statements that communicate financial information to

the owner

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advice

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the provision to the owners of a range of options appropriate to

their aims/objectives, together with recommendations as to the suitability of those aims/objectives

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recording

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sorting, classifying and summarising the data contained in the source documents so that it is more useable

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accounting principles

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the generally accepted rules that govern
the way accounting information is generated

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Entity

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the business is assumed to be separate from
the owner and other businesses, and its records should be kept on this basis

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agreed value

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the accepted value of a non-cash asset at the time of its contribution by the

owner

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Going Concern

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the life of the business is assumed to be continuous, and its records are kept on that basis

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Reporting period

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the life of the business must be divided into periods of time to allow reports to be prepared; these accounting reports should reflect the Reporting Period in which a transaction occurs

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accrual accounting

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calculating profit by comparing revenues earned against expenses incurred in a particular reporting period

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Historical Cost

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the recording of a transaction at its original cost or value, as this value is verifiable by reference to the source document

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Conservatism

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losses should be recorded when probable but gains should only be recorded when certain, so that liabilities and expenses are not understated and assets and revenues are not overstated

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Consistency

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accounting methods should be applied in a consistent manner to ensure that reports are comparable between periods

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Monetary Unit

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all items must be recorded and reported in a common unit of measurement; that is, Australian dollars

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qualitative characteristics

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the qualities of the information in accounting reports

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Relevance

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accounting reports should include all information that is useful for decision-making

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materiality

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size or significance

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Reliability

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accounting reports should contain information that is accurate, and free from bias or error

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Comparability

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accounting reports should be able to be compared over time

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Understandability

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accounting reports should be presented in a manner that makes
it easy for them to be understood by the user

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asset

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a resource controlled by an entity, as a result of past events, from which future economic benefits are expected to flow to the entity

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liability

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a present obligation of the entity as a result of past events, the settlement
of which is expected to result in an outflow from the entity of resources embodying economic benefits

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owner’s equity

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the residual interest in the assets of the entity after the deduction of its liabilities

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revenue

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an inflow of economic benefits (or saving in outflows) in the form of

an increase in assets (or decrease in liabilities) that increases owner’s equity, except for capital contributions by the owner

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expense

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an outflow or consumption of economic benefits (or reduction in inflows) in

the form of a decrease in assets (or increase in liabilities) that reduces

owner’s equity, except for drawings by the owner

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equities

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claims on the assets of the business, consisting of both liabilities and owner’s equity

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accounting equation

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the rule that states that assets must always equal liabilities plus owner’s equity

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Balance Sheet

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an accounting report that details the business’s assets, liabilities and owner’s equity at a particular point in time

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classification

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grouping together items that have some common characteristic

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current asset

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a resource controlled by the entity as a result of past events, from which a future economic benefit is expected to flow to the entity in the next 12 months

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non-current asset

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a resource controlled by the entity as a result of past events, from which a future economic benefit is expected to flow to the entity for more than the next 12 months

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current liability

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a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits in the next

12 months

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non-current liability

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a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits in more than 12 months

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double-entry accounting

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a system that records two effects on the accounting equation as a result of each transaction

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Ledger accounts

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accounting records showing all the transactions that affect a particular item

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General Ledger

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the collective name for the main group of ledger accounts

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Cross reference

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the name of the other account affected by a transaction, so that both accounts affected by a particular transaction can be identified

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analysing chart

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a tool used to identify the steps for recording transactions in the general ledger

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trial balance

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a list of all the accounts in the general ledger, and their balances, to determine if total debits equal to total credits

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footing

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an informal process used to determine the balance of a ledger account

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balancing

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ruling off an asset, liability, or owner's equity account to determine its balance at the end of the reporting period and transferring that balance to the next reporting period