Accounting Glossary: Abc

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Accounting

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Classifying & recording financial transactions, presenting and interpreting results for decision making

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Accounting entity concept

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Accounting information relates only to business activities not owners activities

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Accounting equation

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Relationships between assets, liabilities and owners equity

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Accounting period

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Time covered by the accounting statements of an entity

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Accounting rate of return

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Average annual profit expressed as a percentage of original capital investment

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Accounting standard

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Authoritative statement to how transactions should be reflected in financial statements to give a true and fair view

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Accounts Payable

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Money owed by a business for purchases for made from suppliers of goods and/or services

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Accounts receivable

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Money owed by customers to a business from sale of goods &/or services

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Accrual-basis accounting

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Recognises revenue when earned or expenses when incurred regardless of when money is exchanged

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Accrued expense

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Payment not yet made for an expense already incurred

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Accrued revenue

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Payment not yet received for goods delivered or a service already performed

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Accumulated depreciation

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The portion of the original cost of a non-current asset written of as a depreciation expense to date

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Activity based budgeting

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Budgeting based on an activity framework using cost driver data

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Annuity

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Equal amount of receipts at equal intervals of time

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Assets

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Items of value owned by a business which would be of benefit in the future

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Audit

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Examination of an entities activities and status, investigating systems, controls and records

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Balance sheet

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A statement of the financial position of an entity at a given date disclosing the assets, liabilities and accumulated funds such as shareholders contributions and reserves.

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Benchmarking

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The comparison of activities to world-class best practices

Or the establishment (through data gathering) of targets and comparators to identify relative levels of performance.

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Break even point

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The level of activity at which there is neither profit nor loss

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Bridging finance

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Supplementary finance made available on the evidence of a main borrowing.

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Budget

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A quantitative statement for a defined period of time which may include planned revenues, expenses, assets, liabilities and cash flows

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Budget period

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The period for which the budget is prepared: it may be a year, a quarter, a month or a week

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Capital Expenditure

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Expenditure on long-lived assets

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Capital rationing

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Allocating limited capital funds among competing projects to maximise the total net present value

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Capital structure

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The mix of different forms of capital employed by a business

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Cash basis accounting

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Recognises transactions only when cash is received or paid

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Cash budget (cash flow plan)

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A detailed budget of cash inflows and outflows incorporating both revenue and capital items

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Cash flow statement

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A statement which shows cash inflows and cash outflows during an accounting period

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Cash inflows

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Cash receipts from operations

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Cash outflows

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Cash outlay on projects and operations

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Chart of accounts

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A list of all the accounts and their identifying numbers in the ledger

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Collection period

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The average number of days it takes to collect accounts receivables

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Commercial bills

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The bills of exchange (described also as accomodation bills or trade bills) that are documents prepared or drawn by the seller and accepted by a buyer promising to pay the seller a certain sum of money on a specified due date

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Compound interest

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Interest obtained by adding separate interests for several periods, the principal and interest for one period becoming the principal for the next period

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Contribution margin

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The excess of sales over variable expenses during an accounting period

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Controllable costs

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Costs heavily influenced by a manager

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Cost centre

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An area (or division) of an organization for which costs are conveniently accumulated

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Cost of capital

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The cost of finance employed by a business

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Cost of goods sold (by manufacturer)

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COGS=

Opening inventory (of finished goods)

+ cost of goods manufactured

- closing inventory of finished goods

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Current assets

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The cash of a business and its other assets that are convertible to cash within one year

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Current liabilities

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Business debts that are payable within one year

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Current ratio

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The ratio of current assets to current liabilities

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Cost of goods manufactured

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Opening work in progress

+ manufacturing costs for period

- closing work in progress

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Cost of sales

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COS =

Opening inventory

+ purchases and other associated costs

- Closing inventory

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Amortization

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Spreading payments over multiple periods