Definitions Flashcards
Receivables ledger
Includes T-accounts for each credit customer
Inventory turnover (times)
= Cost of sales / Average inventory
Bookkeepers
Are responsible for recording day-to-day transactions in the books of prime entry and in the ledgers
Irrecoverable debt recovered
When a former trade receivable, whose account had been written off as an irrecoverable debt, makes a payment
Budget
Is a plan of the future income and/or expenditure of a business
Dividend cover
= Profit after interest and tax / Ordinary share dividends paid
Department for Business, Energy and Industrial Strategy (BEIS)
Provides information to support business, helps them to obtain finance and contributes to regulation by promoting responsible business practices
Corporate social responsibility (CSR)
Means the duties of a business towards its stakeholders and the environment
Limited liability
Means that the amount of money that shareholders can lose is limited to what they paid for their shares; they do not have to provide any more money to pay the company’s debts
Limited company
A separate legal entity that is owned by shareholders and controlled by directors
Sales budget
Records predicted levels of sales in units and in revenue
Break-even point
= Fixed costs / contribution per unit
Management accounting
Focuses on planning, control and decision making. It provides information for internal rather than external stakeholders
Sales volume sub-variance
= Standard price x (Standard quantity - Actual quantity)
Mark-up
= Gross Profit / Cost of sales x 100
Scarce resources
are activities or assets that limit output because there is a finite limit to them
Standing order
is an instruction from a business to its bank to make fixed payments at regular intervals, e.g. a loan repayment
Equity
The total monetary value of a company represented by issued share capital and reserves.
Equity = Issued share capital + Capital reserves + Revenue reserves
Criterion level
A target set by the business for payback or net present value that must be met for the investment to be acceptable
Directors
Employees who are responsible for the day-to-day running of the company
Trade discount
given for buying in bulk
Stakeholders
are people or organisations that are affected by the performance of a business
Cash book
The book of prime entry that is used to record bank receipts and bank payments, as well as cash discount allowed and cash discount received
Dividend
A portion of a company’s earnings distributed to its shareholders
Reducing balance depreciation
= Net book value x Percentage given
Labour rate sub-variance
= Actual labour hours x (Standard hourly rate - Actual hourly rate)
Trade receivable days
= Trade receivables / Credit sales x 365 days
Partnership agreement
A document that sets out how a partnership will operate; also called a ‘deed of partnership’
Consultative Committee of Accountancy Bodies (CCAB)
An umbrella group that includes most of the UK professional bodies of qualified accountants
Purchases budget
Calculates the quantity and value of goods that need to be bought
Invoice
The document that the seller gives to the buyer when it supplies goods or services on credit. It includes details of the goods and services supplied and the amount to be paid
Standard costing
means calculating budgeted costs for materials, labour and overheads before production occurs
Cost centres
Are those parts of a business for which costs can be calculated
Investing activities
Include proceeds from the sale of non-current assets, purchase price of additional non-current assets, interest received and dividends received
Accountants
They are responsible for the preparation of financial statements such as income statements and statements of financial position
Contribution sales ratio
= Contribution per unit / Selling price
Earnings per share
= Profit after tax in pence / Number of issued shares
Inventory turnover (days)
= Average inventory / Cost of sales x 365
In business
Means that an account is employed to carry out duties for a specific organisation
Internal stakeholders
The owners of the business and managers and other employees
Non-current assets
Resources owned by the business that it intends to keep for more than one year
Royalties
An agreed percentages sales revenue paid to the owner of a patent on a product
Purchases journal
The book of prime entry that lists the invoices for credit purchases
Authorised share capital
The maximum share capital that a company can issue
Margin of safety
= Actual level of sales - Break-even point
Bonus issue
Involves issuing free shares to existing shareholders out of capital or revenue reserves
Bank overdraft
Means that the bank account has a negative balance
Suspense account
is a temporary T-account that is used if the trial balance doesn’t balance
Current ratio
= Current assets / Current liabilities
Trial balance
a list of all the balances in the general ledger under the headings ‘debit’ and ‘credit’, where the total debit balances should be equal to the total credit balances
Production budget
Calculates the number of units that must be produced to meet the budgeted level of sales
Revaluation reserve
Is created when a non-current asset such as land and buildings is revalued at a higher value than was previously shown
Activity based costing (ABC)
That overheads are attributed to output on the basis of relevant activities, which are called cost drivers
Operating activities
Include profit from operations, depreciation profit or loss on disposal of non-current assets, changes in inventory, trade receivables and trade payables, interest paid and tax paid
Net book value
= Cost - Provision for Depreciation
Attribution
Relating overheads to specific units of output
Expenses in relation to revenue
= Expenses / Revenue - 100
Irrecoverable debt
A debt that will not be paid - the business will not receive the amount owed by a customer who has been sold goods on credit
Profit for the year - Sole trader
For a sole trader = Gross Profit + Other Income - Expenses
Remittance committee
(Also called the remuneration committee) is established to ensure that remuneration arrangements support the strategic aims of a business while also complying with the regulations
Variable cost
is a cost that immediately changes in proportion to the level of output or number of goods sold
Sales journal
The book of prime entry that lists the invoices for credit sales
Liability
Anything that is owed by a business, e.g. amounts owed to suppliers (trade payables) or bank overdraft or bank loan
Current assets
Resources that are owned by a business that are already cash or are intended to be cash within the next 12 months
Materials price sub-variance
= Actual quantity x (Standard price per unit - Actual price per unit)
Dividend yield
= Dividend per share / Market price per share - 100
Rights issues
Involve shares being offered to existing shareholders at a price a little below the market value but often above their nominal value, which creates share premium
Trade payable days
= Trade payables / Credit sales x 365 days
Labour variance
= (Standard hours x Standard rate) - (Actual hours x Actual rate)
Cash discount
Is offered to encourage quick payment
Cost drivers
Activities that influence the level of costs
Capital gearing
= Non-current liabilities / capital employed x 100
Absorption costing
The total costs of the business are charged to cost units; indirect/fixed costs as well as direct/variable costs
Apportionment
Means that overheads are shared between relevant cost centres
Sales price sub-variance
= Actual quantity x (Standard selling price - Actual selling price)
Running costs
Include purchases, carriage, rent, wages, light and heat, bills for electricity, gas and telephone, and any other expenses
International Accounting Standards
Guidelines that state how transactions are to be treated in financial statements
Service departments
are cost centers that provide support for the other cost centers within the same organisation, but not for the customers of that business
Investment appraisal
Means using numerical techniques to decide which investment should be made, or whether one should be made at all
Direct cost
A cost that can be identified directly with each unit of output
Executive directors
Full-time employees who are responsible for the day-to-day running of the company
Corporate governance
Means the systems and processes in place to monitor and control how a business is run. It’s main aim is to protect the shareholders of a company
Partner’s capital
Money invested by new or existing partners
Owner’s capital
Money introduced by the existing owner of the business
AAT
The Association of Accounting Technician
Income due
An amount due to a business that has not been received at the end of the financial year
Net realisable value
The selling price of inventory minus any expenses incurred in getting the goods into a saleable condition
CCAB
The Consultative Committee of Accountancy Bodies, an umbrella group that includes most of the UK professional bodies of qualified accountants
Purchases ledger control account
Shows the total owed to the credit suppliers of a business
Non-executive directors
Not full-time employees of the company. They are appointed to provide independent advice on a part-time basis
Directors’ remuneration
Means salaries and other payments made to the company directors
Under-absorption
means that the value of overheads absorbed by production costs is lower than the actual value of overheads
Companies Acts
Are UK laws that state how UK companies should be run and what should be run and what should be included in their financial statements
Over-absorption
The value of overheads absorbed by production costs is higher than the actual value of overheads
BACS
The most common method of credit transfer - Bankers Automated Clearing Services
Capital expenditure
Is expenditure on the purchase, alteration or improvement of non-current assets
Share premium
created when shares are issued at a higher amount than their nominal value
Partnership
A business that is jointly owned and controlled by more than one person
Revenue expenditure
Expenditure on running costs
Sales returns journal
The book of prime entry that lists the credit notes issued by the business
Cost plus pricing
Means calculating selling prices by applying a percentage mark-up to the cost of the products that are being sold
Bank loan
A fixed amount that must be repaid, plus interest, over a stated amount of time in equal monthly instalments
Zero-based budgeting
when budgets are set at zero and managers have to justify every item of expenditure
Variance
the difference between a budgeted figure and the actual figure
Materials usage sub-variance
= Standard price x (Standard quantity - Actual quantity)
Accounting concepts
Broad principles that guide the preparation of financial statements so that they are relevant, reliable, comparable and understandable
Dividend per share
= Dividends paid / Number of issued shares
Overhead absorption rate (OAR)
= Budgeted overheads for the cost centre / Budgeted labour hours or machine hours in the cost centre
Financing activities
Include cash received from issuing shares (including share premium), cash received from new loans or debentures, repayment of loans, debentures or shares and dividends paid
Net present value
Using discount factors to calculate the present values of net cash flows before subtracting the initial cost
Issued share capital
The amount of share capital that a company has issued, shown at nominal value
Prepayment
An expense that has been paid in advance and relates to the next accounting period
Auditors
Appointed by the directors to check the financial statements that have been produced by the directors or other employees of the company
Liquid capital ratio
= Current assets - Inventory / Current liabilities
Gross profit margin
= Gross profit / Revenue x 100
Cost pools
Groups of overheads that are caused by the same activity
ICAEW
The Institute of Chartered Accountants in England and Whales
Outstanding
Cheque means the same as ‘unpresented’ cheque
Market value
The price at which shares that have previously been issued are traded
Provision for doubtful debts
An estimate by a business of the likely amount of its trade receivables figure that may become irrecoverable
Accrual
An expense for services that have been used but not yet invoiced to the business at the end of the accounting period
Marginal cost
The cost of producing one extra unit
Cash budget
Shows the forecast inflows (receipts) and outflows (payments) and calculates the predicted bank balance at the end of each period
Nominal value
The face value of shares that is shown on the statement of financial position as part of total equity
General journal
The book of prime entry that is used to record non-routine transactions
Payable ledger
Includes T-accounts for each credit supplier
Sales ledger control account
Shows the total owed by the credit customers of a business
Unpresented payments and unpresented receipts
items that have been entered in the cash book but are not yet shown on the bank statement
Straight line depreciation (method 2)
= Cost x Percentage given
ACCA
The Association of Chartered Certified Accountants
Straight line depreciation (method 1)
= (Cost - Expected residual value) / (Expected years of useful life)
Labour efficiency sub-variance
= Standard rate x (Standard hours - Actual hours)
Fixed cost
A cost that does not immediately change due to a change in output or the number of goods sold
Net assets
= Total assets - Total liabilities
Profit in relation to revenue
= Profit for the year before tax / Revenue x 100
Income
Includes sales revenue, capital, rent received, discount received and any other sources of income
Incremental budgeting
Adding a small percentage to the previous year’s budget or actual performance
Debentures
Long-term loans to a company from investors that may be secured on the assets of the company
Mortgage
A bank loan that is used to buy property and is secured on that property
Lodgements
Amounts that have been banked
Total contribution
= Contribution per unit x Number of units sold
Operating profit
= Gross Profit + Other Income - Expenses
Interest cover
= Profit before interest and tax / Interest payable
Gross profit
= Revenue - Cost of sales
Finance Reporting Council (FRC)
The UK’s regulator for accountants and auditors
Sole trader
is a business that is owned and controlled by one person
Capital reserves
(Revaluation reserve and share premium) are created because of non-trading profit
Dishonoured cheques
(Also called returned cheques) are cheques that have been returned by the bank because there is not not enough money in the account to make the payment. These can either be cheques paid by the business or cheques received by the business
Cost of sales
= Opening inventory + Purchases - Purchase returns + Carriage in - Closing inventory
Debit card transactions
Payments made using a debit card. The bank statement will show the payee and the amount paid
Sales variance
= (Standard quantity x Standard price) - (Actual quantity x Actual price)
Purchases returns journal
The book of prime entry that lists the credit notes received by the business
Income received in advance
A payment received in advance of the accounting period to which it relates
Payback
Estimating how long it will take for the net cash flows to reach the initial cost of an investment
General ledger
Includes T-accounts for every item that will appear in the financial statements
Share capital
is money invested by shareholders, which makes them the owners of a limited company
Credit transfers
Receipts or payments made electronically in or out of a bank account
Sale or return
That the sale of goods from one business to another is not recognised until the second business has sold those goods to its own customers
Financial accounting
Uses historical information to produce financial statements
External stakeholders
Are suppliers, customers, lenders, HMRC and the local community
Revenue reserves (retained earnings)
The accumulated profits from trading activities that have been retained in the company rather than paid out to shareholders
Indirect cost
A cost that cannot be identified directly with each unit of output
Net current assets
= Current assets - Current liabilities
Materials variance
= (Standard quantity x standard price) - (Actual quantity x Actual price)
Goodwill
An intangible asset that is the difference between the value of the business as a whole and the net value of its assets and liabilities
Price earnings
= Current market price / Earnings per share
In public practice
Means that an accountant is employed by an accountancy firm to carry out duties for the clients of that firm
Allocation
Means that costs are entirely charged to a specific cost centre
CIMA
The Chartered Institute of Management Accountants
Principles of ethical behaviour
Integrity, objectively, professional competence and due care, confidentiality and professional behaviour
Revaluation
Means the increase or decrease in the value of non-current assets, inventory or trade receivables
Credit notes
Issued to show that goods have been returned and that they do not need to be paid for
Profit for the year - Limited company
Limited company = Operating Profit - Finance Cost - Tax
Asset
Anything that is owned by a business, e.g. physical objects such as land, buildings, vehicles, equipment, machinery, furniture and inventory; cash or money in the bank account; and customers who owe money to the business (trade receivables)
Non-current liabilities
Amounts owed by a business that will be fully repaid after more than one year
Finance cost
Interest payable on non-current liabilities such as bank loans, mortgages and debentures
Labour budget
Calculates the labour hours and labour costs of the employees who are involved in the production process
Threats to the principles of ethical behavior
are self-interest, self review, advocacy, familiarity and intimidation
Unlimited liability
is when sole traders or partners are responsible for paying any debts that the business is unable to pay, even if that means selling their own personal assets
Accumulated depreciation
(Also called ‘provision for depreciation’) means the accumulated depreciation on non-current assets
Schedule of non-current assets
is a note in the published accounts of limited companies that shows how the cost, provision for depreciation and net book value of each type of non-current asset have changed during the year
Current liabilities
Are amounts owed by the business that must be repaid within one year
Provision for depreciation
Also called accumulated depreciation. Means the accumulated depreciation of non-current assets
Return on capital employed
= Operating Profit / Capital employed x 100
Cost units
Individual items of output for which costs can be calculated
Optimum production plan
The combination of products that will deliver the highest overall profit for the business
Direct debit
An arrangement where a business authorises it’s bank to allow another business to transfer money from its bank account on pre-arranged dates
