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Accounting Definitions ALevel > Definitions > Flashcards

Definitions Flashcards

1
Q

Receivables ledger

A

Includes T-accounts for each credit customer

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2
Q

Inventory turnover (times)

A

= Cost of sales / Average inventory

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3
Q

Bookkeepers

A

Are responsible for recording day-to-day transactions in the books of prime entry and in the ledgers

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4
Q

Irrecoverable debt recovered

A

When a former trade receivable, whose account had been written off as an irrecoverable debt, makes a payment

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5
Q

Budget

A

Is a plan of the future income and/or expenditure of a business

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6
Q

Dividend cover

A

= Profit after interest and tax / Ordinary share dividends paid

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7
Q

Department for Business, Energy and Industrial Strategy (BEIS)

A

Provides information to support business, helps them to obtain finance and contributes to regulation by promoting responsible business practices

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8
Q

Corporate social responsibility (CSR)

A

Means the duties of a business towards its stakeholders and the environment

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9
Q

Limited liability

A

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

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10
Q

Limited company

A

A separate legal entity that is owned by shareholders and controlled by directors

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11
Q

Sales budget

A

Records predicted levels of sales in units and in revenue

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12
Q

Break-even point

A

= Fixed costs / contribution per unit

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13
Q

Management accounting

A

Focuses on planning, control and decision making. It provides information for internal rather than external stakeholders

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14
Q

Sales volume sub-variance

A

= Standard price x (Standard quantity - Actual quantity)

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15
Q

Mark-up

A

= Gross Profit / Cost of sales x 100

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16
Q

Scarce resources

A

are activities or assets that limit output because there is a finite limit to them

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17
Q

Standing order

A

is an instruction from a business to its bank to make fixed payments at regular intervals, e.g. a loan repayment

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18
Q

Equity

A

The total monetary value of a company represented by issued share capital and reserves.
Equity = Issued share capital + Capital reserves + Revenue reserves

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19
Q

Criterion level

A

A target set by the business for payback or net present value that must be met for the investment to be acceptable

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20
Q

Directors

A

Employees who are responsible for the day-to-day running of the company

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21
Q

Trade discount

A

given for buying in bulk

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22
Q

Stakeholders

A

are people or organisations that are affected by the performance of a business

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23
Q

Cash book

A

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

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24
Q

Dividend

A

A portion of a company’s earnings distributed to its shareholders

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25
Q

Reducing balance depreciation

A

= Net book value x Percentage given

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26
Q

Labour rate sub-variance

A

= Actual labour hours x (Standard hourly rate - Actual hourly rate)

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27
Q

Trade receivable days

A

= Trade receivables / Credit sales x 365 days

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28
Q

Partnership agreement

A

A document that sets out how a partnership will operate; also called a ‘deed of partnership’

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29
Q

Consultative Committee of Accountancy Bodies (CCAB)

A

An umbrella group that includes most of the UK professional bodies of qualified accountants

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30
Q

Purchases budget

A

Calculates the quantity and value of goods that need to be bought

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31
Q

Invoice

A

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

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32
Q

Standard costing

A

means calculating budgeted costs for materials, labour and overheads before production occurs

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33
Q

Cost centres

A

Are those parts of a business for which costs can be calculated

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34
Q

Investing activities

A

Include proceeds from the sale of non-current assets, purchase price of additional non-current assets, interest received and dividends received

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35
Q

Accountants

A

They are responsible for the preparation of financial statements such as income statements and statements of financial position

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36
Q

Contribution sales ratio

A

= Contribution per unit / Selling price

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37
Q

Earnings per share

A

= Profit after tax in pence / Number of issued shares

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38
Q

Inventory turnover (days)

A

= Average inventory / Cost of sales x 365

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39
Q

In business

A

Means that an account is employed to carry out duties for a specific organisation

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40
Q

Internal stakeholders

A

The owners of the business and managers and other employees

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41
Q

Non-current assets

A

Resources owned by the business that it intends to keep for more than one year

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42
Q

Royalties

A

An agreed percentages sales revenue paid to the owner of a patent on a product

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43
Q

Purchases journal

A

The book of prime entry that lists the invoices for credit purchases

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44
Q

Authorised share capital

A

The maximum share capital that a company can issue

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45
Q

Margin of safety

A

= Actual level of sales - Break-even point

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46
Q

Bonus issue

A

Involves issuing free shares to existing shareholders out of capital or revenue reserves

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47
Q

Bank overdraft

A

Means that the bank account has a negative balance

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48
Q

Suspense account

A

is a temporary T-account that is used if the trial balance doesn’t balance

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49
Q

Current ratio

A

= Current assets / Current liabilities

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50
Q

Trial balance

A

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

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51
Q

Production budget

A

Calculates the number of units that must be produced to meet the budgeted level of sales

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52
Q

Revaluation reserve

A

Is created when a non-current asset such as land and buildings is revalued at a higher value than was previously shown

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53
Q

Activity based costing (ABC)

A

That overheads are attributed to output on the basis of relevant activities, which are called cost drivers

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54
Q

Operating activities

A

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

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55
Q

Net book value

A

= Cost - Provision for Depreciation

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56
Q

Attribution

A

Relating overheads to specific units of output

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57
Q

Expenses in relation to revenue

A

= Expenses / Revenue - 100

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58
Q

Irrecoverable debt

A

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

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59
Q

Profit for the year - Sole trader

A

For a sole trader = Gross Profit + Other Income - Expenses

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60
Q

Remittance committee

A

(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

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61
Q

Variable cost

A

is a cost that immediately changes in proportion to the level of output or number of goods sold

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62
Q

Sales journal

A

The book of prime entry that lists the invoices for credit sales

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63
Q

Liability

A

Anything that is owed by a business, e.g. amounts owed to suppliers (trade payables) or bank overdraft or bank loan

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64
Q

Current assets

A

Resources that are owned by a business that are already cash or are intended to be cash within the next 12 months

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65
Q

Materials price sub-variance

A

= Actual quantity x (Standard price per unit - Actual price per unit)

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66
Q

Dividend yield

A

= Dividend per share / Market price per share - 100

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67
Q

Rights issues

A

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

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68
Q

Trade payable days

A

= Trade payables / Credit sales x 365 days

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69
Q

Labour variance

A

= (Standard hours x Standard rate) - (Actual hours x Actual rate)

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70
Q

Cash discount

A

Is offered to encourage quick payment

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71
Q

Cost drivers

A

Activities that influence the level of costs

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72
Q

Capital gearing

A

= Non-current liabilities / capital employed x 100

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73
Q

Absorption costing

A

The total costs of the business are charged to cost units; indirect/fixed costs as well as direct/variable costs

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74
Q

Apportionment

A

Means that overheads are shared between relevant cost centres

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75
Q

Sales price sub-variance

A

= Actual quantity x (Standard selling price - Actual selling price)

76
Q

Running costs

A

Include purchases, carriage, rent, wages, light and heat, bills for electricity, gas and telephone, and any other expenses

77
Q

International Accounting Standards

A

Guidelines that state how transactions are to be treated in financial statements

78
Q

Service departments

A

are cost centers that provide support for the other cost centers within the same organisation, but not for the customers of that business

79
Q

Investment appraisal

A

Means using numerical techniques to decide which investment should be made, or whether one should be made at all

80
Q

Direct cost

A

A cost that can be identified directly with each unit of output

81
Q

Executive directors

A

Full-time employees who are responsible for the day-to-day running of the company

82
Q

Corporate governance

A

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

83
Q

Partner’s capital

A

Money invested by new or existing partners

84
Q

Owner’s capital

A

Money introduced by the existing owner of the business

85
Q

AAT

A

The Association of Accounting Technician

86
Q

Income due

A

An amount due to a business that has not been received at the end of the financial year

87
Q

Net realisable value

A

The selling price of inventory minus any expenses incurred in getting the goods into a saleable condition

88
Q

CCAB

A

The Consultative Committee of Accountancy Bodies, an umbrella group that includes most of the UK professional bodies of qualified accountants

89
Q

Purchases ledger control account

A

Shows the total owed to the credit suppliers of a business

90
Q

Non-executive directors

A

Not full-time employees of the company. They are appointed to provide independent advice on a part-time basis

91
Q

Directors’ remuneration

A

Means salaries and other payments made to the company directors

92
Q

Under-absorption

A

means that the value of overheads absorbed by production costs is lower than the actual value of overheads

93
Q

Companies Acts

A

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

94
Q

Over-absorption

A

The value of overheads absorbed by production costs is higher than the actual value of overheads

95
Q

BACS

A

The most common method of credit transfer - Bankers Automated Clearing Services

96
Q

Capital expenditure

A

Is expenditure on the purchase, alteration or improvement of non-current assets

97
Q

Share premium

A

created when shares are issued at a higher amount than their nominal value

98
Q

Partnership

A

A business that is jointly owned and controlled by more than one person

99
Q

Revenue expenditure

A

Expenditure on running costs

100
Q

Sales returns journal

A

The book of prime entry that lists the credit notes issued by the business

101
Q

Cost plus pricing

A

Means calculating selling prices by applying a percentage mark-up to the cost of the products that are being sold

102
Q

Bank loan

A

A fixed amount that must be repaid, plus interest, over a stated amount of time in equal monthly instalments

103
Q

Zero-based budgeting

A

when budgets are set at zero and managers have to justify every item of expenditure

104
Q

Variance

A

the difference between a budgeted figure and the actual figure

105
Q

Materials usage sub-variance

A

= Standard price x (Standard quantity - Actual quantity)

106
Q

Accounting concepts

A

Broad principles that guide the preparation of financial statements so that they are relevant, reliable, comparable and understandable

107
Q

Dividend per share

A

= Dividends paid / Number of issued shares

108
Q

Overhead absorption rate (OAR)

A

= Budgeted overheads for the cost centre / Budgeted labour hours or machine hours in the cost centre

109
Q

Financing activities

A

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

110
Q

Net present value

A

Using discount factors to calculate the present values of net cash flows before subtracting the initial cost

111
Q

Issued share capital

A

The amount of share capital that a company has issued, shown at nominal value

112
Q

Prepayment

A

An expense that has been paid in advance and relates to the next accounting period

113
Q

Auditors

A

Appointed by the directors to check the financial statements that have been produced by the directors or other employees of the company

114
Q

Liquid capital ratio

A

= Current assets - Inventory / Current liabilities

115
Q

Gross profit margin

A

= Gross profit / Revenue x 100

116
Q

Cost pools

A

Groups of overheads that are caused by the same activity

117
Q

ICAEW

A

The Institute of Chartered Accountants in England and Whales

118
Q

Outstanding

A

Cheque means the same as ‘unpresented’ cheque

119
Q

Market value

A

The price at which shares that have previously been issued are traded

120
Q

Provision for doubtful debts

A

An estimate by a business of the likely amount of its trade receivables figure that may become irrecoverable

121
Q

Accrual

A

An expense for services that have been used but not yet invoiced to the business at the end of the accounting period

122
Q

Marginal cost

A

The cost of producing one extra unit

123
Q

Cash budget

A

Shows the forecast inflows (receipts) and outflows (payments) and calculates the predicted bank balance at the end of each period

124
Q

Nominal value

A

The face value of shares that is shown on the statement of financial position as part of total equity

125
Q

General journal

A

The book of prime entry that is used to record non-routine transactions

126
Q

Payable ledger

A

Includes T-accounts for each credit supplier

127
Q

Sales ledger control account

A

Shows the total owed by the credit customers of a business

128
Q

Unpresented payments and unpresented receipts

A

items that have been entered in the cash book but are not yet shown on the bank statement

129
Q

Straight line depreciation (method 2)

A

= Cost x Percentage given

130
Q

ACCA

A

The Association of Chartered Certified Accountants

131
Q

Straight line depreciation (method 1)

A

= (Cost - Expected residual value) / (Expected years of useful life)

132
Q

Labour efficiency sub-variance

A

= Standard rate x (Standard hours - Actual hours)

133
Q

Fixed cost

A

A cost that does not immediately change due to a change in output or the number of goods sold

134
Q

Net assets

A

= Total assets - Total liabilities

135
Q

Profit in relation to revenue

A

= Profit for the year before tax / Revenue x 100

136
Q

Income

A

Includes sales revenue, capital, rent received, discount received and any other sources of income

137
Q

Incremental budgeting

A

Adding a small percentage to the previous year’s budget or actual performance

138
Q

Debentures

A

Long-term loans to a company from investors that may be secured on the assets of the company

139
Q

Mortgage

A

A bank loan that is used to buy property and is secured on that property

140
Q

Lodgements

A

Amounts that have been banked

141
Q

Total contribution

A

= Contribution per unit x Number of units sold

142
Q

Operating profit

A

= Gross Profit + Other Income - Expenses

143
Q

Interest cover

A

= Profit before interest and tax / Interest payable

144
Q

Gross profit

A

= Revenue - Cost of sales

145
Q

Finance Reporting Council (FRC)

A

The UK’s regulator for accountants and auditors

146
Q

Sole trader

A

is a business that is owned and controlled by one person

147
Q

Capital reserves

A

(Revaluation reserve and share premium) are created because of non-trading profit

148
Q

Dishonoured cheques

A

(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

149
Q

Cost of sales

A

= Opening inventory + Purchases - Purchase returns + Carriage in - Closing inventory

150
Q

Debit card transactions

A

Payments made using a debit card. The bank statement will show the payee and the amount paid

151
Q

Sales variance

A

= (Standard quantity x Standard price) - (Actual quantity x Actual price)

152
Q

Purchases returns journal

A

The book of prime entry that lists the credit notes received by the business

153
Q

Income received in advance

A

A payment received in advance of the accounting period to which it relates

154
Q

Payback

A

Estimating how long it will take for the net cash flows to reach the initial cost of an investment

155
Q

General ledger

A

Includes T-accounts for every item that will appear in the financial statements

156
Q

Share capital

A

is money invested by shareholders, which makes them the owners of a limited company

157
Q

Credit transfers

A

Receipts or payments made electronically in or out of a bank account

158
Q

Sale or return

A

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

159
Q

Financial accounting

A

Uses historical information to produce financial statements

160
Q

External stakeholders

A

Are suppliers, customers, lenders, HMRC and the local community

161
Q

Revenue reserves (retained earnings)

A

The accumulated profits from trading activities that have been retained in the company rather than paid out to shareholders

162
Q

Indirect cost

A

A cost that cannot be identified directly with each unit of output

163
Q

Net current assets

A

= Current assets - Current liabilities

164
Q

Materials variance

A

= (Standard quantity x standard price) - (Actual quantity x Actual price)

165
Q

Goodwill

A

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

166
Q

Price earnings

A

= Current market price / Earnings per share

167
Q

In public practice

A

Means that an accountant is employed by an accountancy firm to carry out duties for the clients of that firm

168
Q

Allocation

A

Means that costs are entirely charged to a specific cost centre

169
Q

CIMA

A

The Chartered Institute of Management Accountants

170
Q

Principles of ethical behaviour

A

Integrity, objectively, professional competence and due care, confidentiality and professional behaviour

171
Q

Revaluation

A

Means the increase or decrease in the value of non-current assets, inventory or trade receivables

172
Q

Credit notes

A

Issued to show that goods have been returned and that they do not need to be paid for

173
Q

Profit for the year - Limited company

A

Limited company = Operating Profit - Finance Cost - Tax

174
Q

Asset

A

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)

175
Q

Non-current liabilities

A

Amounts owed by a business that will be fully repaid after more than one year

176
Q

Finance cost

A

Interest payable on non-current liabilities such as bank loans, mortgages and debentures

177
Q

Labour budget

A

Calculates the labour hours and labour costs of the employees who are involved in the production process

178
Q

Threats to the principles of ethical behavior

A

are self-interest, self review, advocacy, familiarity and intimidation

179
Q

Unlimited liability

A

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

180
Q

Accumulated depreciation

A

(Also called ‘provision for depreciation’) means the accumulated depreciation on non-current assets

181
Q

Schedule of non-current assets

A

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

182
Q

Current liabilities

A

Are amounts owed by the business that must be repaid within one year

183
Q

Provision for depreciation

A

Also called accumulated depreciation. Means the accumulated depreciation of non-current assets

184
Q

Return on capital employed

A

= Operating Profit / Capital employed x 100

185
Q

Cost units

A

Individual items of output for which costs can be calculated

186
Q

Optimum production plan

A

The combination of products that will deliver the highest overall profit for the business

187
Q

Direct debit

A

An arrangement where a business authorises it’s bank to allow another business to transfer money from its bank account on pre-arranged dates

Accounting Definitions ALevel (4 decks)

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