Double entry glossary Flashcards
Account
A record in a double entry bookkeeping system that is kept for each (or each class) of asset, liability, income, expense, capital and drawings.
Accountant
A person who practises accountancy.
Accounting
A set of theories, concepts and techniques by which financial data are processed into information for reporting, planning, controlling and decision making purposes, or the process of recording, classifying, reporting and interpreting the financial data of an organisation.
Accounting equation
An expression of the equivalence, in total, of assets = liabilities + owner’s equity.
Accounting period
The time period, typically one year, to which financial statements are related.
Accounts payable
Amounts owed to suppliers for the purchase of goods and services: commonly called creditors.
Accounts receivable
Amounts that customers owe an organisation for goods and services supplied: commonly called debtors.
Accruals
Expenses which have been consumed or enjoyed but which have not been paid for at the accounting date. For example, telephone calls made but not yet paid for.
Accruals concept
Concept whereby revenue and costs are matched to the period to which they relate rather than the period in which they are received or paid. Also called the ‘matching’ concept.
Accumulation depreciation
The extent to which the original cost of an asset has been charged to the income statement. Cost less accumulated depreciation = net book value.
Assets
The economic resources of an enterprise that are expected to be used in future time periods and that can be expressed in money terms.
Auditing
The independent examination of, and expression of opinion on, the financial statements of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.
Authorised share capital
The amount of capital stated in the Memorandum of Association. The company cannot issue more than the authorised capital but the amount can be increased providing the prescribed procedures are followed.
Bad debuts
Debts known to be irrecoverable and therefore treated as losses by inclusion in the income statement as an expense.
Bank reconciliation
A statement which explains the difference in the balance shown by a cash book from that shown by a bank statement. The differences are normally caused by differences in the timing of issuing cheques and their presentation to the bank and similar timing differences.
Bonus issue
An issue of new shares to existing shareholders. No payment is made for the shares.
Bookkeeping
The art of recording an enterprise’s transactions in the books of account of the enterprise. Bookkeeping is ideally carried out using the formal system known as double entry bookkeeping.
Book value
The amount at which an asset is carried in the accounting records. The value is usually the original cost less accumulated depreciation. Alternative phrases are net book value and written down value. Book value rarely corresponds to ‘real’ values such as saleable value.
Called-up capital
When shares are issued the sums due may be payable by instalments either at fixed dates or when the directors so determine. A request for payment is known as a call and that part of the share capital which has been paid or requested is known as the called up capital.
Capital
An imprecise term meaning the whole quantity of assets less liabilities owned by a person or business. The capital account of a sole proprietor is equal to the assets less liabilities of the business.
Capital expenditure
Expenditure that provides long term benefits. Most capital expenditure is on fixed assets.
Casting
The accounting term for adding up.
Cheque
A bill of exchange drawn on a bank and payable on demand.
Compensating error
A bookkeeping term for two separate errors whose separate effects are cancelled out. Thus the errors do not give rise to a difference in the trial balance.
Consistency
An accounting principle whereby there is consistency of accounting treatment of like terms within each accounting period and from one period to the next.
Contra
A bookkeeping entry by which a liability to a supplier is reduced by (is set against) a sum due by the supplier who is also a customer.
Control account
An account reflecting the total balances of either debtors or creditors.
Credit
The right hand side of a double entry account. See Chapter 4, paragraph 7 for associated rules.
Credit control
A term for all those measures and procedures instituted by a firm that trades on credit to ensure that customers pay their accounts. Procedures include evaluation of a customer’s credit worthiness and comprehensive collection procedures.
Current accounts
In a partnership the sums due to partners which have arisen due to undrawn profits shares.
Current assets
Those assets which the management intend to convert into cash or consume in the normal course of business within one year.
Current liabilities
Debts or obligations that will be paid within one year of the accounting date. The Companies Act 1985 requires the expression Creditors - amounts falling due within one year.
Day book
A book of prime entry. The sales day book is a listing of sales invoices. The purchase daybook is a listing of purchase invoices. From the daybooks postings are made to the double entry system.
Depreciation
A measure of the wearing out, consumption or other reduction in useful economic life of a fixed asset whether arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation should be allocated to accounting periods so as to charge a fair proportion to each accounting period during the expected useful life of the asset.
Direct debit
A facility given by banks by which (by prior agreement) a person can extract money directly from his/her debtor’s bank account.
Directors
Persons elected by the shareholders of a company to manage the company. Collectively the directors form the Board of directors. Most boards have a chairman and one director is often designated as managing director or chief executive.
Discount
A monetary deduction or reduction. Settlement discount is given for early payment of a sum due. Trade discount is a simple reduction in price given to favoured customers for reasons such as status or bulk purchase. Sales and purchases in the income statement should be shown net of trade discounts and gross of settlement discounts.
Dishonour
To fail to pay or be unable to pay a cheque.
Dividend
A distribution of its earnings to its shareholders by a company.
Double entry bookkeeping
A method of record keeping developed in Renaissance Italy which now has universal acceptance.
Doubtful debts
A reduction in profits (by a charge to the income statement) to recognise the probable loss to be suffered because a debt is likely to prove uncollectable. The debts remain in the books (unlike actual bad debts) but are reduced on the statement of financial poistion by an account with a credit balance called a provision for doubtful debts.
Drawings
Cash or goods withdrawn from a business by a proprietor for his/her own use.
Dual effect
A principle that implies that all transactions have two aspects and thus affect two double entry accounts. For example a credit sale involves a debit to the debtor’s account and a credit to the sales account.
Equity
The ordinary shares or risk capital of an enterprise.
Expense
A cost which will be debited in a income statement as a period cost.
FIFO
First in, first out; a method of valuing assets, especially stocks, which values the items at most recent input prices.
Financial statement
Statement of financial poistions, income statements, income and expenditure accounts, cash flow statements and other documents which formally convey information of a financial nature to interested parties concerning an enterprise. In companies, the financial statements are subject to audit opinion, whereas other statements such as the chairman’s report are not.
General ledger
The collection of accounts of a double entry system. (See Nominal Ledger).
