key definitions Flashcards
absorption rate
rate at which manufacturing overheads are allocated to products, services and jobs
accounting equation
assets = equity + liabilities
accrual principle
revenue should be recognised when earned regardless of when payment made; expenses should be recognised when incurred regardless of when paid for
accrued expenses
services incurred (resources used) that have not yet been invoiced for. (often estimated) - current liability
accrued income
revenue earned but not yet invoiced -current asset
amortisation
analogous to depreciation but for intangible assets - also used for financial instruments held at amortised cost
asset recognition requirements
as asset can be recognised in the financial statements provided it is an economic resource controlled by the firm whose value is measurable
assets
economic resources, controlled by the firm. Items a company owns, cash and amounts a firm is owed. They may be tangible or intangible.
associates
companies in which the firm owns 20% or more of the company’s share capital but less than 50%
average cost (AVCO)
inventory valuation method. Value for inventory and cost-of-sales are both based on average cost of inventory purchases
balance sheet
informal and historic name for SOFP
bond
a security that is issued for a certain amount, for a specific term and that pays a fixed rate of interest and that is to be repaid in full at term (on maturity date)
book value per share
book value (equity) divided by number of shares issued
capital employed
operating: non-current assets + working capital
financing: equity + non-current liabilities
capital expenditure
money spent on acquiring, manufacturing or improving non-current assets to help generate future income
capitalise
taking expenditure to an asset in the SOFP rather than as an expense in the income statement e.g. interest paid on funds for property development, money spent developing software
cash and cash equivalents
cash, short term deposits held with banks and money market instruments. cash and bank
convertible bond
a bond issued by a firm under certain specific conditions can be converted into the common stock (shares) of the issue. Reported as two components, the bond portion and the embedded call option
core operating profit
gross profits less other operating expenses
cost allocation method
method under which manufacturing/service delivery overheads are allocated
cost-of-sales
direct product costs and allocated manufacturing overheads. (including distribution and selling costs) (cost-of-goods-solf and cost-of-revenue)
credit sale
sale of goods or services that are paid for in arrears. The norm for the trading of goods between firms. Credit terms of 60-90 days are common
current assets
assets that will be sold or consumed within the next 12 months and cash and financial assets due to be paid to the firm within 12 months
current liabilities
liabilities due for payment, or other obligations owed, by the firm within the next 12 months