Key Terms and Concepts Flashcards
Accountability
Refers to management’s responsibility to provide an account/report on the way in which the resources entrusted to them have been used.
Annual report
- A document which contains the financial statements (with related notes) along with reports from management explaining what they are doing and what they plan to do.
- The supporting reports provided by management typically include the operating and financial review, the directors’ report, the chairman’s statement and the corporate social responsibility report.
- They also provide information on how they govern themselves in a corporate governance report and information on director salaries is provided in the remuneration report.
Assets
A present economic resource controlled by the entity as a result of past events.
Appropriation account
An account which is used to apportion the profit or loss for the period between the partners in a partnership business.
Available-for-sale assets
Investments that are denominated in money, or in paper (such as shares and bonds), which the entity holds for financial gain and which will be sold by the entity in the future.
Balance sheet
The UK equivalent of the statement of financial position. It contains details of an entity’s assets, liabilities and capital.
Bookkeeping system
A system to record the nature and monetary value of the transactions of an organization.
Comparatives
Term used to describe prior year figures that are included in financial statements so that current year results can be easily compared to the previous year’s figures
Current assets
Cash, cash equivalents and assets that are expected to be turned into cash within 12 months and all assets that are intended for sale or consumption as part of the entity’s normal operating (trading) activities of the business.
Current liabilities
Liabilities that are due to be settled within 12 months or that are incurred as part of the firm’s normal operating (trading) activities. It also includes liabilities that are repayable on demand (overdraft).
Double-entry bookkeeping
In double-entry bookkeeping each transaction is entered in the books twice. This duplication, considered to be a form of internal check, highlights any errors.
Economic decision-making
A view of the function of financial accounting is that it facilitates the efficient and effective allocation of resources.
Economic decision-making
A view of the function of financial accounting is that it facilitates the efficient and effective allocation of resources.
Economic resource
A right that has the potential to produce economic benefits (Conceptual Framework, IASB,
2018).
Equity
The residual interest in the assets of the entity after deducting all its liabilities.
Equity shareholder
Another name for owner/proprietor (holds shares of ownership in the entity).
Expenses
Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims (Conceptual Framework, IASB, 2018).
Financial accounting
The process of designing and operating an information system for collecting, measuring and recording business transactions, and summarizing and communicating the results of
these transactions to users to facilitate the making of financial/economic decisions.
Financial adaptability
An entity’s financial adaptability is its ability to take effective action to alter the amount and timing of its cash flows so that it can respond to unexpected needs or opportunities.
Financial statements
A collective term to describe the comprehensive income statement, the statement of financial position, the statement of cash flows and the related notes.
Income
Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims.
Income tax
A percentage of personal income that is paid to the government each year.
Intangible assets
- Cannot be seen or touched, but have value. They help the entity to generate income.
Examples include patents, intellectual capital, knowledge and reputation.
Internal check
An internal control established by the entity to ensure that a transaction has been undertaken correctly.
Internal control
A process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
Inventory
Goods that have been purchased for resale, but are not yet sold. The UK financial reporting standards refer to inventory as stock.
Investments in associates
Investments in paper shares, however, the intention is to retain this investment as part of the entity’s normal activities.
Liabilities
A present obligation of the entity to transfer an economic resource as a result of past events
(Conceptual Framework, IASB, 2018).
Listed companies
Companies that have their shares for sale (listed) on public stock markets, also called stock exchanges.
Management accounting
The provision of information to an organization’s management for the purposes of planning, control and decision-making. The latter includes production, marketing, investment and financing decisions.
Member governed bodies
Where members of an organization are given the authority to govern/administer the organization. Their role includes providing guidance on the strategic direction of the organization and ensuring that the organization is properly managed.
Non-current assets
- Assets with a life of more than one year that the entity expects to use for periods that extend beyond one year and are not part of their normal trading activity.
For example, motor vehicles in a car dealership are inventory not non-current assets but the building in which the vehicles are kept is.
Non-current liabilities
Liabilities that the entity expects to pay in periods that extend beyond one year.
Notes to the financial statements
Detailed information to support the summarized information that is provided in the comprehensive income statement, the statement of financial position and the statement of cash flows.
Other comprehensive income
Income that is not realized during the period such as holding gains (increases in value) on the valuation of non-current assets over the period being reported on.
Other income
Income from activities that are not the entity’s core business. For example, receiving interest, or rent.
Partnerships
Describes a business that is owned and run by two or more individuals (partners).
Partnerships can be incorporated (as a limited company) or unincorporated (not established as a separate legal entity).
Profit or loss for the period
It shows the difference between income generated in the period and the costs associated with the period and with generating the income (including interest costs).
Regulatory framework of accounting
A general term used to describe the legislation and other rules that govern the content and format of company final financial statements.
Revenue
The gross inflow of economic benefits arising from ordinary operating activities of an entity such as the sale of goods if a retailer, the sale of motor vehicles if a car dealership or interest and fee income if a bank.
Self-assessment tax return
A form completed by individuals who have personal income in addition to wages from an employer. This form is completed every year and is sent to the tax authorities. It reports on all earnings received and their sources.
Sole traders
Name for a business which is owned and run privately by an individual who gets all the profits, or suffers all the losses.
Statement of cash flows
Shows the source and use of cash in the period.
Statement of changes in equity
Provides information on the movements within the equity accounts in the period and any payments made to equity holders (dividends).
Statement of comprehensive income
Statement detailing the total performance of an entity in a specified period. The performance includes realized income and expenditure and unrealized income (holding gains).
Statement of financial position
Provides information on the financial position of an entity. It typically contains details of the entity’s assets, liabilities and equity capital.
Statement of other comprehensive income
Provides information on income that is not included in the statement of profit or loss (typically unrealized gains/losses).
Statement of profit or loss
Shows the profits and losses for the period from realized activities. This includes normal operating activities and other activities, such as the sale of a property, that took place during the period covered.
Stewardship accounting
Term to describe a form of accounting which focuses on keeping a count of items. It was the earliest form of accounting and typically involved keeping a record of the assets and liabilities of an entity. Stewardship is the accountability of an enterprise’s management for the resources entrusted to them.
Stewardship objective
Financial statements should provide information that is useful for assessing management’s stewardship function.
Tangible assets
Assets that can be seen and touched (they are tangible in nature), for example a car, a house, or a desk.
Trade payable
Amounts owed to a supplier who provided goods on credit.
Trade receivable
Amounts owed from a customer for credit sales (the goods were given in advance of the entity receiving money for the goods).
Unincorporated businesses
Not established/registered as separate legal entities in law
