Glossary

ALPHABET [ A ]

ABC Methodology

  • A method of classifying stocks into categories in terms of importance. Commonly used in inventory management in a business which have large stocks of many different items. More emphasis is placed on higher value than on lower value items.

Abnormal item

  • Abnormal items are transactions or other events that are both “unusual in nature” and “infrequent in occurrence”.

Abnormal losses or spoilage

  • Avoidable losses or spoilage which is beyond the normal spoilage rate. A result of inefficiency in the production process which is written off in the profit and loss account as a period cost.

Absorption costing

  • A costing technique which allocates all factory indirect/variable and fixed overhead of production into the product cost. Accounting standards recommend this methodology of inventory valuation for external reporting purposes.

  • Absorption methods include direct labour hour rate, direct labour cost percentage rate and machine hour rate

Account

  • Systematic method used to accumulate related accounting information (e.g. Salaries and Wages Expense - an account used to collect the payroll costs)

  • Expressed in monetary terms and housed in a ledger.

Account Codes

  • Is the identification process so as to identify the individual accounts in the ledger. Ultimately, the account codes are grouped and classified to be used to generate the information for financial statements.

Accounting cycle

  • Is the sequence in which the data is recorded and processed until it becomes part of the financial statements at the end of the period.

Accounting

  • Accounting is the process of identifying, recording, classifying and reporting information on economic events in a logical manner for the purpose of providing financial information for decision making.

Accounting policies

  • The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Accounting rate of return

  • Measures the profit earned on investment expressed as a percentage of the average investment.

  • Does not take into consideration cash flows

Accounting profit

  • Profit or loss for a period before deducting tax expense

Accounting ratios

  • Terms used to describe the different types of financial calculation use to measure the performance of a business.

Accounting records

  • Books of account kept by a business

Accounting standards

  • Rules applied in accounting practice that have been recommended by the Accounting Standards Board.

Accumulated depreciation

  • Total amount of depreciation deducted from a fixed asset since its acquisition.

Accumulated profits

  • Profits retained or “ploughed backed profits in the business since the start of the business.

Acid Test Ratio

  • refer quick ratio

Acquisition Cost

  • costs directly related to the acquiring of assets. Includes all costs like purchase price and all incidental costs including transport, duties, taxes, packaging, preparation and installation.

Accrual basis of accounting

  • The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Or it is a method of accounting whereby revenue is recorded when earned (regardless of when received) and expenses are recorded when incurred.

Accounts Payable and Accrued Liabilities

  • A short-term liability account reflecting amounts due to individuals or organizations for goods and services purchased.

Accounts Receivable

  • An asset account reflecting amounts due from individuals or organizations for goods and services rendered.

Actvity-based costing

  • Analyze an organization ‘s activities into groups of functions which lead to a particular output. It then seeks to identify the factors that influence cost levels for those activities. Output is then costed according to the activities undertaken.

Activity ratios

  • financial ratio which measures how fast a business is able to meet its current liabilities. This depends on the rate at which the debtors and stocks can be converted into cash.

Adjusting Entries

  • Accounting entries to either correct errors or to include information initially omitted.

Adjusting Events

  • Events which occur subsequent to the Balance sheet date and provide additional evidence/information of conditions existing at the time of the balance sheet date.

Adverse Variance

  • When budget is compared to actual and the difference reduce the profit in the budget
  • Normally arise when actual revenues is lesser than budget or actual expenditures is more than budgeted figure.

Ageing:

  • Applies to the classification of debtors, inventory, accounts payable by time elapsed after the billing date or due date.

Allocation of Overheads

  • the charging of the whole overhead to the appropriate cost centre of unit incurring the expense

Allotment of shares

  • relates to new share issues whereby the applicants receive an allotment letter detailing how many shares they have been allocated/given.

Application and allotment account

  • the account to which monies are credited when prospective shareholders apply for shares (on application) and when shares haven been allocated to them (on alloment)

Allotee

  • a prospective shareholder who has been allotted shares in a limited company.

Allowable expenses

  • that portion of expenses which are tax deductible which are included in the income statement.

Amortization

  • Gradual reduction over time of the cost or value of an intangible asset.

Amortize

  • Process of writing off a regular portion of the cost /value of an intangible asset over a period of time. In line with the matching concept.

  • Term is also used to provide for extractive or wasting assets such timber tracts, oil fields and tin mines.

Apportioning of overheads

  • where overheads cannot be allocated they are apportioned or shared by cost centres or units on an equitable basis.

Amalgamation

  • two or more businesses join together to form a new business.

Analyze

  • To evaluate the condition of an accounting-related item and discover possible reasons for discrepancies.

Annualize

  • To extend the cost into a twelve month or yearly basis. Say rental expense is $1,000 for 4 months. If we want to annualize it then the total rental expense is $1,000 x 3 =$3,000 a year.

Annual Report

  • A financial report prepared annually that includes chairman’s report, director’s report, financial statements and the auditor’s report.

Annual Return

  • Annual documents sent to the Registrar of Companies which gives particulars of directors and members plus a copy of the last balance sheet and income statement.

Annuity

  • An annual payment made to a person normally a retiree in return for a lump-sum investment. The annual payment made will depend on the amount invested and the age of the person when the investment was initially made.

Appropriation

  • Distribution of net income after tax to various reserves and persons such as the shareholders as dividends.

Application of funds

  • Outlines the way that the managers of a business have spent the funds available to them during an accounting period.

Arbitrage

  • The method of profiting from price differences when the same asset is traded in different markets.

Asset

  • A resource controlled by an entity as a result of past events; and from which future economic benefits are expected to flow to the entity

Asset Disposal Account

  • An account used to calculate whether an asset which has been disposed of is having a gain/profit or loss arising from that transaction. In this account, the cost and accumulated depreciation of the asset is transferred to this account and compared to the disposal value to show the gain or loss.

Asset backed

  • Generally for shares where they are backed by company’s assets.

Arm’s Length Transaction

  • Transactions entered into by willing, knowledgeable and unrelated parties, each acting in its own interest. Generally prices transacted will be a fair market price.

Articles of Association

  • Is a document filed with the Registrar of Companies by the promoter of a company.

  • It includes the internal rules and regulation of a company that stipulate the rights and duties of shareholders and directors and procedures for meetings.

Asset turnover

  • the ratio of sales to assets, i.e. the number of times that assets are utilized in a year.

  • Indicates the company’s efficiency of using its assets to generate sales.

  • High ratio shows favorably the company’s ability to effectively employ its assets.

Associated Company

  • A company over which an investor is able to exercise influence and not control. Generally, an investee company is considered an associated company if the investor holds at least 20% but less than 50% of its voting rights.

At Par

  • Shares issued at their nominal or face value.

At sight

  • When a financial instrument is payable on presentation

Authorized Share Capital

  • The maximum amount of shares that can be issued by the company.

Audit

  • the process where an independent person namely the auditor check the financial records of a business to ensure that the records show a true and fair view.

Auditors

  • people usually trained accountants who specialize in checking financial accounts that have been prepared by someone else. External auditors are appointed by the shareholders of the company. The external auditors are from outside the organization.

Auditors’ remuneration

.

  • amount paid to the auditors for the work done in checking the financial records( final accounts) of the business.

Auditors’ report

  • prepared by the auditor which will indicate whether the financial statements have been audited and the auditors’ opinion about the financial statements. Report is normally quite bried and contain not much information.

Authorized signatories

  • people who have the authority to sign cheques on behalf of an organization

Avoidable costs

  • specific costs of an activity or sector of a business which would be avoided if that activigty or sector did not exist.

Average rate of return

  • another term to describe the accounting rate of return

ALPHABET [ B ] Bad Debts

  • Amount owing by customer(s) which is not collectible despite all collection efforts.
  • Needs to be written off and the value of the Accounts Receivable should be reduced according

Balance Sheet

  • A financial statement which show the assets, liabilities and shareholders’ equity of an enterprise AT a particular point in time.

Bank Reconciliation Statement

  • Normally a monthly statement reconciling the differences between a bank statement and the cash book. An adjusted bank statement should agree with the adjusted cash book balance. The cash book is adjusted for items not recorded in the cash book but recorded in the bank statement.

Basic earnings per share

  • Profit or loss that is attributable to ordinary equity holders of the parent entity (the numerator) divided by the weighted average number of ordinary shares outstanding during the period (the denominator).

Base Stock

  • The minimum inventory level necessary to maintain effective and continuous operations

Bear

  • An investor who believes that prices of securites will fall.

Behavioural Accounting

  • Approach to accounting that stresses psychological consideration in decision-making

Blue Chip

  • Securities/shares of reputable or nationally known companies that give a lot of confidence to investors in terms of their long record of profit growth, dividend payout, quality of management, Generally, their share market price are very high hence having low yield.

Board of Directors

  • Group of individuals appointed by the company’s shareholders at the annual general meeting. These people are empowered with certain rights and responsibilities. The board of director may comprise executive directors and non-executive directors

Bond

  • Written promise by a company, government or other institution to pay the face value of a stated amount at maturity date. Periodic interest payments are usually made. Deep discounted bonds are issued well below the nominal value with nil or low interest rate. Bonds are referred to as debentures in companies.

Bonus issue

  • the free issue of shares to existing ordinary shareholders on a proportionate basis, paid for out of the built-up undistributed profits of the business.

Book value

  • the value of an asset as shown in the Balance Sheet; usually cost less total depreciated to date.

Bookkeeping

  • is the most basic of all accounting function which involves the process of recording monetary transactions in the various books of accounts and preparing a trial balance.

Borrowing costs

  • Interest and other costs incurred by an entity in connection with the borrowing of funds.

Break-Even Analysis

  • It is a point where no gain or loss is made and it is where the volume of sales equal total cost. [ Refer article on break-even analysis written on this ]

Break-up value/ordinary share

  • the residual value of net assets accruing to each ordinary share if the company went into liquidation.

Budget

  • a quantitative plan expresses in terms of revenue, costs, assets and liabilities. It express a company’s financial and operating objectives

Budgetary Control

  • to determine whether a company’s operations are carried out according to plan/budget. The budget is the standard/plan against which actual performance is compared to ensure that company’s objectives are running well.[ Refer article for difference between Budget and Budgetary Control]

Bull

  • an investor who believes that the price of securities will rise.

Bull Market

  • continuous rise in the price of securities which involve heavy trading as investors believe that the prices of securities will rise.

Business

  • An integrated set of activities and assets conducted and managed for the purpose of providing: a return to investors; or lower costs or other economic benefits directly and proportionately to policyholders or participants. A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to generate revenues. If goodwill is present in a transferred set of activities and assets, the transferred set shall be presumed to be a business.

Business Combination

  • For reporting purpose, where there is the combining of more than one business enterprise into a single business entity.

Business Segment

  • A distinguishable components of a business that produces asset or service or a group of related products or services

By-Product

  • Items of low sales value coming out from a production process.