Financial Accounting 5e by Carlon, Mladenovic, Palm, Mitrione, Kirk, Wong

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Financial Accounting 5e by Carlon, Mladenovic, Palm, Mitrione, Kirk, Wong is the 5th edition of the Financial Accounting: Reporting, Analysis and Decision Making textbook authored by by Shirley Carlon, Rosina McAlpine-Mladenovic, Chrisann Palm, Lorena Mitrione, Ngaire Kirk, and Lily Wong, and published by John Wiley & Sons Australia, Ltd in 2016.

  • Accounting. The process of identifying, measuring, recording and communicating the economic transactions and events of a business operation.
  • Accounting entity concept. A concept that every entity can be separately identified and accounted for. Economic events can be identified with a particular unit of accountability, so that financial statements are prepared from the perspective of the entity, not its owners or other parties.
  • Accounting period concept. An accounting concept that the economic life of an entity can be divided into discrete periods of time and that useful reports covering these periods can be prepared by the entity.
  • Accounts receivable. The right to receive cash upon the sale of goods or provision of services to a customer.
  • Annual report. A report prepared by corporate management that presents financial information including financial statements, notes and the directors' report.
  • Assets. Resources controlled by the entity as a result of past events, from which future economic benefits are expected.
  • Associations. Small, non-profit, community-based groups. Associations can be, but are not always, incorporated as an alternative to a company. An incorporated association has similar advantages to a company but is not as expensive to set up or maintain. An association can trade as a profit organisation, but this cannot be its main objective.
  • Audit. An audit is an independent examination of the accounting data presented by an entity in order to provide an opinion as to whether the financial statements present fairly the results of the operations and the entity's financial position.
  • Auditing and Assurance Standards Board (AUASB). The organisation with authority to issue auditing and assurance standards for use by auditors and providers of other assurance services.
  • Auditor. An accountant who conducts an independent examination of the accounting data presented by the entity and expresses an opinion as to the fairness of the presentation of an entity's financial position and results of operations, and the entity's conformance with accounting standards.
  • Australian Accounting Standards Board (AASB). The organisation with authority to issue accounting standards in Australia.
  • Australian Securities and Investments Commission (ASIC). The body that administers the Corporations Act.
  • Basic accounting equation. Assets = Liabilities + Equity.
  • Bookkeeping. The activities of identifying, measuring and recording the business information, are commonly referred to as bookkeeping. Bookkeeping forms the foundation of the activities underlying accounting.
  • Cash debt coverage. A measure of solvency that is calculated as cash provided by operating activities divided by average total liabilities.
  • Chief financial officer (CFO). A senior manager in an organisation; directs the accounting operations.
  • Classified statement of financial position. A statement of financial position in which assets and liabilities are classified as current and non-current.
  • Commercial accountant. Commercial accountants work in industry and commerce in different roles such as management accounting and financial accounting.
  • Company. A company or corporation is a separate legal entity formed under the Corporations Act. The process of setting up a company is called incorporation. The owners of a company are called shareholders.
  • Comparability. Ability to compare the accounting information of different entities or the same entity over time because the same accounting measurement and principles are used.
  • Conceptual framework. A conceptual framework consists of a set of concepts to be followed by the preparers of financial statements and standard setters.
  • Cooperative. A form of business organisation which is member-owned, controlled and used. It must consist of five or more people. Cooperatives are legislated at state level. They are distinctive for fostering a highly participative and democratic style of work, pooling resources to be more competitive, and sharing skills.
  • Corporate governance statement. A separate section of a company's annual report containing disclosures relating to the extent to which the company has followed the ASX's corporate governance principles and recommendations.
  • Cost principle. All assets are initially recorded in the accounts at their purchase price or cost.
  • Cost constraints. A constraint on the pursuit of qualitative characteristics of financial reporting that the costs of preparing and reporting financial information should not exceed the benefits to users.
  • Current assets. Cash and other assets that are reasonably expected to be converted to cash or used in the business within 1 year or the operating cycle, whichever is longer.
  • Current cash debt coverage. A measure of liquidity that is calculated as cash provided by operating activities divided by average current liabilities.
  • Current liabilities. Obligations reasonably expected to be paid within the next year or operating cycle, whichever is longer, e.g. wages payable or loan payable.
  • Current ratio. A measure used to evaluate an entity's liquidity and short-term debt-paying ability, calculated by dividing current assets by current liabilities.
  • Debt to total assets ratio. Measures the percentage of total financing provided by creditors; calculated by dividing total debt by total assets.
  • Decision. A choice among alternative courses of action.
  • Directors' report. A section of the annual report that provides information about the directors and their views on the company's performance.
  • Dividends. Distributions of cash or other assets from the profits of a company to its shareholders.
  • End of the reporting period. The last date of each reporting period.
  • Equity. The owners' claims on the entity's total assets; also known as shareholders' or owners' equity.
  • Equity investors. People who make decisions to buy, hold or sell shares.
  • Expenses. Assets consumed or services used in the process of generating revenues, and losses incurred.
  • External Reporting Board (XRB). An independent New Zealand Crown Entity that sets accounting and auditing standards in New Zealand.
  • Faithful representation. Depicts the economic substance of the transaction if it is complete neutral and free from material error.
  • Financial accounting. The preparation and presentation of financial reports for external users.
  • Financial Reporting Council (FRC). Body that oversees the AASB.
  • Financial statements. Section in the annual report that contains the summarised financial information of an entity prepared in accordance with applicable accounting standards.
  • Full disclosure principle. Accounting principle that dictates that circumstances and events that make a difference to financial statement users should be disclosed.
  • Generally accepted accounting principles (GAAP). A set of rules and practices, having substantial authoritative support, that are recognised as a general guide for financial reporting purposes. In New Zealand GAAP stands for generally accepted accounting practices.
  • General purpose financial reports. Financial reports intended to meet the information needs of users who are unable to command reports to suit their specific needs.
  • Going concern principle. The assumption that the business will continue to operate in the foreseeable future.
  • Government accountants. Are employed within government enterprises engage in a variety of roles and activities, such as financial accounting and auditing.
  • Intangible assets. Non-current, non-monetary assets that do not have physical substance, e.g. patents and copyrights.
  • International Accounting Standards Board (IASB). The organisation with the authority to issue international financial reporting standards (IFRSs). The organisation with the authority to issue international financial reporting standards (IFRSs).
  • Lenders. Suppliers, bankers and others who grant credit or lend money.
  • Liabilities. The future sacrifices of economic benefits that the entity is currently obliged to make as a result of past events.
  • Limited liability. In a company, shareholders are liable for the debts of the business only to the extent of amounts unpaid on their shares.
  • Liquidity. The ability of an entity to pay obligations that are expected to become due within the next year or operating cycle.
  • Liquidity ratios. Measures of the entity's short-term ability to pay its maturing obligations and to meet unexpected needs for cash.
  • Loss. The amount by which expenses exceed revenues and gains.
  • Management accounting. The provision of accounting information within the business entity.
  • Materiality. The condition on reporting information if its omission or misstatement could influence the decisions of users of financial statements.
  • Measurement. The process of quantifying transactions in monetary terms that must be completed in order to record transactions.
  • Monetary principle. A principle stating that only transaction data that can be expressed in terms of money be included in an entity's accounting records.
  • Non-current assets. Assets that are not expected to be consumed or sold within 1 year or the operating cycle and have not been purchased for trading purposes.
  • Non-current liabilities. Liabilities that are not expected to be paid within 1 year or the operating cycle, e.g. mortgage payable.
  • Not-for-profit accountant. Accountants working in the not-for-profit sector engage in many activities including planning, decision making, and preparing financial and management reports for both internal and external users.
  • Not-for-profit entity. A not-for-profit entity focuses on successfully fulfilling its mission and administrative goals, rather than focusing on making a profit. Not-for-profit entities include public hospitals, clubs, some schools and charities.
  • Notes to the financial statements. Notes that clarify information presented in the financial statements, as well as expand on information where additional detail is needed.
  • Operating cycle. The average time taken to acquire goods and services and convert them to cash in producing revenues.
  • Ordinary shares. Shares representing the main ownership interests in a company.
  • Partnership. A business relationship or association between two or more people or entities carrying on a business in common with a view to making a profit.
  • Profit. The amount by which revenues and gains exceed expenses.
  • Profit margin. Measures the percentage of each dollar of sales that results in profit, calculated by dividing profit by net sales.
  • Profitability ratios. Measures of the profitability or operating success of a business for a given period of time.
  • Property, plant and equipment. Assets with relatively long, useful lives that are used in operating the business. This category includes land, buildings, machinery and equipment, delivery equipment, and furniture.
  • Public accountant. Public accountants provide their professional services to the public. They can practise in business organisations that range from small, single-person run offices to very large organisations, with branches all over the world and thousands of employees.
  • Public sector. The public sector is also called the government sector. The distinguishing feature is that the organisations are owned by the government, whether it be federal, state or local.
  • Ratio. An expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate or a proportion.
  • Ratio analysis. A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
  • Relevant. Accounting information is considered to be relevant if the information makes a difference in a decision.
  • Reporting entity. An entity in which it is reasonable to expect the existence of users who depend on general purpose financial reports for information to enable them to make economic decisions.
  • Retained earnings. The accumulated profit from the current and previous accounting periods that has not been distributed to owners.
  • Return on assets. An overall measure of profitability; calculated by dividing profit by average assets.
  • Revenues. Sales and other increases in equity that arise from the ordinary activities of an entity.
  • Share capital. The total amount paid in by shareholders for shares in the company. Alternative terminology includes: paid up capital, issued capital and contributed equity.
  • Shareholders. The owners of a company are called shareholders and their ownership interests are represented by the number of shares they own in the company.
  • Sole proprietorship. A business owned by one person.
  • Solvency. An entity's ability to pay interest as it comes due and to repay the face value of debt at maturity.
  • Solvency ratios. Measures of the ability of the business to survive over a long period of time.
  • Statement of cash flows. A financial statement that reports cash receipts and cash payments for a specified period.
  • Statement of changes in equity. A statement that reports the amount of total comprehensive income for the period and all other changes in equity.
  • Statement of financial position. A statement that reports on the assets, liabilities and equity of an entity at a specific date.
  • Statement of profit or loss. A statement that reports revenues, gains and expenses, and the resulting profit or loss, previously known as the statement of financial performance or the profit and loss statement.
  • Sustainability. Making sure social, economic and environmental factors are considered and kept healthy for future generations.
  • Timeliness. Whether the communication of financial information is in the time frame within which decisions are made.
  • Transactions. Economic activities relevant to a particular business, such as the sale of a good to a customer or the purchase of office stationery from a supplier. Transactions are the basic inputs into the accounting process.
  • Trust. A relationship or association between two or more parties whereby one party holds property in trust for the other, i.e. they are vested with the property.
  • Understandability. The extent to which information can be understood by proficient users.
  • Unlimited liability. Like a sole proprietorship structure, a partnership has unlimited liability, so each partner is personally liable for all the debts of the partnership even if they are caused by decisions made by other partners.
  • Verifiable. Information which is free from bias or material error and has been prepared with appropriate recognition and measurement methods.
  • Working capital. The difference between the amounts of current assets and current liabilities.
  • Account. An individual accounting record of increases and decreases in a specific asset, liability or equity item.
  • Accounting information system. The system of collecting and processing transaction data and communicating financial information to interested parties.
  • Accounting transactions and events. Occurrences which affect the assets, liabilities and equity items in a business and must be recognised (recorded). A transaction is an external exchange of something of value between two or more entities. The allocation of the cost of an entity's long-lived assets over different accounting periods is an example of an event.
  • Accounts payable. Amounts owed to suppliers for the purchase of goods or services on credit. Also called creditors or trade creditors.
  • Accounts receivable. Amounts due from customers for the sale of goods or services on credit. Also called debtors or trade debtors.
  • Chart of accounts. A list of all an entity's ledger account names and account numbers.
  • Credit. The right side of an account.
  • Debit. The left side of an account.
  • Dividend. A distribution of profits by a company to its shareholders in an amount proportional to each shareholder's percentage ownership. The most common form is a cash distribution.
  • Double-entry system. A system that records the dual effect of each transaction in appropriate accounts.
  • General journal. The most basic form of journal where the transactions are initially recorded in chronological order.
  • General ledger. A ledger that contains all asset, liability, and equity accounts maintained by each individual business.
  • Journal. An accounting record in which transactions are initially recorded in chronological order.
  • Journalising. The procedure of entering transaction data in the journal.
  • Narration. A brief explanation of each transaction recorded in the general journal. The narration is generally found directly below the transaction it relates to.
  • Posting. The procedure of transferring journal entries to the ledger accounts.
  • Source document. A form that provides written evidence that a transaction has occurred, e.g. sales invoice, purchase order, cash register tape.
  • T account. The basic form of an account.
  • Transaction analysis. The process of identifying the specific effects of transactions and events on the accounting equation (Assets = Liabilities + Equity).
  • Trial balance. A list of accounts and their balances at a given time.
  • Accounting period concept. An assumption that the economic life of a business can be divided into artificial time periods.
  • Accrual-based accounting. Accounting basis in which transactions and events are recorded in the periods in which they occur, rather than in the periods in which the entity receives or pays the related cash.
  • Accrued expenses. Amounts that are recorded as adjusting entries for expenses that are not yet paid and not yet recorded but for which the consumption of economic benefits has occurred.
  • Accrued revenues. Amounts recognised as adjusting entries for revenues that are not yet received and not yet recorded but for which the goods or services have been provided.
  • Adjusted trial balance. A list of accounts and their balances after all adjustments have been made.
  • Adjusting entries. Entries made at the end of an accounting period to ensure that recognition criteria are followed for assets, liabilities, revenues and expenses.
  • Carrying amount. The amount at which an asset is reported in financial statements, i.e. net of any contra account.
  • Cash-based accounting. An accounting basis in which revenue is recorded only when cash is received, and an expense is recorded only when cash is paid.
  • Closing entries. Entries at the end of the reporting period to transfer the balances of temporary accounts to a permanent equity account, retained earnings.
  • Contra asset account. An account that is offset against another account on the statement of financial position.
  • Depreciation. The process of allocating the cost of an asset to expense over its useful life.
  • Expense recognition criteria. Expenses are recognised when the outflow of future economic benefits is probable and can be measured reliably.
  • Financial year. An accounting period that is 1 year in duration.
  • Operating cycle. The length of time it takes for a business to acquire goods, sell them to customers and collect the cash from the sale.
  • Permanent accounts. Statement of financial position accounts; accounts for which balances are carried forward to the next accounting period.
  • Post-closing trial balance. A list of permanent accounts and their balances after closing entries have been journalised and posted.
  • Prepaid expenses (prepayments). Amounts paid in cash and recorded as assets until the economic benefits expire or are consumed.
  • Profit or loss summary. A temporary account used in closing revenue and expense accounts.
  • Revenue recognition criteria. Under the Conceptual Framework, revenues are recognised when an inflow of future economic benefits is probable and can be measured reliably. According to IFRS 15, revenue is recognised when an entity satisfies a performance obligation in a contract and it is probable that the consideration to which the entity is entitled to in exchange for the goods or service will be collected.
  • Revenues received in advance. Amounts received from customers and recorded as liabilities until the services are performed or the goods are provided and the revenue is recognised.
  • Reversing entry. An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.
  • Temporary accounts. Revenue, expense and dividend accounts; accounts for which balances are transferred to retained earnings at the end of a reporting period.
  • Useful life. The length of service of an asset to the entity.
  • Worksheet. A multicolumn spreadsheet, prepared either manually or electronically, that may be used in the adjustment process and in preparing financial statements.
  • Business activity statement (BAS; GST return in New Zealand). A report filed at regular intervals (monthly, quarterly or yearly) by a business with the taxation authority. It details the amount of GST collected by a business on taxable supplies, the amount of GST paid on purchases and the amount owing to or the refund due from the taxation authority.
  • Contra revenue account. An account that is offset against a revenue account on the statement of profit or loss, e.g. sales returns and allowances.
  • Cost of sales (COS). The total cost of inventories sold during the period.
  • Discount allowed. A settlement discount given by a seller for prompt payment of a balance due.
  • Discount received. A settlement discount claimed by a buyer for prompt payment of a balance due.
  • Freight-in. An expense incurred by the buyer of inventory which is considered part of the cost of inventory.
  • Freight-out. An expense incurred by the seller of inventory which is classified as a selling expense.
  • Goods and services tax (GST). A broad-based indirect tax levied on most supplies of goods and services. In Australia the rate applied is 10% and in New Zealand it is 15%.
  • Gross profit. The excess of net sales revenue over the cost of sales.
  • Gross profit ratio. Gross profit expressed as a percentage by dividing the amount of gross profit by net sales.
  • GST-free supplies (zero rated supplies in New Zealand). Goods and services that do not attract GST under GST legislation, such as basic food, education, health services and exported goods.
  • Input tax credit. The credit received by registered suppliers from the taxation authority for the amount of GST paid on all goods and services purchased in the supply chain.
  • Input taxed supplies (exempt supplies in New Zealand). Goods and services that do not attract GST under GST legislation such as residential rents and financial supplies.
  • Inventory. Goods acquired by a retail business for the purposes of resale in the ordinary course of business activities.
  • Inventory write-down. An expense account used to record damaged, stolen, obsolete or lost inventory as well as inventory shrinkage or waste that occurs.
  • Net sales. Sales less sales returns and allowances.
  • Operating expenses to sales ratio. The ratio of operating expenses to net sales, measured by dividing operating expenses by net sales.
  • Other revenue. Revenue items other than sales revenue, such as interest revenue and rent revenue.
  • Periodic inventory system. An inventory system in which detailed records are not maintained and the cost of sales and inventory on hand is determined only at the end of an accounting period.
  • Perpetual inventory system. A detailed inventory system in which the cost of each inventory item is maintained and the records continuously show the cost of sales and inventory that should be on hand.
  • Sales invoice. A document prepared by the seller evidencing a claim for payment for goods or services provided to a customer.
  • Sales returns and allowances. Cash refunds or credit notes recorded in the books of the seller for merchandise returned or discounted if faulty or incorrect.
  • Sales revenue. Revenue generated from the sale of inventory.
  • Supplier's invoice. A document prepared by the supplier, evidencing a claim for payment for goods and services provided.
  • Taxable supply. Goods and services that have GST included in the selling price.
  • Taxation authority. The body that administers tax legislation. In Australia, this is the Australian Taxation Office (ATO). In New Zealand it is the Inland Revenue department.
  • Trade discount. A reduction in the list price granted to certain customers. The discount is shown as a reduction from the list price on the invoice but is not recorded in the accounts of either the buyer or the seller.
  • Value-added tax. An indirect tax levied on the value added by a business at each stage of the production and distribution chain, i.e. from the purchase of raw materials to the sale of the finished product or supply of the service to the final consumer. GST is a value-added tax.
  • Average cost method. An inventory costing method that uses the weighted average unit cost to allocate the cost of goods available for sale to ending inventory and cost of sales.
  • Consigned goods. Goods held for sale by one party (the consignee) although ownership of the goods is retained by another party (the consignor).
  • Cost of goods available for sale. The sum of the beginning inventory and the cost of goods purchased.
  • Cost of goods purchased. The sum of net purchases and freight-in.
  • Cost of sales. The total cost of inventory sold during the period. In a periodic inventory system it is determined by subtracting ending inventory from the cost of goods available for sale.
  • Days in inventory. Measure of the average number of days inventory is held; calculated as 365 divided by the inventory turnover.
  • Finished goods inventory. Manufactured items that are completed and ready for sale.
  • First-in, first-out method (FIFO method). An inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognised as cost of sales.
  • FOB destination. Freight terms indicating that the goods are placed free on board the carrier by the seller but the seller pays the freight cost; goods belong to the seller while in transit.
  • FOB shipping point. Freight terms indicating that the goods are placed free on board the carrier by the seller, but the buyer pays the freight cost; goods belong to the buyer while in transit.
  • Goods in transit. Goods moving between the buyer and the seller on board a truck, train, ship or plane.
  • Inventory turnover. A calculation that measures the number of times on average the inventory has been sold during the period; calculated by dividing cost of sales by the average inventory during the period.
  • Last-in, first-out method (LIFO method). An inventory costing method that assumes that the costs of the latest units purchased are the first to be allocated to cost of sales.
  • Lower of cost and net realisable value basis (LCNRV basis). A basis whereby inventory is stated at the lower of cost and net realisable value.
  • Moving weighted average method. An inventory costing method used in a perpetual inventory system, where a moving weighted average unit cost is used to allocate the cost of goods available for sale to ending inventory and cost of sales.
  • Net purchases. Purchases less purchase returns and allowances.
  • Net realisable value (NRV). IAS 2/AASB 102 defines net realisable value as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
  • Periodic inventory system. An inventory system in which ending inventory and cost of sales are determined at the end of the period. Inventory on hand is determined by a physical count. Cost of sales is calculated at the end of the period by subtracting the ending inventory (costs are assigned to a physical count of items on hand) from the cost of goods available for sale.
  • Purchase returns and allowances account. Account used to accumulate the cost of all inventory returned to suppliers.
  • Purchases account. Account used to accumulate the cost of all inventory purchased for resale during the period.
  • Raw materials. Materials that will be used in production but have not yet been placed in production.
  • Retail inventory method. A method used to estimate the ending inventory value based on the relationship of cost to retail prices.
  • Specific identification method. An inventory costing method that uses actual physical flow of inventory to determine cost of sales; items still in inventory are specifically costed to arrive at the total cost of the ending inventory.
  • Weighted average unit cost. Average cost that is weighted by the number of units purchased at each unit cost.
  • Work in process. That portion of manufactured inventory that has begun the production process but is not yet complete.
  • Accounts payable subsidiary ledger (suppliers' subsidiary ledger). A subsidiary ledger that contains accounts of individual creditors.
  • Accounts receivable subsidiary ledger (customers' subsidiary ledger). A subsidiary ledger that contains individual customer accounts.
  • Cash payments journal. A special journal used to record all cash payments.
  • Cash receipts journal. A special journal used to record all cash received.
  • Control account. An account in the general ledger that is supported by the detail of a subsidiary ledger.
  • Corporate governance. The system in which entities are directed or controlled, managed and administered.
  • Forensic accounting. The application of accounting knowledge and skills to issues arising in the context of civil and criminal litigations and investigation.
  • Integrated accounting system. A computerised accounting package consisting of several modules which perform different accounting functions (e.g. payroll). Once an entry is made in one module, all other relevant modules are updated.
  • Internal auditors. Employees of the business who evaluate on a continuous basis the effectiveness of the business's system of internal control.
  • Internal control. The plan of organisation and all the related methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
  • Manual accounting system. A system in which each of the steps in the accounting cycle is performed by hand.
  • Purchases journal. A special journal used to record all purchases of inventory on account.
  • Sales journal. A special journal used to record all sales of inventory on account.
  • Schedule of accounts payable. A list of all accounts and their balances in the accounts payable subsidiary ledger at a particular date.
  • Schedule of accounts receivable. A list of all accounts and their balances in the accounts receivable subsidiary ledger at a particular date.
  • Special journal. A journal that is used to record similar types of transactions, such as all credit sales.
  • Subsidiary ledger. A group of accounts with a common characteristic, the total of which should equal the balance in the related general ledger control account.
  • Accounts receivable. Amounts owed by customers on account.
  • Ageing the accounts receivable. A method of determining the allowance for doubtful debts by analysing customer balances by the length of time they have been unpaid.
  • Allowance method. A method of accounting for bad debts that involves estimating uncollectable accounts at the end of each period and recognising an allowance account as a contra accounts receivable account.
  • Average collection period. The average amount of time that a receivable is outstanding, calculated by dividing 365 days by the receivables turnover.
  • Bad debts expense. An expense account to record uncollectable receivables.
  • Bank statement. A statement received from the bank that shows the depositor's bank transactions and balances for a period.
  • Cash. Resources that consist of cash on hand, cash at bank, cheque account, and highly liquid investments such as deposits on the money market and 90-day bank acceptance bills.
  • Cash over and short. A general ledger account for recording surplus or deficit of petty cash.
  • Credit risk. The threat of non-payment of receivables that could adversely affect the financial health of a business.
  • Credit risk ratio. A measure of the risk that a business's customers may not pay their accounts, calculated as the allowance for doubtful debts divided by accounts receivable.
  • Direct write-off method. A method of accounting for bad debts that involves expensing accounts receivable at the time they are determined to be uncollectable.
  • Dishonoured cheque. A cheque that is not paid by the bank because of insufficient funds in the payer's bank account or because it has been cancelled by the payer.
  • Electronic funds transfer (EFT). A cash transfer system that uses telephone, telegraph or computer to transfer cash from one location to another.
  • Factor. A financial institution that buys receivables from businesses for a fee and then collects the payments directly from the customers.
  • Notes receivable. Claims for which formal instruments of credit are issued as evidence of the debt.
  • Outstanding deposits. Deposits that have been made but do not yet appear on the bank statement because of timing differences.
  • Petty cash fund. A cash fund used to pay relatively small amounts.
  • Promissory note. A written promise to pay a specified amount of money on a defined date.
  • Ratio of cash to daily cash expenses. A measure that indicates the number of days of expenses that available cash can cover. Calculated as cash divided by average daily expenses.
  • Receivables. Amounts due from individuals and businesses that are expected to be collected in cash.
  • Receivables turnover. A measure of the liquidity of receivables, calculated by dividing net credit sales by average net receivables.
  • Unpresented cheque. A cheque that has been issued by the payer but not yet paid by the bank.
  • Accumulated depreciation. The amount of depreciation that has been recorded as depreciation expense since the asset was acquired. It is not a cash fund.
  • Active market. A market where the items traded in it are homogeneous; willing buyers, and sellers can normally be found at any time; and the prices are available to the public.
  • Additions and improvements. Costs incurred to increase the operating efficiency, productive capacity or expected useful life of a PPE asset.
  • Agricultural activity. The management by an entity of the biological transformation of biological assets for sale, into agricultural produce, or into additional biological assets.
  • Agricultural produce. The harvested product of the entity's biological assets is agricultural produce, which is then classified as inventory.
  • Amortisation. The allocation of the cost of an intangible asset to expense.
  • Asset turnover. Measure of efficient use of assets, calculated as net sales divided by average total assets.
  • Average age of PPE assets. Measure of the age of an entity's PPE assets, calculated as accumulated depreciation divided by depreciation expense.
  • Average useful life. A comparative measure of PPE assets, calculated as the average cost of the assets divided by depreciation expense.
  • Biological asset. A living animal or plant.
  • Capital expenditure. Expenditure that increases the entity's investment in productive facilities.
  • Carrying amount. The cost of an asset less accumulated depreciation. This is also referred to as book value.
  • Cash-generating unit. The smallest identifiable group of assets that generate cash inflows which are largely independent of the cash inflows from other assets or groups of assets.
  • Class of non-current assets. Category of assets having similar nature or function in the operations of the entity. Shown as a single line item in the notes to the statement of financial position without further dissection.
  • Contra account. An account which is reported as an offset to or reduction from a related account.
  • Copyright. An exclusive right allowing the owner to reproduce and sell an artistic or published work.
  • Cost. Consists of the fair value of all expenditures necessary to acquire the asset and make it ready for its intended use.
  • Depletion (amortisation). The periodic allocation of the cost of natural resources to reflect the units removed.
  • Depreciable amount. The cost of a PPE asset or other amount substituted at cost less its residual value.
  • Depreciation. The process of allocating to expense the cost of an asset over its useful life in a rational and systematic manner.
  • Diminishing-balance method. A depreciation method that results in a decreasing charge over the asset's useful life by applying a predetermined rate to the carrying amount of the asset. This is also referred to as accelerated depreciation.
  • Fair value. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
  • Finance lease. A long-term agreement where the lessor effectively transfers to the lessee substantially all the risks and rewards incidental to ownership of the leased asset. The arrangement is accounted for like a purchase.
  • Franchise. A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to render specific services or to use certain trademarks or brand names, usually within a designated geographic area.
  • Goodwill. The future benefits from unidentifiable assets.
  • Impairment loss. The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.
  • Intangible assets. Identifiable non-monetary assets that have no physical substance.
  • Lessee. A party that has made contractual arrangements to use another party's asset without purchasing it.
  • Lessor. A party that has agreed contractually to let another party use its asset.
  • Licences. Operating rights to use public property, granted by a government agency to a business.
  • Off-balance-sheet financing. A form of financing that is not reported on the statement of financial position.
  • Operating lease. An arrangement whereby the lessor effectively retains substantially all the risks and rewards incidental to ownership of a leased asset. The arrangement is accounted for as a rental.
  • Ordinary repairs. Expenditures to maintain the operating efficiency and expected productive life of the asset.
  • Patent. An exclusive right that enables the recipient to manufacture, sell or otherwise control an invention for a number of years from the date of the grant.
  • Property, plant and equipment. Tangible assets that have physical substance, are used in the operations of the business for more than one period, and are not intended for sale to customers.
  • Recoverable amount. The higher of an asset or a cash-generating unit's fair value less costs of disposal and its value in use.
  • Research and development costs. Expenditures that may lead to patents, copyrights, new processes, and new products.
  • Residual value. An estimate of the asset's value at the end of its useful life. This is also called salvage value or trade-in value.
  • Revaluation. A reassessment of the fair value of a noncurrent asset at a particular date.
  • Revenue expenditure. Expenditures that do not extend an asset's capacity but merely maintain the asset in its working order.
  • Straight-line method. A method in which periodic depreciation is the same for each year of the asset's useful life.
  • Trademark (brand name). A word, phrase, jingle or symbol that distinguishes or identifies a particular enterprise or product.
  • Units-of-production method. A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset.
  • Useful life. An estimate of the expected productive life (also called service life) of the asset to the entity.
  • Value in use. The present value of net cash flows expected to be derived from using the asset.
  • Borrowing costs. Costs of borrowing money.
  • Contingent liabilities. Liabilities for which the amount of the future sacrifices (obligations) are dependent upon a future event (such as a law suit) or are so uncertain that their amount cannot be reliably measured.
  • Contract interest rate. Rate used to determine the amount of interest the borrower pays and the investor receives.
  • Current liability. An obligation that can reasonably be expected to be paid within 1 year or the operating cycle.
  • Debentures. Notes issued with security over some assets of the issuer.
  • Discounting. A reduction in value of a future amount to its present value reflecting the time value of money.
  • Face value. Amount of principal due at the maturity date of the note.
  • Finance lease. Where the substantial risks and rewards of ownership of an asset are effectively transferred to the lessee even though the ownership remains with the lessor. Consequently, finance leases are reported in the statement of financial position of the lessee.
  • Implicit interest rate. The discount rate that results in the aggregate present value of the leased asset being equal to the fair value of the leased asset of the lessor at the inception of the lease.
  • Incremental borrowing rate. The rate of interest the lessee would have to pay to lease a similar asset or the interest rate that would be incurred by the lessee to borrow funds and purchase the asset outright.
  • Interest. Cost of borrowing money.
  • Issue price. Amount paid by the investor on issue of a debenture or unsecured note.
  • Lease. An agreement where the lessor conveys to the lessee the right to use an asset for an agreed period of time in return for a payment or a series of payments.
  • Lessee. The entity which has leased an asset from the lessor.
  • Lessor. The entity which has leased an asset to the lessee.
  • Market interest rate. The rate investors demand for lending funds to the entity.
  • Market value. The amount obtainable from the sale, or payable on the acquisition, of a financial instrument in an active market.
  • Mortgage. A loan secured by a charge over property.
  • Non-current liability. An obligation that is not classified as a current liability, i.e. an obligation expected to be paid after 1 year or outside the normal operating cycle.
  • Notes payable. A liability evidenced by notes.
  • Operating lease. Where the lessor effectively retains the risks and rewards of owning an asset. Consequently, operating leases are reported in the statement of financial position of the lessor.
  • Present value. The value today of an amount to be paid or received at some date in the future after taking into account current interest rates.
  • Provision. A liability for which the amount is uncertain but able to be measured reliably by estimation.
  • Quick ratio. A measure of an entity's immediate short-term liquidity, calculated by dividing the sum of cash, marketable securities and net receivables by current liabilities; also called the acid test.
  • Times interest earned. A measure of solvency calculated by dividing profit before income tax plus interest expense by interest expense.
  • Unsecured notes. Notes issued against the general credit of the issuer, i.e. not subject to any secured charge over assets.
  • Warranty. An obligation of the supplier of goods and services to the purchaser that the product will be functional or that work performed will remain satisfactory for a stated period after the sale of goods or the provision of services.
  • Allotment. The issue of shares.
  • Application. The act of subscribing to a public issue of shares or other securities, such as debentures.
  • Call on capital. A claim for unpaid capital made by a company.
  • Cash dividend. A pro rata distribution of profit paid in cash to shareholders.
  • Change in accounting estimates. A revision of estimates used in the preparation of previous-period financial statements.
  • Change in accounting policy. Use of an accounting policy in the current year different from the one used in the preceding year.
  • Chief executive officer (CEO). Most senior manager with direct responsibility for managing the business.
  • Company. A form of corporation; evidence of ownership is shares.
  • Contributed equity. Another name for share capital.
  • Corporation. A separate legal entity, with most of the rights and privileges of a person.
  • Declaration date. The date the board of directors formally declares the dividend and announces it to shareholders.
  • Discontinued operation. A component of an entity that is being disposed of or classified as held for sale.
  • Dividend. A distribution by a company to its shareholders on a pro rata (proportionate) basis.
  • Dividend payout. Total cash dividends declared to ordinary shareholders divided by profit.
  • Earning power. Profit adjusted for irregular items.
  • Financial controller. The chief accounting officer in a business.
  • Issue price. Amount received on issue of a share, debenture or unsecured note.
  • Limited liability. The limit of liability of owners of a company to any unpaid amount of capital.
  • Ordinary shares. Shares representing the residual ownership interest in a company.
  • Payment date. The date dividends are paid to shareholders.
  • Prior period errors. IAS 8 para. 5 defines prior period errors as 'omissions from, and misstatements in, the entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that: (a) was available when financial statements for those periods were authorised for issue; and (b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.
  • Private placement. An issue of shares by private invitation.
  • Proprietary company. A company that has up to 50 shareholders and whose shares are not available for sale to the general public; also called a private company.
  • Prospectus. A document issued with an invitation to subscribe for shares, containing information about the offering company.
  • Public company. A company that may have thousands of shareholders and which may raise money from the public through debt or equity issues.
  • Retained earnings. Profit that has not been distributed.
  • Return on ordinary shareholders' equity. Profit available to ordinary shareholders divided by average shareholders' equity.
  • Revenue reserves. A component of equity, other than retained earnings, that may be distributed as a dividend.
  • Share dividend. A pro rata distribution of the company's own shares to shareholders; also called a bonus issue.
  • Share split. The issue of additional shares to shareholders accompanied by a proportionate reduction in the stated value of the shares.
  • Statement of profit or loss and other comprehensive income. A statement that reports total comprehensive income during a period.
  • Total comprehensive income. The change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners/shareholders in their capacity as owners.
  • Treasurer. The person with custody of a company's funds and responsibility for maintaining the company's cash position.
  • Capital expenditure ratio. A cash-basis ratio that indicates the extent to which cash provided by operating activities was sufficient to fund capital expenditure (noncurrent asset) purchases during the year.
  • Cash debt coverage. A cash-basis ratio used to evaluate solvency, calculated as net cash provided by operating activities divided by average total liabilities.
  • Cash return on sales ratio. A cash-basis ratio used to evaluate profitability, calculated as net cash provided by operating activities divided by net sales.
  • Current cash debt coverage. A cash-basis ratio used to evaluate liquidity, calculated as net cash provided by operating activities divided by average current liabilities.
  • Direct method. A method of presenting cash payments as deductions from cash receipts to determine net cash provided by operating activities.
  • Financing activities. Activities that affect the size and composition of contributed equity and borrowings.
  • Free cash flow. Cash provided by operating activities less investments made to maintain the current level of operations.
  • Indirect method. A method of preparing a statement of cash flows in which profit is adjusted for timing differences, non-cash items and cash flows classified as investing to determine net cash provided (used) by operating activities.
  • Investing activities. The acquisition and disposal of long-term assets.
  • Operating activities. The entity's principal revenue-generating activities and activities that are not classified as investing or financing activities.
  • Statement of cash flows. A basic financial statement that provides information about the cash receipts and cash payments of an entity during a period, classified as operating, investing and financing activities, in a format that reconciles the beginning and ending cash balances.
  • Asset turnover. A measure of how efficiently an entity uses its assets to generate sales, calculated as net sales divided by average total assets.
  • Average collection period. The average number of days that receivables are outstanding, calculated as receivables turnover divided into 365 days.
  • Average days in inventory. A measure of the average number of days it takes to sell the inventory, calculated as inventory turnover divided into 365 days.
  • Cash debt coverage. A cash-basis measure used to evaluate solvency, calculated as cash from operations divided by average total liabilities.
  • Cash return on sales ratio. The cash-basis measure of profit generated by each dollar of sales, calculated as net cash from operations divided by net sales.
  • Current cash debt coverage. A cash-basis measure of short-term debt-paying ability, calculated as cash from operations divided by average current liabilities.
  • Current ratio. A measure that expresses the relationship of current assets to current liabilities, calculated as current assets divided by current liabilities.
  • Debt to total assets ratio. A measure of the percentage of total assets provided by creditors, calculated as total liabilities divided by total assets.
  • Dividend payout rate. A measure of the percentage of profit distributed in the form of dividends, calculated as dividends divided by profit.
  • Earnings per share (EPS). The profit earned per ordinary share, calculated as profit available to ordinary shareholders divided by the weighted average number of ordinary shares.
  • Free cash flow. The amount of cash from operations available for paying dividends or expanding operations after spending enough cash to maintain operations at their current level, calculated as cash provided by operating activities less capital expenditure.
  • Gross profit margin. An indicator of an entity's ability to maintain an adequate selling price of goods above their cost, calculated as gross profit divided by net sales.
  • Horizontal analysis. A technique for evaluating a series of financial statement data over a period of time to determine the increase (decrease) that has taken place, expressed as either an amount or a percentage.
  • Inventory turnover. A measure of the liquidity of inventory, calculated as cost of sales divided by average inventory.
  • Liquidity ratios. Measures of the short-term ability of an entity to pay its maturing obligations and to meet unexpected needs for cash.
  • Operating expenses to sales ratio. A measure of the costs incurred to support each dollar of sales, calculated as operating expenses divided by net sales.
  • Price/earnings ratio (P/E ratio). A comparison of the market price of each ordinary share with the earnings per share, calculated as the market price of the share divided by earnings per share.
  • Profit margin. A measure of the profit generated by each dollar of sales, calculated as profit divided by net sales.
  • Profitability ratios. Measures of the profit or operating success of an entity for a given period of time.
  • Quick ratio (acid test). A measure of an entity's immediate short-term liquidity, calculated as the sum of cash, marketable securities and net receivables divided by current liabilities.
  • Receivables turnover. A measure of the liquidity of receivables, calculated as net credit sales divided by average net trade receivables.
  • Return on assets (ROA). An overall measure of profitability, calculated as profit divided by average total assets.
  • Return on ordinary shareholders' equity (ROE). A measure of the dollars of profit earned for each dollar invested by the owners, calculated as profit available to ordinary shareholders divided by average ordinary shareholders' equity.
  • Segmental data. A required note disclosure for diversified entities in which the entity reports financial information such as sales, profit and identifiable assets by geographic and/or industry segments.
  • Solvency ratios. Measures of the ability of the entity to survive over a long period of time.
  • Times interest earned. A measure of an entity's ability to meet interest payments as they come due, calculated as profit before income tax plus interest expense divided by interest expense.
  • Vertical analysis. A technique for evaluating financial statement data that expresses each item in a financial statement as a percentage of a base amount, such as total assets or sales revenue.
  • Accounting entity concept. A concept that every entity can be separately identified and accounted for. Economic events can be identified with a particular unit of accountability, so that financial reports are prepared from the perspective of the entity, not its owners or other parties.
  • Accounting period concept. An accounting concept that the economic life of an entity can be divided into discrete periods of time and that useful reports covering these periods can be prepared by the entity.
  • Accrual-based accounting. The accounting basis in which transactions and events are recorded in the periods in which they meet the recognition criteria for assets, liabilities, revenues and expenses. Recognition can occur before, as or after cash is paid or received.
  • Assets. Resources controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.
  • Comparability. Ability to compare the accounting information of different entities or the same entity over time because the same accounting measurement and principles are used.
  • Conceptual framework. A conceptual framework consists of a set of concepts to be followed by the preparers of financial statements and standard setters.
  • Cost principle. All assets are initially recorded in the accounts at their purchase price or cost.
  • Differential reporting. The application of different sets of rules for different categories of entities when preparing general purpose financial reports.
  • Due process. A consultation process where standard setters invite interested parties to contribute to the development of accounting standards.
  • Elements in financial statements. As defined in the Conceptual Framework include assets, liabilities, equity, income and expenses.
  • Equity. The residual interest in the assets of the entity after deducting all its liabilities.
  • Expenses. Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
  • Faithful representation. Information is a faithful representation of the economic phenomena it purports to represent if it is complete, neutral a free from material error.
  • Full disclosure principle. Accounting principle that dictates that circumstances and events that make a difference to financial statement users should be disclosed.
  • Generally accepted accounting principles (GAAP). Accounting concepts, principles, qualitative characteristics and standards having substantial authoritative support, that are recognised as a general guide for financial reporting purposes.
  • General purpose financial reports. Financial reports intended to meet the information needs of users who are unable to command reports to suit their specific needs.
  • Going concern principle. States that the financial statements are prepared on a going concern basis unless management either intends to or must liquidate the business or cease trading.
  • Income. Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
  • Liability. A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
  • Materiality. The condition on reporting information if its omission or misstatement could influence the decisions of users of financial reports.
  • Measurement. The process of determining the monetary amounts at which the elements of the financial reports are to be recognised and carried in the statement of financial position and the statement of profit or loss.
  • Monetary principle. A principle stating that the items included in an entity's accounting records must be able to be expressed in monetary terms.
  • Objective of general purpose financial reporting. Is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing reserves to the entity.
  • Recognition. Process of recording in the statement of profit or loss or statement of financial position any item that meets the definition of an element in financial statements and satisfies the recognition criteria.
  • Relevant. Accounting information is considered to be relevant if the information makes a difference in a decision.
  • Reporting entity. An entity in which it is reasonable to expect the existence of users who depend on general purpose financial reports for information to enable them to make economic decisions.
  • Resource providers. The primary users of financial reports -- those with a claim on the entity's resources as expected in the Conceptual Framework.
  • Timeliness. Whether the communication of financial information is in the time frame within which decisions are made.
  • Understandability. The extent to which information can be understood by proficient users.
  • Verifiability. The extent to which independent observers could reach a consensus that a particular depiction is a faithful representation of the economic phenomena it is meant to represent.
  • Annuity. A series of equal dollar amounts to be paid or received periodically.
  • Compound interest. The interest calculated on the principal and any interest earned that has not been paid or received.
  • Discounting the future amount. The process of determining present value.
  • Future value of a single amount. The value at a future date of a given amount invested assuming compound interest.
  • Future value of an annuity. The sum of all the payments or receipts plus the accumulated compound interest on them.
  • Interest. Payment for the use of another's money.
  • Present value. The value now of a given amount to be invested or received in the future assuming compound interest.
  • Present value of an annuity. A series of future receipts or payments discounted to their value now assuming compound interest.
  • Principal. The amount borrowed or invested.
  • Simple interest. The interest calculated on the principal only.
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