AAT ITBK key terms

A method of recording transactions where each one is entered twice, as a debit in one ledger account and an equal credit in another, so the records stay in balance.

The left-hand side of a ledger account. In the double-entry system, debits increase assets and expenses and reduce liabilities, capital and income.

The right-hand side of a ledger account. In the double-entry system, credits increase liabilities, capital and income and reduce assets and expenses.

A separate record for each type of item in the nominal ledger, with a debit side and a credit side, where transactions of that type are collected and balanced.

Something of value the business owns or is owed, such as cash, inventory, equipment or money due from customers, which is expected to bring benefit in future.

An amount the business owes to an outside party, such as a bank loan, an overdraft or money owed to suppliers for goods bought on credit.

The owner's stake in the business: money they have put in plus profits kept in the business, less anything they have taken out.

Value earned by the business from trading or from other sources, such as sales, fees, rent received or interest received, which increases capital.

A cost of running the business and earning income, such as wages, rent or electricity, which reduces profit and therefore reduces capital.

Money or goods the owner takes from the business for personal use; it is not an expense but reduces the owner's capital.

The balancing figure on a ledger account at the end of a period, written on the opposite side to the larger total and brought down as the opening balance next period.

The original paperwork that proves a transaction took place, such as an invoice, credit note, cheque counterfoil or till receipt, and from which bookkeeping entries are made.

A document sent by a seller to a customer showing goods or services supplied, the amount charged and the payment terms; the seller records it in the sales day book.

A document from a supplier charging the business for goods or services bought on credit; the buyer enters it in the purchase day book.

A document a seller sends to a customer to cancel all or part of an invoice, often because goods were returned, reducing the amount the customer owes.

A document a buyer sends to a supplier when returning goods or disputing an invoice, asking for the amount owed to be reduced.

A summary a supplier sends a customer listing the invoices, credit notes and payments for a period and the balance still owed.

A note sent with a payment showing which invoices it settles, so the supplier can match the money to the right customer account.

A number or letter combination given to each ledger account so that transactions can be recorded in the correct account quickly and consistently.

A day book or journal in which transactions are first written up from source documents before totals or individual entries are posted to the ledger.

A list of the sales invoices issued on credit during a period; it is totalled and the total posted to the sales account and the receivables ledger.

A book of prime entry for entries that do not belong in the other day books, such as corrections, year-end adjustments and opening entries, showing debits and credits.

A record from the bank of money paid into and out of the business bank account over a period, with a running balance, as shown in the bank's own records.

The check that compares the bank balance in the cash book with the balance on the bank statement and explains any difference, for example unpresented cheques.

A cheque the business has written and recorded in its cash book but which has not yet been presented to and paid by the bank.

Money the business has received, paid into the bank and recorded in the cash book, but which has not yet appeared on the bank statement.

A cheque the bank refuses to pay, for example because the customer has insufficient funds; the original receipt must be reversed in the cash book.

An instruction the business gives its own bank to pay a fixed sum to a named payee on set dates, continuing until the business cancels it.

An authority the business gives to a supplier allowing the supplier to collect varying amounts from the bank account on agreed dates.

A method of controlling petty cash in which a fixed float is held and topped up periodically by exactly the amount spent, restoring the float to its original level.

Fees and interest the bank takes from the account for its services; they appear on the bank statement and must be entered in the cash book.

A bank account with a negative balance, where the business has withdrawn more than it holds; it is a current liability in the statement of financial position.

A list of every ledger account balance at a chosen date, with debit balances in one column and credit balances in another, used to check the totals agree.

The rule that assets equal capital plus liabilities, showing that everything the business owns is funded either by the owner or by outside lenders.

A transaction that has been left out of the accounting records completely, so the trial balance still balances even though the books are wrong.

A transaction entered in the wrong account of the correct type, for example a sale to J Smith posted to the account of J Smyth.

A transaction recorded in the wrong kind of account, for example a machine bought for use being entered as a repairs expense instead of an asset.

Two separate errors that cancel each other out, so total debits still equal total credits even though two accounts hold wrong figures.

The wrong amount is written on both sides of the entry, so the trial balance still balances but both accounts show an incorrect figure.

A temporary account opened on the opposite side to a trial balance difference so the trial balance can be made to balance until the error is found and corrected.