ACCA FA key terms

A set of principles issued by the IASB that guides how financial statements are prepared, covering the objective of financial reporting, the qualitative characteristics, the elements of the statements, and recognition and measurement.

The duty of management to look after the resources entrusted to it by the owners and to report honestly and fully on how those resources have been used during the period.

The assumption that an entity will keep operating for the foreseeable future, so assets are not valued at forced-sale amounts and liabilities are not treated as falling due immediately.

The mix of company law, accounting standards and stock exchange rules that determines what entities must report, how they must report it, and whether an audit is required.

The International Accounting Standards Board, an independent standard-setting body that develops and issues IFRS Standards used for financial reporting in many countries.

The requirement that financial statements present the entity's position and performance honestly and without material misstatement, normally achieved by applying standards and disclosing anything material they do not cover.

Recording income when it is earned and expenses when they are incurred, rather than when cash is received or paid, so that profit reflects the activity of the period.

Information is relevant when it can make a difference to users' economic decisions, which generally means it has predictive value, confirmatory value, or both.

Information faithfully represents when it is complete, neutral and free from error, depicting the economic substance of what it claims to represent.

Information is material if omitting or misstating it could influence users' decisions; materiality depends on the size and nature of the item judged in the circumstances.

Exercising caution when making judgements under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated, which supports neutrality rather than contradicting it.

Users must be able to compare an entity's statements over time and with those of other entities, which requires consistent accounting policies and disclosure of any changes and their effects.

Accounting for the economic reality of a transaction rather than its legal or external form, for example treating an asset controlled under a lease as belonging to the lessee.

A system in which every transaction is recorded twice, as a debit in one account and an equal credit in another, so the accounting equation stays in balance and total debits equal total credits.

The daybooks in which transactions are first recorded from source documents: sales, purchases, sales returns, purchases returns, the cash book and the general journal.

The book of prime entry used for transactions that do not suit the other daybooks, such as correcting errors, period-end adjustments, opening entries and transfers between accounts.

A record of the increases and decreases in one item, with debits on the left and credits on the right, whose balance is calculated and carried down at the end of a period.

A summary account in the general ledger that records totals posted from a book of prime entry and is reconciled to the underlying subsidiary ledger, providing a check on recording accuracy.

An expense already incurred in the period but not yet invoiced or paid, so it is charged in the statement of profit or loss and shown as a liability at the period end.

An amount paid in one period for goods or services to be received in a later period; it is removed from expenses and reported as a current asset.

The systematic allocation of the depreciable amount of a non-current asset over its useful life, matching the cost of the asset against the periods that benefit from using it.

A receivable that is confirmed as uncollectable and is written off, removing it from receivables and charging it as an expense in the statement of profit or loss.

A provision against receivables estimated to be doubtful, which reduces their carrying amount; creating or increasing it is charged as an expense for the period.

The estimated selling price of inventory in the ordinary course of business less the estimated costs of completion and of making the sale; inventory is measured at the lower of cost and this amount.

A list of all ledger balances at a given date, with debits in one column and credits in another, used to check that total debits equal total credits before statements are prepared.

A temporary account that holds the difference when a trial balance does not balance; it is cleared once the underlying errors have been found and corrected.

A statement reconciling the cash book balance with the balance on the bank statement, explaining items such as unpresented cheques, unrecorded receipts and bank charges.

A statement showing an entity's assets, liabilities and equity at a single point in time, built on the accounting equation that assets less liabilities equal equity.

A statement showing the income and expenses of a period and the profit or loss that results, prepared on an accrual basis and including both trading and other income.

Items of income and expense that standards require to be recognised outside profit or loss, such as revaluation surpluses and certain foreign exchange differences.

A statement reconciling opening and closing equity for the period, showing profit, other comprehensive income, shares issued, dividends paid and transfers between reserves.

An entity controlled by another entity, the parent; control normally means holding more than half the voting rights or otherwise having power to direct the relevant activities.

The excess of the consideration transferred plus the non-controlling interest over the fair value of the subsidiary's identifiable net assets at acquisition, recognised as an intangible asset in the consolidated statements.

The share of a subsidiary's net assets and results that is not attributable to the parent, presented separately within equity in the consolidated statement of financial position.

Statements that present a parent and its subsidiaries as one economic entity, combining like items and eliminating intra-group balances, income and expenses.

Operating profit divided by capital employed, expressed as a percentage, measuring how effectively an entity generates profit from its long-term funds.

Current assets divided by current liabilities, showing how many times short-term obligations are covered by short-term resources and giving a rough measure of liquidity.

A measure of the extent to which long-term finance comes from debt rather than equity, often calculated as debt divided by equity or by total capital, indicating financial risk.

Gross profit expressed as a percentage of revenue, showing the profit left after deducting cost of sales and indicating pricing policy and purchasing efficiency.