QCAA Accounting key terms

Recording revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, so reports reflect the period the activity relates to.

The rule that expenses are recognised in the same reporting period as the revenue they helped generate, giving a fair picture of profit for that period.

A cost that has been incurred but not yet paid or recorded, such as unpaid wages at period end, which must be added to expenses and liabilities.

Income that has been earned but not yet invoiced or received, such as interest owing on a term deposit, which must be recorded as income and a receivable.

A payment made before the benefit is used, such as insurance paid in advance, which is initially an asset and later becomes an expense as the benefit is consumed.

Systematically allocating the cost of a non-current asset over its useful life to reflect the loss of service potential from use, age or obsolescence.

A depreciation approach that spreads the depreciable cost of an asset evenly across each period of its useful life, producing a constant annual charge.

The estimated amount an entity expects to obtain for an asset at the end of its useful life, deducted from cost before calculating depreciation.

The value at which an asset is reported in the balance sheet, calculated as its cost less accumulated depreciation and any impairment losses.

A reduction in the recoverable value of an asset below its carrying amount, requiring a write-down so the accounts do not overstate the asset's worth.

Reducing the recorded value of stock when its net realisable value falls below cost, for example because goods are damaged, obsolete or unsaleable.

The estimated selling price of inventory less the costs still needed to complete and sell it, used to test whether stock is overvalued.

The valuation rule requiring inventory to be reported at whichever is lower of its original cost or its expected selling proceeds, preventing overstated assets.

An accounting convention of exercising caution so that assets and income are not overstated and liabilities and expenses are not understated when estimates are uncertain.

Applying caution when estimating amounts set aside for uncertain future obligations, so liabilities are not understated but excessive provisions are also avoided.

A liability of uncertain timing or amount, such as a warranty or long-service leave obligation, recognised when a reliable estimate can be made.

A possible obligation arising from past events whose existence depends on uncertain future outcomes, disclosed in notes rather than recognised in the balance sheet.

The notes and explanatory material accompanying financial statements that give detail needed to understand figures, policies and uncertainties not evident from the numbers alone.

A specific principle, basis, convention or rule an entity adopts for measuring and reporting items, such as the depreciation method chosen for a class of assets.

A financial statement showing movements in owner's equity during a period, including profit, capital contributions, drawings and dividends paid.

Accumulated profits kept in the business rather than distributed to owners, forming part of equity and available to fund future operations or growth.

The owner's residual interest in the assets of an entity after deducting all liabilities, representing the net worth attributable to the owners.

A distribution of part of a company's profits to its shareholders, declared by directors and paid from retained earnings rather than treated as an expense.

A statement listing assets, liabilities and equity at a point in time, demonstrating that total assets equal total liabilities plus equity.

A liquidity measure calculated as current assets divided by current liabilities, indicating whether short-term resources are sufficient to cover short-term obligations.

A stricter liquidity test that divides current assets excluding inventory by current liabilities, showing ability to meet debts without selling stock.

The ability of an entity to convert assets into cash, or otherwise obtain cash, quickly enough to meet its short-term obligations as they fall due.

The excess of current assets over current liabilities, representing funds tied up in day-to-day operations and available for short-term needs.

Sales revenue minus variable costs, being the amount each sale contributes towards covering fixed costs and then generating profit.

The level of sales, in units or dollars, at which total revenue equals total costs so the business makes neither profit nor loss.

The amount by which actual or expected sales exceed the break-even level, showing how far sales can fall before losses begin.

A cost that remains constant in total over a relevant range of activity, such as rent or insurance, regardless of how many units are produced or sold.

A cost that changes in total in direct proportion to changes in activity level, such as raw materials, while remaining constant per unit.

The band of activity within which a cost behaviour pattern, such as a fixed cost staying constant, is expected to remain valid.

Any factor or activity that causes a cost to change, such as machine hours, labour hours or number of setups, used as a basis for allocating overhead.

Assigning indirect costs to products, jobs or departments using a predetermined basis, so each unit bears a fair share of shared costs.

An overhead rate calculated before a period begins by dividing estimated overhead by estimated activity, allowing timely costing of production.

A costing method that assigns overhead to products based on the activities they consume, giving more accurate costs where products use activities differently.

Testing how a decision outcome changes when one or more input assumptions, such as sales volume or price, are varied across plausible ranges.

Analysing only future costs and revenues that differ between alternatives when making a decision, ignoring sunk and non-differing amounts.

A cost already incurred that cannot be recovered or changed by any future decision, and so should be ignored when comparing alternatives.

The value of the best alternative forgone when a choice is made, representing the benefit lost by committing resources to one option.

Comparing the additional revenues and additional costs that result from a proposed change, to decide whether the change improves overall profit.

Choosing whether to produce a component internally or purchase it externally, based on relevant costs such as avoidable fixed costs and supplier price.

The process of evaluating and selecting long-term investment projects, comparing expected cash flows against the initial outlay using techniques such as payback.

The time required for cumulative cash inflows from an investment to equal the initial cash outflow, used as a simple measure of risk and liquidity.

The difference between the present value of expected cash inflows and the initial investment, where a positive result suggests the project adds value.

The rate used to convert future cash flows to their present value, reflecting the time value of money and the risk of the investment.

The policies, procedures and practices an entity uses to safeguard assets, ensure accurate records and promote compliance with laws and regulations.

Dividing responsibilities so that no single person controls all stages of a transaction, reducing the risk of error or fraud going undetected.

Comparing the business's cash records with the bank statement, then explaining differences such as unpresented cheques and deposits in transit to prove the balance.

A small float of cash kept on hand for minor expenses, controlled through an imprest system where spent amounts are periodically reimbursed.

An independent function within an organisation that reviews and tests controls and records, reporting findings to management or the audit committee.

An independent examination of financial statements by an outside party, expressing an opinion on whether they are presented fairly and comply with standards.

A recording system in which every transaction affects at least two accounts with equal debits and credits, keeping the accounting equation in balance.

A list of all ledger account balances at a point in time, used to check that total debits equal total credits before statements are prepared.

A temporary account used to hold the difference when a trial balance does not balance, pending investigation and correction of the underlying error.

The book of original entry where transactions are first recorded in date order with debits, credits and narrations before posting to ledger accounts.

A projection of expected cash receipts and payments over future periods, used to anticipate shortages or surpluses and plan borrowing or investment.