BCS Written Finance key terms

The process of evaluating and selecting long-term investment projects whose returns extend beyond one year, usually by comparing expected cash flows against the initial outlay using discounted measures.

The difference between the present value of a project's expected cash inflows and the present value of its outflows, discounted at the cost of capital; a positive result suggests value creation.

The discount rate at which a project's net present value equals zero, representing the annual percentage yield the investment is expected to generate over its life.

The blended average rate a firm must pay to finance its assets, computed by weighting the after-tax cost of debt and the cost of equity by their proportions in the capital structure.

The mix of debt and equity a firm uses to fund its operations and growth, which influences financial risk, cost of capital and the returns available to shareholders.

The use of borrowed funds to increase the potential return on equity, which magnifies both gains and losses and raises the risk borne by shareholders.

The return shareholders require for holding a firm's shares, reflecting the risk-free rate plus a premium for the systematic risk of the investment.

The day-to-day administration of current assets and current liabilities, especially inventory, receivables and payables, to keep liquidity adequate without tying up excessive funds.

The number of days between paying suppliers for inventory and collecting cash from customers, calculated by adding inventory and receivable days and subtracting payable days.

The set of laws, institutions and processes governing how government raises, allocates, spends and accounts for public money across the budget cycle.

A budgeting approach that sets spending ceilings for several years ahead, linking annual budgets to policy priorities and giving ministries predictable forward resource envelopes.

The recurring sequence of stages through which public budgets pass: preparation, legislative approval, execution, and audit and evaluation of results.

A legislative authorisation granting a government entity the power to spend public funds up to a stated amount for specified purposes within a financial year.

The authorised transfer of funds from one budget line to another within an approved appropriation, usually subject to limits and approval by the finance ministry or legislature.

The openness of a government about its financial position, budgets and accounts, so that citizens and markets can understand, scrutinise and hold it accountable.

A potential government obligation that arises only if a specified future event occurs, such as a loan guarantee being called; it may not appear in the main budget.

A basis of accounting that records transactions when the underlying economic event occurs, not when cash changes hands, so revenues and expenses are matched to the period they relate to.

A method that recognises revenue when cash is received and expenses when cash is paid, giving a simple picture of liquidity but omitting unpaid obligations and accrued income.

The systematic allocation of the cost of a long-lived asset over the periods that benefit from its use, reflecting wear, obsolescence or the passage of time.

A reduction in the carrying amount of an asset when its recoverable amount falls below book value, recognised as a loss in the period the decline is identified.

A listing of every ledger account with its debit or credit balance, used to check that total debits equal total credits before financial statements are prepared.

A recording system in which every transaction produces at least two equal and opposite entries, so that the accounting equation stays in balance at all times.

Central bank actions that influence the money supply, credit conditions and interest rates to pursue objectives such as price stability, growth or exchange rate management.

The interest rate a central bank sets or targets for its lending to, or borrowing from, commercial banks, serving as the main signal for other market rates.

Central bank purchases or sales of government securities in the market to inject or withdraw liquidity and steer short-term interest rates toward the policy target.

A regulatory measure requiring banks to hold a minimum proportion of their deposits as liquid assets, ensuring they can meet withdrawals and short-term obligations.

A bank's regulatory capital expressed as a percentage of its risk-weighted assets, indicating the buffer available to absorb losses before depositors are exposed.

International standards issued by the Basel Committee on Banking Supervision that set minimum capital, liquidity and risk-management requirements for banks worldwide.

The tendency to take greater risks because someone else bears the consequences, as when insured banks or guaranteed borrowers act less cautiously than they otherwise would.

A scheme that protects depositors up to a stated limit if a bank fails, aiming to prevent panic withdrawals while requiring safeguards against excessive risk-taking.

The shortfall in a given period when government expenditure exceeds revenue, typically financed by borrowing and measured as a share of gross domestic product.

The reduction in private investment that occurs when government borrowing raises interest rates or absorbs savings that would otherwise fund private projects.

The condition in which a government can service its debt without indefinite new borrowing or disruptive adjustment, assessed against growth, interest rates and primary balances.

The policies, procedures and organisational arrangements an entity uses to safeguard assets, ensure reliable reporting and promote compliance with laws and regulations.

A control that divides incompatible tasks, such as authorising, recording and custody of assets, among different people to reduce the risk of error or fraud.

An independent appraisal function within an organisation that evaluates the effectiveness of internal controls, risk management and governance, and reports findings to senior management and the board.

The formal conclusion issued by an auditor on whether financial statements present a true and fair view, which may be unmodified, qualified, adverse or a disclaimer.

The threshold at which an omission or misstatement could influence the economic decisions of users, guiding auditors in planning work and judging the significance of errors.

A structured record listing identified risks, their likelihood and impact, existing controls and the responsible owner, used to monitor and prioritise risk treatment.

The use of online platforms for publishing tender notices, receiving bids and awarding public contracts, intended to increase competition, transparency and value for money.

Extending affordable financial services to underserved people and businesses through mobile money, agent banking and other technology-enabled channels rather than traditional branches.