ICAB CL Accounting key terms

An accounting method that records income when earned and expenses when incurred, regardless of when cash changes hands, giving a more faithful view of performance than cash receipts alone.

The rule that expenses are recognised in the same period as the revenues they helped to generate, so profit reflects the true cost of earning that income.

An amount paid in advance for goods or services not yet received, carried as a current asset until the benefit is consumed and the cost is expensed.

A cost already incurred but not yet paid or invoiced at the reporting date, recorded as a liability so that the period's expenses are complete.

The systematic allocation of a tangible non-current asset's depreciable amount over its useful life, reflecting consumption of economic benefits rather than market value changes.

The amount at which an asset or liability appears in the statement of financial position, being cost or revalued amount less accumulated depreciation and accumulated impairment losses.

A reduction in an asset's recoverable amount below its carrying amount, requiring a write-down to the higher of fair value less costs to sell and value in use.

A listing of all ledger balances at a date, used to check that total debits equal total credits before financial statements are prepared; it does not detect all errors.

A temporary ledger account holding the difference when a trial balance does not agree, later cleared by locating and correcting the underlying bookkeeping error.

A record of a transaction showing the accounts debited and credited, the amounts, and a narration explaining the reason for the entry.

The bookkeeping convention that every transaction affects at least two accounts, with total debits equalling total credits, keeping the accounting equation in balance.

Sales revenue less all variable costs. It measures how much each unit or sale contributes towards covering fixed costs and then generating profit.

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

The excess of budgeted or actual sales over break-even sales, showing how far sales can fall before a loss arises; often stated as a percentage.

A costing approach that charges only variable production costs to units, treating fixed production overhead as a period cost, which differs from absorption costing profit when inventory changes.

A costing method that assigns both variable and fixed production overheads to units produced, usually through predetermined overhead absorption rates based on labour hours or machine hours.

A predetermined rate used to charge indirect production costs to products, calculated by dividing budgeted overhead by a chosen activity base such as labour hours.

A planned unit cost for materials, labour and overhead set in advance, against which actual costs are compared to produce variances for control purposes.

The process of comparing actual performance with budget or standard, identifying the size and cause of differences so that managers can take corrective action.

A budget adjusted to the actual level of activity achieved, allowing fair comparison with actual results by removing the effect of volume differences.

A budgeting method in which every activity must be justified from a nil base each period, rather than rolling forward last year's figures with incremental adjustments.

All information obtained by the auditor to support the audit opinion, gathered through inspection, observation, enquiry, confirmation, recalculation, reperformance and analytical procedures.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated; a function of inherent, control and detection risk.

The threshold above which omissions or misstatements could influence the economic decisions of users, guiding the extent of audit work and evaluation of errors.

The policies and procedures designed to safeguard assets, ensure reliable records and promote compliance, comprising the control environment, risk assessment, control activities, information and monitoring.

A control that separates authorisation, custody of assets and record-keeping among different people, so no single person can both commit and conceal an error or fraud.

Procedures that detect material misstatements, including tests of details of transactions and balances and substantive analytical procedures, used in addition to tests of controls.

The assumption that an entity will continue operating for the foreseeable future; auditors must assess whether this basis remains appropriate and disclose material uncertainty if not.

The amount on which income tax is levied after adjusting accounting profit for disallowed expenses, exemptions and allowable deductions under the relevant tax legislation.

A tax provision recognising temporary differences between the accounting carrying amount of assets and liabilities and their tax base, which reverse in future periods.

An indirect tax charged on the supply of goods and services, collected by registered businesses on behalf of the tax authority, with input tax offset against output tax.

Tax deducted at source by the payer from specified payments such as interest, dividends or professional fees, then remitted to the tax authority on the recipient's behalf.

The system of rules, practices and processes by which a company is directed and controlled, balancing the interests of shareholders, management and other stakeholders.

The conflict of interest that arises when managers, acting as agents for shareholders, pursue their own goals rather than maximising owner wealth, requiring monitoring and incentives.

Any individual or group affected by or with an interest in an organisation's activities, such as employees, customers, lenders, suppliers, regulators and the wider community.

The ethical principle requiring accountants to be straightforward and honest in all professional and business relationships, never associating with misleading information.

The ethical principle that accountants must not compromise professional judgement because of bias, conflict of interest or the undue influence of others.

The duty to respect the secrecy of information acquired through professional work, not disclosing it without authority unless there is a legal or professional right or duty to do so.

The state of being free from relationships or interests that could impair, or appear to impair, objectivity in performing an audit or other assurance engagement.

An independent appraisal function within an organisation that evaluates risk management, control and governance processes, reporting findings to those charged with governance.

The use of software to examine large datasets for patterns, anomalies and trends, supporting audit testing, cost analysis and management decision-making with evidence rather than sampling alone.