ICAB PL Financial Accounting & Reporting key terms

Accounting approach that records revenue when earned and expenses when incurred, regardless of when cash moves. It matches costs with the income they helped generate in the same period.

Assumption that an entity will continue operating for the foreseeable future without liquidation or forced closure. It justifies carrying assets at cost rather than break-up values.

Rule requiring expenses to be recognised in the same period as the revenue they helped produce. It underpins adjusting entries for accruals, prepayments and inventory cost of sales.

Cost incurred during a period but not yet invoiced or paid at the reporting date. An adjusting entry debits the expense and credits a liability, such as unpaid wages or interest.

Amount paid in advance for goods or services not yet consumed. It is an asset until the benefit is used, then expensed through an adjusting entry such as insurance or rent.

Systematic allocation of a tangible non-current asset's depreciable amount over its useful life. Methods include straight-line and reducing balance, reflecting consumption of economic benefits.

Period over which an entity expects to use an asset, or the number of units of output expected from it. It drives depreciation charges and is reviewed at least annually.

Estimated amount an entity would receive for an asset today if it were already in the condition expected at the end of its useful life. It is deducted before depreciation is calculated.

Amount by which an asset's carrying amount exceeds its recoverable amount. It is written off immediately to profit or loss, signalling that future economic benefits have fallen.

Amount at which an asset or liability is recognised in the statement of financial position, net of accumulated depreciation and any impairment. It is the book value reported to users.

List of ledger account balances at a date, showing debits and credits in separate columns. It checks arithmetical equality but does not detect every error.

Recorded transaction showing the accounts debited and credited with equal amounts and a short narrative. It is the first point of entry for adjustments and non-routine transactions.

Bookkeeping system in which every transaction affects at least two accounts, with total debits equalling total credits. It keeps the accounting equation in balance.

Temporary ledger account holding the difference when a trial balance does not agree. It is cleared once the underlying error is found and corrected.

Comparison of an entity's cash book balance with the bank statement, explaining differences such as unpresented cheques, deposits in transit and bank charges. It confirms the correct cash position.

Current assets divided by current liabilities. It measures short-term liquidity, showing whether near-term obligations can be settled from assets expected to convert to cash within a year.

Cash, marketable securities and receivables divided by current liabilities. It tests immediate liquidity by excluding inventory, which may be slow to sell.

Current assets minus current liabilities. A positive figure indicates liquid resources to fund day-to-day operations; persistent deficits may signal going-concern risk.

Financial statement classifying cash movements into operating, investing and financing activities. It explains how profit reconciles to cash and reveals liquidity and solvency trends.

Cash flows from the entity's principal revenue-producing activities, such as receipts from customers and payments to suppliers and employees. They may be presented directly or by reconciliation from profit.

Statements presenting a parent and its subsidiaries as a single economic entity. Intra-group balances and transactions are eliminated so users see group position and performance.

Entity controlled by another entity, the parent. Control normally exists where the parent holds more than half the voting power or otherwise directs relevant activities and gains variable returns.

Excess of consideration transferred plus non-controlling interest over the fair value of identifiable net assets acquired. It is not amortised but tested annually for impairment.

Portion of a subsidiary's net assets and profit attributable to shareholders other than the parent. It is presented separately within consolidated equity and group profit.

Price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is a market-based, not entity-specific, exit price.

Measurement basis recording assets at the amount originally paid or consideration given. It is reliable and verifiable but may become less relevant as prices change.

Set of principles guiding the development of accounting standards, covering objective, qualitative characteristics, elements and measurement. It helps preparers and regulators resolve issues not addressed by a specific standard.

Qualitative characteristic meaning information can make a difference to users' decisions through predictive or confirmatory value. It must also be material to the entity's financial statements.

Qualitative characteristic requiring information to be complete, neutral and free from material error. It depicts the economic substance of transactions rather than merely their legal form.

Threshold at which omitting or misstating information could influence users' economic decisions. It depends on size and nature and is assessed in the context of the whole financial statements.

Principle that transactions are accounted for according to their economic reality, not merely their legal arrangement. It governs treatment of leases, factoring and similar structured arrangements.

Process of recognising income when performance obligations are satisfied and control of goods or services passes to the customer, at the transaction price allocated to that obligation.

Contract conveying the right to control use of an identified asset for a period in exchange for consideration. Lessees generally recognise a right-of-use asset and a lease liability.

Tax effect of temporary differences between accounting carrying amounts and tax bases of assets and liabilities. It is recognised as a deferred tax asset or liability, not as a current tax balance.

Liability of uncertain timing or amount, recognised when a present obligation exists, an outflow is probable and the amount can be estimated reliably. Examples include warranties and legal claims.

Possible obligation whose existence depends on uncertain future events, or a present obligation that fails the recognition criteria. It is disclosed rather than recognised unless outflow is remote.

Events occurring between the reporting date and the date financial statements are authorised for issue. Adjusting events change amounts recognised; non-adjusting events are disclosed if material.

Party that controls, is controlled by, or is under common control with the entity, or has significant influence over it, including key management personnel. Transactions with such parties require disclosure.