BGCSE Bookkeeping & Accounts key terms

The rule that everything a business owns equals what it owes to outsiders plus what the owner has invested; written as assets equals liabilities plus capital, it must always balance.

Resources a business controls and expects to gain from in future, such as cash, stock, equipment and money owed by customers.

Amounts a business owes to outsiders, such as bank loans, unpaid supplier bills and money owed to the tax authority.

The owner's own stake in the business: the amount introduced plus profits kept in, less drawings taken out.

The assumption that a business will keep trading for the foreseeable future, so assets are not valued at break-up prices and costs are spread over time.

Recording income when it is earned and expenses when they are incurred, regardless of when cash actually moves.

The convention of choosing the cautious figure when estimates differ, so losses are recognised promptly but gains only when certain.

Money or goods the owner takes from the business for personal use; it reduces capital rather than being a business expense.

A system in which every transaction is entered twice, as an equal debit and credit, so the ledger stays in balance.

The left-hand side of a ledger account; used to record increases in assets and expenses and decreases in liabilities and income.

The right-hand side of a ledger account; used to record increases in liabilities, capital and income and decreases in assets.

The daybooks where transactions are first written down from source documents before being posted to the ledger, such as sales, purchases and cash books.

A list of credit sales copied from invoices issued, totalled and posted to the sales account and to each customer's account.

A book of original entry used to record transactions that do not fit the other daybooks, such as corrections, opening entries and asset purchases on credit.

The set of accounts, grouped into sales, purchases, cash and general ledgers, where each transaction is posted to its proper account.

Customers who owe the business money for goods or services supplied on credit; also called debtors.

Suppliers the business owes money to for goods or services bought on credit; also called creditors.

A list of every ledger balance arranged in debit and credit columns to check that total debits equal total credits.

A temporary account opened to hold the difference when a trial balance does not agree, cleared once the errors are found and corrected.

A mistake where a transaction is entered in the wrong class of account, such as treating a vehicle purchase as a motor expense.

A schedule starting from the bank statement balance and adjusting for items such as unpresented cheques and lodgements not yet credited to agree with the cash book.

Cheques the business has written and recorded but which the bank has not yet paid out of the account, so the statement balance is higher.

The book of original entry for receipts and payments, with a bank column treated as the bank account in the ledger.

A summary ledger account, such as the sales ledger control, whose balance should equal the total of the individual customers' or suppliers' accounts.

The systematic spreading of the cost of a non-current asset over the years it is used, reflecting wear, time and obsolescence.

Charging the same depreciation amount each year, found by dividing cost less estimated scrap value by the number of years of useful life.

Charging depreciation as a fixed percentage of the asset's remaining book value, giving larger charges in early years and smaller ones later.

The total depreciation charged on an asset since it was bought; it is deducted from cost to show book value in the statement of financial position.

The amount at which an asset appears in the accounts: its cost less the depreciation written off so far.

Expenses that have been used during the period but not yet paid or invoiced, so an amount is added to the expense and shown as a current liability.

Payments made in advance for benefits not yet used, such as insurance for next year; the unused part is removed from the expense and shown as a current asset.

An estimate of receivables that may never be collected, charged as an expense and deducted from trade receivables in the statement of financial position.

A snapshot at a set date listing what the business owns and owes, showing assets equal to capital plus liabilities.

A report for a period showing revenue less cost of sales to give gross profit, then less expenses to give net profit.

Sales revenue minus the cost of the goods sold, showing the margin earned before running costs are deducted.

Gross profit plus other income minus all running expenses; the figure added to capital or shared among partners.

The account that shares out a partnership's net profit by allowing interest on capital, partners' salaries and interest on drawings, then dividing the remainder in the agreed ratio.

A partner's running account for drawings, salary and profit share; unlike the capital account it can move up or down and is settled when the partner leaves.

A club account recording subscriptions in arrears and in advance so the income statement shows only the amount belonging to the year.

Company shares carrying a vote and a dividend that varies with profits; holders are paid after preference shareholders.

Company shares that receive a fixed dividend before ordinary shareholders and rank ahead of them if the company is wound up.

A share of company profits paid to shareholders; a final dividend is proposed after the year end, while an interim one is paid during the year.

A long-term loan to a company that pays a fixed rate of interest and is usually secured on the company's assets.

Gross profit expressed as a percentage of sales revenue, showing how much of each sales dollar is left after the cost of goods sold.

Profit expressed as a percentage of cost price rather than selling price, showing how much is added to cost to set the selling price.

Net profit expressed as a percentage of the capital invested, measuring how effectively the owner's or company's funds have been used.

Current assets divided by current liabilities; a rough check of whether short-term resources can cover short-term debts.