BGCSE Accounting 0614 key terms

The process of identifying, recording, classifying and summarising financial transactions, then communicating the resulting information to owners and other interested parties so they can make informed decisions.

The routine, mechanical part of accounting that involves writing down each transaction from source documents into books of original entry and then into ledger accounts, in date order.

The assumption that the business is separate from its owner for accounting purposes, so only transactions affecting the business are recorded and the owner's private affairs are kept out of the books.

The assumption that the business will continue to operate for the foreseeable future, so assets are not valued at break-up prices and costs are spread over the periods that benefit from them.

The rule that revenue and expenses are recorded in the period to which they relate, not when cash changes hands, so profit reflects the activities of the period.

The practice of exercising caution when making estimates, so losses and liabilities are recognised as soon as they are suspected while gains are only recorded when realised.

The rule that a business should apply the same accounting methods and policies from period to period, so that figures in different years can be compared meaningfully.

The original written evidence that a transaction took place, such as an invoice, receipt, cheque counterfoil or credit note, used as the basis for making an entry in the books.

A document sent by a seller to a buyer listing goods or services supplied, their quantities and prices, and the total amount payable, often on stated credit terms.

A document issued by a seller to reduce the amount a buyer owes, typically because goods were returned, faulty, or overcharged, and recorded in the returns books.

The day books in which transactions are first recorded from source documents before being posted to the ledger; they include sales, purchases, returns, cash and petty cash books and the journal.

A book of original entry that lists, in date order, only credit sales of goods to customers, with totals posted periodically to the sales account and each customer's account.

A book of original entry that records only credit purchases of goods for resale, taken from suppliers' invoices, with totals posted to the purchases account and individual supplier accounts.

The book of original entry used for transactions that do not fit the other day books, such as opening entries, corrections of errors and purchases or sales of non-current assets on credit.

A written record in the general journal showing the date, accounts to be debited and credited, amounts, and a brief narrative explaining why the transaction is being recorded.

The system in which every transaction is recorded twice, once as a debit and once as a credit of equal value, so that total debits always equal total credits.

An entry on the left-hand side of a ledger account; it increases assets and expenses and reduces liabilities, capital and income.

An entry on the right-hand side of a ledger account; it increases liabilities, capital and income and reduces assets and expenses.

A page or record in the main book of accounts that collects all increases and decreases in one named item, such as a customer, a supplier, cash or motor vehicles.

A transaction recorded in two accounts on the same side of the ledger, such as cash paid into the bank, which is debited in the bank account and credited in the cash account.

A list of all ledger account balances at a given date, with debits in one column and credits in another, used to check that total debits equal total credits.

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

A bookkeeping mistake in which a transaction is entered in the wrong class of account, such as treating a motor vehicle purchase as a repairs expense; it does not affect trial balance agreement.

A mistake where a transaction is entered in the correct class of account but the wrong account within that class, for example debiting the wrong customer's account with the right amount.

A mistake in which a transaction is left out of the books completely, so no debit or credit is made and the trial balance still balances.

A book that records receipts and payments of cash and bank money, combining the role of book of original entry and ledger account, with a bank column and a cash column.

A book used to record small, frequent payments such as postage and stationery, usually run on the imprest system so the float is restored to a fixed amount.

A method of controlling petty cash in which a fixed float is issued, spent amounts are recorded, and the float is later reimbursed by exactly the amount spent.

A statement that explains the difference between the bank balance shown in the cash book and the balance on the bank statement, listing unpresented cheques, uncredited deposits and bank charges.

An instruction given by a customer to their bank to pay a fixed sum to a named payee on set dates, which appears on the bank statement and must be entered in the cash book.

An authority given by a customer allowing a named payee to collect varying amounts from their bank account on agreed dates, recorded by the bank and entered in the cash book.

The part of the final accounts that calculates gross profit by deducting cost of goods sold, being opening stock plus purchases less closing stock, from net sales revenue.

The surplus of net sales over the cost of the goods sold, before deducting any of the business's running expenses; it measures the margin earned on trading.

The amount remaining after all expenses, including running costs and depreciation, have been deducted from gross profit; it is added to capital in the balance sheet.

The section of final accounts that starts with gross profit, adds other income, deducts all expenses, and arrives at net profit for the period.

A statement prepared at a particular date showing the business's assets, liabilities and capital, demonstrating that assets equal capital plus liabilities.

Money or goods taken out of the business by the owner for personal use, recorded as a reduction of capital rather than as a business expense.

The owner's investment in the business, being the amount introduced plus profits retained, less drawings and losses; it represents the owner's claim on the net assets.

An expense that has been incurred during the period but not yet paid, so it is charged in the profit and loss account and shown as a current liability.

An amount paid in one period that relates to a later period, so the unused portion is carried forward as a current asset instead of being charged as an expense.

An estimate of the amount owed by credit customers that may never be collected, charged as an expense and deducted from debtors in the balance sheet.

Amounts owed by customers that the business has decided are definitely irrecoverable and therefore writes off as an expense in the profit and loss account.

The systematic allocation of the cost of a non-current asset over its useful life, reflecting wear and tear, age or obsolescence, and charged as an expense each period.

A depreciation method that charges an equal amount each year, usually a fixed percentage of original cost, producing a constant annual expense over the asset's expected life.

A depreciation method that applies a fixed percentage to the asset's net book value, giving a higher charge in early years and smaller charges as the value falls.

The cost of a non-current asset less the total depreciation charged on it so far, showing the amount at which it is carried in the balance sheet.

The excess of current assets over current liabilities, representing the funds available to finance day-to-day trading operations of the business.

A liquidity measure found by dividing current assets by current liabilities; a result near 2:1 is often considered comfortable, though it varies by business type.

Gross profit expressed as a percentage of net sales, showing how much of each sales dollar remains after the cost of goods sold to cover other expenses.

Net profit expressed as a percentage of net sales, indicating how much of each sales dollar finally remains as profit after all expenses have been charged.

A measure of how many times average stock is sold and replaced in a period, calculated as cost of goods sold divided by average stock held.