HKICPA QP Module 1 Accounting key terms

Recording income when it is earned and expenses when they are incurred, regardless of when cash changes hands. It underpins matching of revenue with the costs that generated it.

The assumption that an entity will continue operating for the foreseeable future without liquidation or forced cessation. It justifies carrying assets at cost rather than break-up value.

Expenses are recognised in the same period as the revenue they helped produce, not simply when paid. It drives adjustments for accruals, prepayments, depreciation and inventory cost of sales.

Exercising caution when making judgements under uncertainty so that assets and income are not overstated and liabilities and expenses are not understated. It does not permit deliberate understatement.

A cost incurred in the period but not yet invoiced or paid, such as unpaid wages or utilities. It is recorded as an expense and a liability at the reporting date.

Income earned in the period but not yet billed to the customer. It is recorded as revenue and a receivable, then reversed when the invoice is raised.

An amount paid in advance for goods or services not yet consumed, such as prepaid rent or insurance. It is an asset until the benefit is used, then expensed.

Systematic allocation of a non-current asset's depreciable amount over its useful life. It reflects consumption of economic benefits, not a fall in market value.

The estimated amount an entity would obtain from disposing of an asset at the end of its useful life, after deducting expected disposal costs. It is excluded from the depreciable amount.

The period over which an asset is expected to be available for use, or the number of units of output expected from it. It is reviewed at least annually.

The amount at which an asset or liability is recognised in the statement of financial position, after deducting accumulated depreciation and accumulated impairment losses where applicable.

The amount by which an asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of fair value less costs of disposal and value in use.

The excess of a revalued asset's fair value over its previous carrying amount, recognised in other comprehensive income and held in equity. It is not recycled to profit or loss on disposal.

Recognising a gain that restores an asset's carrying amount after a prior impairment, limited to what it would have been without that impairment. Goodwill reversals are prohibited.

An intangible asset arising on a business combination representing future economic benefits not separately identifiable, measured as consideration transferred plus non-controlling interest less net identifiable assets acquired.

The excess of the acquirer's interest in the fair value of net identifiable assets acquired over the consideration transferred. After reassessment, it is recognised immediately in profit or loss.

The portion of a subsidiary's equity and results not attributable to the parent. It is presented separately in the consolidated statement of financial position within equity.

A transaction in which an acquirer obtains control of one or more businesses. It is accounted for using the acquisition method at the acquisition date.

Combining the financial statements of a parent and its subsidiaries line by line, eliminating intragroup balances and transactions, so the group reports as a single economic entity.

An entity over which an investor has significant influence, generally evidenced by holding between 20% and 50% of voting power. It is accounted for using the equity method.

The power to participate in an investee's financial and operating policy decisions without controlling or jointly controlling them. Indicators include board representation and material transactions.

An accounting method whereby an investment is initially recognised at cost and subsequently adjusted for the investor's share of the investee's profit or loss and other comprehensive income.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Applying the five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate it, and recognise revenue when each obligation is satisfied.

A promise to transfer a distinct good or service to a customer. Revenue is recognised when each obligation is satisfied, either at a point in time or over time.

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties.

An obligation to transfer goods or services to a customer for which consideration has already been received or is due. It is commonly described as deferred or unearned revenue.

An entity's right to consideration in exchange for goods or services already transferred, where that right is conditional on something other than the passage of time.

The present value of lease payments not yet paid, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate. It is remeasured for certain changes.

An asset representing a lessee's right to use an underlying asset for the lease term, measured at the initial lease liability plus initial direct costs and adjusted for incentives and restoration obligations.

The rate of interest a lessee would have to pay to borrow over a similar term, with similar security, the funds needed to obtain an asset of similar value.

The interest element of a finance lease or loan, calculated on the outstanding liability balance and recognised in profit or loss over the period using the effective interest method.

The amount at which a financial asset or liability is measured at initial recognition, adjusted for principal repayments and cumulative amortisation of the difference to the redemption amount.

The rate that exactly discounts estimated future cash payments or receipts through the expected life of a financial instrument to its gross carrying amount.

A probability-weighted estimate of credit losses over the instrument's life, reflecting past events, current conditions and forecasts. It is recognised regardless of whether a default has occurred.

An amount owed by a customer for goods or services transferred in the ordinary course of business, recognised when the right to consideration becomes unconditional.

A liability of uncertain timing or amount, recognised when a present obligation exists from a past event and a reliable estimate can be made. It is measured at the best estimate.

A possible obligation whose existence will be confirmed only by uncertain future events, or a present obligation that cannot be reliably measured. It is disclosed, not recognised.

A liability recognised for the estimated cost of honouring product warranties, based on historical claim rates and expected future costs, with the expense recognised when the related sale is made.

The tax effect of temporary differences between an asset or liability's carrying amount and its tax base, recognised as a deferred tax asset or liability and measured at expected future tax rates.

The difference between the carrying amount of an asset or liability and its tax base, which will give rise to taxable or deductible amounts in future periods when recovered or settled.

The amount attributed to an asset or liability for tax purposes, used to compare against its carrying amount in determining temporary differences and deferred tax.

Items of income and expense recognised outside profit or loss as required or permitted by standards, such as revaluation surpluses and certain remeasurements. It forms part of total comprehensive income.

A primary statement reconciling opening and closing equity, showing total comprehensive income, transactions with owners such as dividends and share issues, and transfers between reserves.

A distribution of profits to shareholders, recognised as a liability only when declared and approved, and presented in the statement of changes in equity rather than as an expense.

Cumulative profits not distributed to shareholders, adjusted for prior period errors and changes in accounting policy. It is a component of equity in the statement of financial position.

An omission or misstatement in previously issued financial statements that could not have been corrected using information available at the time. It is corrected retrospectively.

A change from one acceptable accounting basis to another, applied retrospectively unless transitional provisions apply. It is distinguished from a change in accounting estimate, which is prospective.

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

Short-term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value, typically with original maturities of three months or less.

A primary statement analysing cash movements into operating, investing and financing activities, reconciling opening and closing cash and cash equivalents for the period.

The principal revenue-producing activities of the entity and other activities that are not investing or financing. Cash flows may be presented using the direct or indirect method.

Activities that change the size and composition of contributed equity and borrowings, such as issuing shares, drawing or repaying loans, and paying dividends.

The amount received or receivable for shares issued, recognised in equity. It is not remeasured subsequently and is presented separately from reserves and retained earnings.