ICAEW ACA Accounting (ICAEW) key terms

A system where every transaction is recorded in at least two accounts, with equal total debits and credits, so the accounting equation stays balanced and errors can be detected through a trial balance.

The original record of a transaction showing the date, the accounts debited and credited, the amounts, and a brief narrative explaining why the transaction occurred before it is posted to the ledger.

A record collecting all increases and decreases affecting one specific asset, liability, equity, income or expense item, summarised as a running balance used to prepare the trial balance.

A list of every ledger balance at a reporting date, split into debit and credit columns, used to check arithmetic equality; it does not prove that transactions were correctly analysed.

A temporary account holding the difference when a trial balance fails to agree, later cleared by investigating and correcting the underlying bookkeeping error.

A mistake where a transaction is entered in the wrong class of account, such as treating a capital purchase as repairs; the trial balance still balances because debits equal credits.

Spending that acquires or improves a non-current asset and is recognised on the statement of financial position, rather than being charged as an expense in the current period.

A comparison of the business's cash book with the bank statement, adjusting for unpresented cheques and unrecorded receipts until the two records agree at the same date.

The ledger account recording receipts and payments through the bank account and cash, functioning both as a book of prime entry and as the bank ledger account.

A fixed float of cash for small payments, periodically reimbursed by the exact amount spent so the balance returns to the original agreed level.

An expense incurred in the period but not yet invoiced or paid, so it is recognised now as a liability and charged against current profit.

An amount paid in the current period that relates to a later period, carried forward as a current asset and charged as an expense when the benefit is consumed.

Accounting that recognises income when earned and expenses when incurred, regardless of when cash moves, matching costs with the benefits they generate in the same period.

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

The estimated amount a business would currently obtain from disposing of an asset at the end of its expected useful life, deducted before depreciation is calculated.

The period over which an asset is expected to be available for use by the entity, or the number of units of production expected from it, used to spread depreciation.

The amount at which an asset is recognised after deducting accumulated depreciation and any accumulated impairment losses from its original cost.

A reduction in an asset's recoverable amount below its carrying amount, written off immediately to profit or loss rather than spread over future periods.

A receivable that is confirmed as uncollectable and is written off against profit, removing the balance from trade receivables.

A provision estimating the portion of trade receivables expected not to be collected, charged as an expense and deducted from receivables on the statement of financial position.

Cash received for a receivable previously written off as irrecoverable, recognised as income rather than as a reduction in the original expense.

The exercise of caution when making judgements under uncertainty, so assets and income are not overstated and liabilities and expenses are not understated.

The assumption that the entity will continue in operation for the foreseeable future, so assets are not valued on a break-up basis and no liquidation adjustments are made.

A statement listing assets, liabilities and equity at a single date, showing that net assets equal capital, demonstrating the accounting equation in report form.

A statement summarising income earned and expenses incurred over a period to derive profit or loss, which is then added to the capital or retained earnings balance.

A statement classifying cash movements over a period into operating, investing and financing activities, reconciling opening and closing cash and cash equivalents.

Short-term, highly liquid investments readily convertible into known amounts of cash and subject to insignificant risk of changes in value, usually maturing within three months.

A way of presenting operating cash flows that starts from profit before tax and adjusts for non-cash items, working capital movements and items classified elsewhere.

The change in inventories, trade receivables and trade payables between two dates, adjusted in the indirect method because it affects cash but not reported profit.

An account showing how partnership profit is divided between partners through salaries, interest on capital and residual profit shares, before transfer to current accounts.

A partner's running record of drawings, salary and profit share, separate from capital; a credit balance represents amounts owed by the partnership to that partner.

The agreed proportion in which residual partnership profits or losses are divided among partners, used whenever the agreement specifies shares rather than equal division.

Cash, goods or other assets taken from the business by an owner for personal use, recorded against capital or the current account rather than as an expense.

The amount received on issuing shares above their nominal value, recorded in equity and generally not distributable as a dividend.

The fixed face value assigned to a share on issue, which determines the minimum capital that must be maintained and the maximum dividend per share in some jurisdictions.

Cumulative profits kept in the company rather than distributed, forming part of equity and reduced by dividends declared and by transfers to other reserves.

A bookkeeping entry that cancels matching balances in two ledger accounts, such as offsetting a customer balance against a supplier balance for the same counterparty.

Gross profit expressed as a percentage of revenue, indicating the average mark-up retained after cost of sales and used to assess pricing and purchasing performance.

Current assets divided by current liabilities, showing whether short-term resources cover short-term obligations; a low ratio may signal liquidity risk.

Current assets excluding inventories, divided by current liabilities, a stricter liquidity test because inventories may be slow to convert into cash.

Operating profit divided by capital employed, measuring how efficiently long-term funds generate profit and allowing comparison across companies of different sizes.

The ethical principle requiring accountants to be straightforward and honest in all professional and business relationships, including avoiding misleading financial reporting.

The ethical principle requiring accountants not to compromise professional judgement because of bias, conflict of interest or undue influence of others.

Freedom from relationships or interests that could appear to impair judgement, particularly important for auditors forming an opinion on financial statements.

The ethical principle requiring respect for the secrecy of information acquired through professional work, not disclosing it without authority unless a legal or professional right exists.