ICAEW ACA Accounting (ICAEW) key terms

An expense that has been incurred in the period but not yet invoiced or paid by the reporting date. It is added to expenses and shown as a liability in the statement of financial position.

An amount paid in one period that relates to a later period. The unused portion is removed from expenses and carried as a current asset until the benefit is consumed.

The principle that income and expenses are recognised when they are earned or incurred, not when cash moves. It underpins adjustments for accruals, prepayments and deferred income.

The idea that expenses are recognised in the same period as the revenue they helped to generate, so profit reflects the resources consumed in earning that income.

The assumption that an entity will continue trading for the foreseeable future, with no intention or need to liquidate or scale down materially. Assets are therefore not valued at break-up amounts.

The exercise of 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 system in which every transaction is recorded with equal debits and credits, keeping the accounting equation in balance and allowing a trial balance to be extracted.

A list of all ledger balances at a date, split into debit and credit columns. Equal totals indicate arithmetic accuracy but do not prove that entries were correctly analysed.

A temporary account used to hold the difference when a trial balance does not agree, or to park one side of an incomplete entry until the error is located and corrected.

The book of prime entry for transactions not recorded in the other day books, such as adjustments, corrections of error and year-end entries. Each entry states debits, credits and a narrative.

A record of all increases and decreases in a particular asset, liability, income or expense, with debit entries on one side and credit entries on the other.

A statement at a point in time showing assets, liabilities and equity. It demonstrates that assets equal liabilities plus equity under the accounting equation.

A statement for a period showing revenue less expenses to arrive at profit or loss, prepared on an accruals basis and often separating gross profit from operating profit.

Revenue less cost of sales. It measures the margin earned from trading before operating expenses, interest and tax are deducted.

The direct cost of goods sold, calculated as opening inventory plus purchases less closing inventory, adjusted for carriage inwards and returns. It excludes operating overheads.

The systematic allocation of the depreciable amount of a non-current asset over its useful life, reflecting consumption of economic benefits. It is an expense, not a cash movement or a fall in market value.

A depreciation method charging an equal annual amount, typically cost less residual value divided by useful life, producing a constant expense and a declining carrying amount.

A depreciation method applying a fixed percentage to the asset's carrying amount each year, giving a higher charge early in the asset's life and a lower charge later.

The amount at which an asset is recognised in the statement of financial position, being cost less accumulated depreciation and any accumulated impairment losses.

A reduction in the recoverable amount of an asset below its carrying amount. The fall is written off to profit or loss and the asset is stated at the lower recoverable amount.

Goods held for sale or use in production, valued at the lower of cost and net realisable value, with cost determined by a method such as FIFO or weighted average.

Estimated selling price less the estimated costs of completion and the costs necessary to make the sale. Inventory is written down where this is below cost.

A liability of uncertain timing or amount, recognised when a present obligation exists from a past event, an outflow is probable, and a reliable estimate can be made.

A possible obligation whose existence depends on uncertain future events, or a present obligation that is not recognised because outflow is not probable or cannot be measured reliably. It is disclosed, not accrued.

A statement reconciling the bank statement balance to the cash book balance, adjusting for unpresented cheques, uncredited deposits, bank charges and errors.

A book of prime entry and part of the double-entry system that records receipts and payments, with a bank column acting as the bank ledger account.

A summary ledger account, such as the receivables or payables control account, whose balance should equal the total of the individual customer or supplier ledger balances.

The memorandum ledger containing an account for each credit customer, showing amounts invoiced, receipts and any irrecoverable debts written off.

An amount owed by a customer that is judged will not be collected. It is written off as an expense, reducing receivables, and the related sales tax may be recoverable.

A contra-asset reducing trade receivables to the amount expected to be collected, based on past experience. Movements in the allowance are charged or credited to profit or loss.

The nominal value of shares issued to shareholders, credited to the share capital account. It is not the same as the cash raised, which may include a share premium.

The amount received for shares above their nominal value, accumulated in a non-distributable reserve within equity. It is not profit and cannot normally be paid as a dividend.

The residual interest in the assets of an entity after deducting all its liabilities, comprising share capital, reserves and retained earnings.

Cumulative profits not distributed as dividends, increased by profit for the year and reduced by dividends paid, shown as a component of equity.

An individual who owns and runs a business with unlimited personal liability for its debts. The financial statements show capital and drawings rather than share capital.

Withdrawals of cash or goods by the owner of an unincorporated business for personal use, deducted from capital rather than treated as an expense.

A business owned by two or more persons sharing profits per an agreement. Each partner normally has unlimited liability, and separate capital and current accounts are maintained.

The account recording each partner's permanent investment in the partnership, such as initial capital and later capital introduced, distinct from the current account.

The account recording each partner's share of profits, drawings, interest on capital and salary, with the resulting balance owed to or by the partner.