IAI CAFB - Certificate in Accounting, Finance and Business key terms

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash changes hands, giving a truer picture of performance over a period than cash receipts alone.

The rule that expenses are recognised in the same period as the revenues they helped generate, so profit for a period reflects the resources consumed to earn that period's income.

A cost already incurred but not yet invoiced or paid at the reporting date, such as wages earned by staff but paid after period end; it is recorded as a liability and an expense.

An amount paid in advance for goods or services not yet received, such as annual insurance; it sits as an asset until the benefit is consumed, then becomes an expense.

The systematic allocation of an asset's depreciable cost over its useful life, reflecting consumption of economic benefits; it is an allocation of cost, not a measure of market value decline.

The value at which an asset or liability appears in the statement of financial position, being cost less accumulated depreciation and accumulated impairment losses for a non-current asset.

A reduction in an asset's recoverable amount below its carrying amount, requiring a write-down and a charge to profit or loss so the asset is not overstated in the financial statements.

An intangible asset arising on acquisition, equal to consideration paid plus fair value of previously held interests less fair value of net identifiable assets acquired; it is not amortised but tested annually for impairment.

The process of combining a parent and its controlled subsidiaries into a single set of group financial statements, eliminating intra-group balances and transactions so users see the group as one entity.

The power to direct the relevant activities of an investee, exposure to variable returns from that investee, and the ability to use that power to affect those returns; it determines whether consolidation is required.

Current assets divided by current liabilities, showing how many times short-term obligations are covered by short-term resources; a rough indicator of liquidity and short-term solvency.

Cash, short-term investments and receivables divided by current liabilities, excluding inventory from the numerator because inventory may be slow to convert into cash.

Sales revenue less all variable costs, being the amount left to cover fixed costs and then generate profit; it can be expressed per unit or as a ratio of sales.

The level of sales, in units or revenue, at which total contribution equals total fixed costs so profit is zero; above it each additional unit adds contribution to profit.

The excess of budgeted or actual sales over break-even sales, expressed in units, revenue or percentage; it measures how far sales can fall before a loss arises.

A product costing method that assigns both variable and fixed production overheads to units produced, so unsold inventory carries a share of fixed cost into the statement of financial position.

A costing approach that charges only variable production costs to units, treating fixed production overheads as a period cost; profit differs from absorption costing when inventory levels change.

A predetermined rate used to charge indirect production costs to output, calculated by dividing budgeted overheads by budgeted activity such as labour hours or machine hours.

A system that sets expected costs for materials, labour and overhead, then compares actual results against those standards to produce variances for management attention and control.

The process of comparing actual performance with budget or standard, splitting the difference into price and quantity causes so managers can identify responsibility and take corrective action.

A budget restated for the actual level of activity achieved, allowing fair comparison with actual costs because it removes volume differences from the performance assessment.

A budgeting method where each activity's spending must be justified from a nil base rather than rolled forward from last year, forcing periodic review of whether expenditure is still worthwhile.

The sum of a project's future cash flows discounted at the required rate of return, less the initial outlay; a positive result means the project adds value to the firm.

The discount rate at which a project's net present value equals zero; a project is acceptable if this rate exceeds the required rate of return, though multiple rates can arise with unusual cash flows.

The minimum return investors require for providing funds to the firm, blending the after-tax cost of debt and the cost of equity by their relative weights in the capital structure.

The average cost of a firm's debt and equity finance, weighted by market values, used as the discount rate for projects of average risk in the same business line.

The mix of debt and equity used to finance a company's assets; more debt raises financial risk and interest obligations but can lower the average cost of capital up to a point.

A measure of the proportion of a company's finance provided by debt, often debt divided by equity or by total capital; higher gearing magnifies both returns and risk to shareholders.

The funds tied up in day-to-day operations, usually current assets less current liabilities; managing it means balancing inventory, receivables and payables to keep the cycle financed.

An entity such as a registered company that the law treats as capable of owning property, entering contracts, suing and being sued in its own name, separate from its owners.

The principle that shareholders of a limited company can lose only the amount unpaid on their shares, not their personal assets, for the company's debts and liabilities.

A court's exceptional power to disregard a company's separate legal personality and hold its members or directors personally liable, typically where the company was used as a sham or fraud instrument.

The conflict that arises when managers, acting as agents for shareholders, pursue their own interests such as empire building or risk avoidance rather than maximising shareholder wealth.

A legal obligation on directors to act in good faith in the best interests of the company, avoiding conflicts of interest and not making secret personal profits from their position.

The system of rules, board structures and controls by which companies are directed and held accountable, aiming to protect shareholders and stakeholders and maintain market confidence.

The percentage change in quantity demanded divided by the percentage change in price; demand is elastic when the value exceeds one and inelastic when it is below one.

The value of the next best alternative forgone when a resource is committed to one use; it is central to economic decision making even though it never appears in accounting records.

Falls in average cost per unit as output rises, arising from spreading fixed costs, specialisation of labour, bulk purchasing or improved technology over a larger production volume.

Money already spent that cannot be recovered whatever decision is now taken; it should be ignored in decision making because it does not differ between the alternatives available.

A future cash cost that differs between the alternatives being compared; costs that are the same under every option, or that are already committed, are excluded from the analysis.

A strategic review of an organisation's internal strengths and weaknesses alongside external opportunities and threats, used to match capabilities to the environment before setting objectives.

A framework assessing industry attractiveness through rivalry among existing firms, threat of new entrants, threat of substitutes, and the bargaining power of buyers and of suppliers.

Any party affected by or interested in an organisation's activities, such as shareholders, employees, customers, suppliers, lenders, regulators and local communities, each with differing expectations.

An ethical theory judging an action by its consequences, holding that the right choice is the one producing the greatest good for the greatest number of affected people.

A situation where a person's private interest, financial or personal, could improperly influence decisions made in a professional or fiduciary role; it must be disclosed or avoided.

The state of being free from relationships or interests that could compromise objectivity, essential for auditors and other professionals whose opinions must be relied upon by third parties.

Reporting suspected wrongdoing within an organisation, or to an appropriate external body, in the public interest; effective frameworks protect the reporter from retaliation.

The policies and procedures designed to safeguard assets, ensure reliable reporting and support compliance with laws, covering authorisation, segregation of duties, reconciliation and physical controls.

Splitting tasks so no single person both initiates and records or authorises a transaction, reducing the risk that errors or fraud go undetected in the process.

The use of software to examine large datasets for patterns, anomalies and trends, supporting audit testing, cost control and management decisions with evidence rather than sampling alone.

Datasets too large, fast-moving or varied for traditional tools, characterised by volume, velocity, variety and veracity, requiring specialised storage and analytical techniques.