UPMSP Intermediate Accountancy key terms

The relationship stating that a firm's total assets always equal its liabilities plus its owner's equity; every transaction keeps this balance intact.

The owner's claim on the business, representing money and assets invested plus profits retained, less losses and withdrawals.

Cash or goods taken out of the business by the proprietor for personal use; it reduces capital and is not a business expense.

Resources controlled by the business from which future economic benefit is expected, such as cash, stock, machinery and receivables.

Present obligations of the business arising from past events, whose settlement will require an outflow of resources, such as creditors and loans.

The rule that revenue and expense are recorded in the period they are earned or incurred, regardless of when cash actually moves.

The assumption that the business will continue operating for the foreseeable future, so assets are valued for use rather than for break-up sale.

The principle that a firm should apply the same accounting policies and methods period after period so results remain comparable.

The principle that expenses incurred to earn revenue in a period must be reported in that same period to compute true profit.

A written policy document issued by a recognised body prescribing how particular transactions and events should be recognised, measured and disclosed in financial statements.

The first record of a transaction showing date, accounts debited and credited, amount and a short narration, before posting to ledgers.

A single journal entry that debits or credits more than two accounts at once, used when one transaction affects several ledger accounts.

The book containing all accounts in T-account form, where journal entries are posted and each account's balance is worked out.

A statement listing all ledger account balances on a given date to check that total debits equal total credits.

A temporary account opened to hold the difference in a trial balance so that books can be closed while the error is traced.

A statement prepared to explain the difference between the cash book bank balance and the bank passbook balance on a particular date.

A cheque that the bank refuses to pay, for example due to insufficient funds; the payer must reverse the earlier payment entry.

The systematic allocation of the depreciable cost of a fixed asset over its useful life, reflecting wear, tear and obsolescence.

A depreciation method charging an equal amount each year, computed as cost less scrap value divided by useful life.

A depreciation method applying a fixed percentage to the asset's reducing book value, giving larger charges in early years.

An accumulated account credited each year with depreciation while the asset stays at original cost in the books.

An appropriation of profit retained in the business to strengthen the financial position or meet future needs, not a charge against profit.

A written instrument in which the maker directs another person to pay a stated sum to a specified party on demand or at a fixed future date.

A written promise by the maker to pay a definite sum to a named person or bearer on demand or at a fixed future date.

Signing the back of a bill or cheque to transfer the right to receive payment to another party.

Refusal by the drawee to accept or pay a bill; the holder then reverses the entries and may record noting charges.

An expense incurred in the current period but still unpaid at year end; it is added to the expense and shown as a liability.

An amount paid in the current period for a benefit that will be consumed in a later period; it is an asset at year end.

An account prepared by partnership firms to distribute profit among partners after interest, salary and transfer to reserve.

The account recording each partner's original investment, additional capital, share of profit and withdrawals, showing the closing claim.

The value of a firm's reputation, customer base and earning capacity beyond the value of its net assets.

The proportion in which existing partners give up their share of profit in favour of an incoming partner; goodwill is shared in this ratio.

The proportion in which continuing partners acquire the retiring or deceased partner's share, used to adjust goodwill on retirement or death.

An account opened on dissolution to record the sale of assets, payment of liabilities and the resulting gain or loss shared by partners.

The end of the relationship among partners, which may involve merely reconstitution or full winding up of the firm's affairs.

The amount contributed by shareholders and divided into units called shares, shown as a separate item under shareholders' funds.

A written acknowledgement of debt issued by a company, carrying a fixed rate of interest and usually repayable at a stated date.

Money not yet received from shareholders on allotted shares for calls already made; it is deducted from called-up capital.

A liquidity measure obtained by dividing current assets by current liabilities; a value near two is often considered comfortable.

A stricter liquidity test dividing quick assets, such as cash and receivables, by current liabilities after excluding stock and prepayments.

A statement classifying cash receipts and payments into operating, investing and financing activities to explain the change in cash.