UPMSP Vocational Accountancy & Auditing key terms

The book of original entry where every transaction is first recorded in date order, showing the accounts debited and credited with a short narration explaining the reason for the entry.

A method of bookkeeping in which every transaction affects at least two accounts, one debited and one credited by equal amounts, so total debits always equal total credits.

The principal book of accounts in which all transactions are posted from subsidiary books into individual accounts, showing a running balance for each account.

The process of transferring entries from the journal or subsidiary books into the relevant ledger accounts, preserving the debit and credit sides and the date of each transaction.

A statement listing the closing balances of all ledger accounts as at a date, used to check that total debit balances equal total credit balances before final accounts are prepared.

A temporary account opened to hold the difference in a trial balance that does not agree, cleared once the underlying errors are located and corrected.

Special-purpose journals such as purchases book, sales book, cash book and returns books, in which repetitive types of transactions are recorded before posting to the ledger.

A book that records all cash and bank receipts and payments in date order, and also acts as the ledger account for cash and bank when maintained as a principal book.

A statement prepared to explain the difference between the balance shown in the cash book and the balance shown in the bank pass book on a given date.

A cheque that the bank refuses to pay, for example due to insufficient funds or a signature mismatch, so the earlier receipt or payment must be reversed in the books.

The systematic allocation of the depreciable cost of a fixed asset over its useful life, reflecting wear and tear, obsolescence or passage of time rather than a fall in market value.

A depreciation method in which an equal amount is charged each year, calculated as cost less residual value divided by the number of years of useful life.

A depreciation method in which a fixed percentage is applied to the reducing book value of the asset each year, giving a higher charge in early years and lower charges later.

The total depreciation charged on an asset since its purchase, shown as a contra-asset and deducted from cost to arrive at the asset's book value.

The first part of the final accounts, which matches net sales against cost of goods sold to disclose gross profit or gross loss for the period.

The statement that records indirect expenses and other incomes to convert the gross profit or loss from the trading account into net profit or net loss.

A statement of assets, liabilities and capital on a specified date, prepared to show the financial position of the business after the profit and loss account is closed.

The value of unsold goods remaining at the end of an accounting period, credited in the trading account and shown as a current asset in the balance sheet.

A written agreement among partners setting out capital contributions, profit-sharing ratio, interest on capital, salary and other terms governing the partnership.

The agreed proportion in which partners divide profits and losses, applied to the profit and loss appropriation account and to gains on revaluation.

An extension of the profit and loss account for a partnership that shows how net profit is distributed as interest on capital, partner salaries, commission and transfers to reserves.

The account recording each partner's original investment and subsequent additions or withdrawals of capital, as distinct from current account items such as drawings and share of profit.

The amount contributed by shareholders to a company, divided into units called shares and classified as authorised, issued, subscribed and paid-up capital.

The amount received on issue of shares above their face value, credited to a separate securities premium account and usable only for purposes permitted by company law.

The amount of calls made on shares that shareholders have not yet paid, shown as a deduction from called-up capital in the company's balance sheet.

A written acknowledgement of debt issued by a company, carrying a fixed rate of interest and usually repayable after a stated period, with holders ranking as creditors.

A statement prepared to collect and classify prime cost, works cost, cost of production and cost of sales for a product or period, ending in the total cost and profit.

The sum of direct material, direct labour and direct expenses incurred in producing a product or service, before factory overheads are added.

Indirect costs such as factory rent, supervision and power that cannot be traced directly to a unit of output and must be apportioned or absorbed on a suitable basis.

A technique that separates fixed and variable costs and values inventory at variable cost only, so contribution equals sales less variable cost.

The excess of sales revenue over variable costs, which first covers fixed costs and then produces profit, expressed in total or per unit.

The level of sales at which total revenue equals total cost and there is neither profit nor loss, calculated as fixed cost divided by contribution per unit or by the contribution-to-sales ratio.

All information used by the auditor to support the audit opinion, obtained through inspection, observation, enquiry, confirmation, recalculation, reperformance and analytical procedures.

The records kept by the auditor of procedures performed, evidence obtained and conclusions reached, providing support for the audit report and a basis for review.

The policies and procedures adopted by management to ensure orderly and efficient conduct of business, safeguarding of assets, accuracy of records and timely preparation of reliable financial information.

A arrangement of duties within the organisation such that the work of one person is automatically checked by another, reducing the chance of error or fraud going undetected.

An independent appraisal function within an organisation that examines and evaluates its accounting, financial and operating controls and reports findings to management.

A report in which the auditor states that, except for the effect of a specified matter, the financial statements give a true and fair view, because the disagreement or limitation is not pervasive.

An opinion expressed when misstatements are both material and pervasive, so the auditor concludes that the financial statements as a whole do not give a true and fair view.