Zenkei Bookkeeping Grade 1 key terms

A coherent set of objectives and concepts that guides the development of accounting standards and helps preparers choose treatments when no specific rule exists. It defines the objective of financial reporting, qualitative characteristics, elements, and recognition and measurement bases.

The attributes that make financial information useful: relevance and faithful representation as fundamental characteristics, and comparability, verifiability, timeliness, and understandability as enhancing characteristics. They guide decisions about what to disclose and how to present it.

Information that depicts the economic substance of a transaction completely, neutrally, and free from material error. Substance over legal form matters here: a transaction is shown for what it economically achieves rather than merely how it is legally documented.

The principle that accounting reflects the economic reality of a transaction rather than only its legal wrapper. A sale-and-repurchase agreement, for example, may be accounted for as secured borrowing if the seller retains the risks and rewards of ownership.

A present economic resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow. Control, not legal ownership, is decisive, which is why leased right-of-use assets are recognized.

A present obligation of the entity to transfer an economic resource as a result of past events. The obligation may be legally enforceable or arise from a constructive practice that creates a valid expectation in other parties.

The conditions for recording revenue, typically satisfied when control of a promised good or service transfers to the customer in an amount reflecting the consideration expected. Performance obligations are identified and satisfied over time or at a point in time.

A promise in a contract with a customer to transfer a distinct good or service. Revenue is allocated to each obligation based on relative standalone selling price and recognized when that obligation is satisfied.

A right to consideration in exchange for goods or services transferred, where that right is conditional on something other than the passage of time, such as future certification. It differs from a receivable, which is an unconditional right to payment.

An obligation to transfer goods or services to a customer for which consideration has already been received or is due. Commonly called deferred revenue or advance received, it is released to revenue as the performance obligation is satisfied.

Recording transactions when the underlying economic event occurs, not when cash moves. Revenues are matched with the expenses incurred to generate them, producing receivables, payables, and adjusting entries at period end.

Expenses are recognized in the same period as the revenues they helped generate, regardless of when cash is paid. It drives depreciation, cost of goods sold, and allocation of prepayments over their benefit periods.

An expense incurred during the period but not yet paid or recorded, such as unpaid wages or interest. An adjusting entry debits the expense and credits an accrued liability, reversing in the next period if paid then.

Revenue earned during the period but not yet billed or collected, such as interest on a deposit or services performed before invoicing. The adjusting entry debits a receivable and credits revenue.

Cash received before the related good or service is delivered, recorded as a liability until earned. Each period-end adjustment reduces the liability and recognizes the portion of revenue earned.

A payment made before the benefit is consumed, initially recorded as an asset and expensed over the periods benefited. Examples include prepaid rent, insurance, and consumable supplies on hand at period end.

A period-end journal entry that updates account balances for accruals, deferrals, depreciation, and estimates so that statements reflect the accrual basis. It always involves at least one income statement and one balance sheet account.

Systematic allocation of the depreciable cost of a tangible fixed asset over its useful life. Methods include straight-line, declining balance, and units of production; the choice must reflect the pattern of consumption of benefits.

A reduction in the carrying amount of an asset when its recoverable amount falls below book value. The loss is recognized immediately in profit or loss, and reversal rules depend on the asset class.

A liability of uncertain timing or amount, recognized when a present obligation exists, an outflow is probable, and the amount can be reliably estimated. Warranty and restructuring obligations are typical examples.

A possible obligation whose existence depends on uncertain future events, or a present obligation that fails the recognition criteria. It is disclosed rather than recognized unless the outflow is remote.

Events occurring after the reporting date but before the statements are authorized for issue. Adjusting events provide evidence of conditions existing at year end; non-adjusting events are disclosed if material.

The assumption that the entity will continue operating for the foreseeable future without liquidation or material curtailment. If doubts exist, management must disclose uncertainties and may need to prepare statements on a different basis.

Information is material if omitting or misstating it could influence decisions of users. Materiality depends on size and nature, and it justifies simplified presentation of immaterial items.

The amount at which an asset or liability is recognized on the balance sheet, net of accumulated depreciation, amortization, or impairment. It is compared with recoverable amount in impairment testing.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is a market-based exit price, not entity-specific value.

Recording transactions in the general journal as balanced debits and credits with dates and explanations. Correct journalizing requires identifying accounts affected, their classification, and the direction of each change.

A journal entry with more than two accounts, such as recording a purchase partly in cash and partly on credit. Total debits must still equal total credits, and the entry must preserve the accounting equation.

A temporary account used to hold an unresolved difference or unidentified item so that a trial balance can be forced to agree. It must be investigated and cleared before financial statements are finalized.

A listing of ledger account balances at a point in time to verify that total debits equal total credits. It detects arithmetic errors but not errors of principle, omission, or compensating errors.

A bookkeeping error where a transaction is recorded in the wrong class of account, such as capital expenditure charged to repairs expense. It does not disturb trial balance agreement but misstates profit and assets.

Spending that creates or enhances a non-current asset and benefits future periods, recorded on the balance sheet rather than expensed. Examples include acquisition, installation, and major improvements.

The period over which an asset is expected to be available for use by the entity, or the number of units expected from it. It determines depreciation charges and is reviewed at least annually.

The branch of accounting that accumulates, classifies, and allocates costs of products, services, and activities. It supports inventory valuation for external reporting and provides data for pricing and performance evaluation.

A costing method that assigns only variable manufacturing costs to products, treating fixed overhead as a period expense. It is used internally for decisions such as break-even analysis and short-term pricing.

A costing method that assigns all manufacturing costs, including fixed overhead, to product cost. It is required for external inventory valuation and causes profit differences from variable costing when inventory levels change.

Assigning indirect manufacturing costs to products using a systematic basis such as direct labor hours or machine hours. Predetermined rates are used, with under- or over-applied overhead disposed of at period end.

A predetermined unit cost for materials, labor, and overhead used as a benchmark. Variances between standard and actual costs are analyzed by price and quantity components to explain performance.

Sales revenue minus variable costs, representing the amount available to cover fixed costs and generate profit. It underpins break-even and cost-volume-profit analysis and short-term decision making.

Statements presenting a parent and its subsidiaries as a single economic entity. They combine assets, liabilities, revenues, and expenses after eliminating intra-group balances and transactions.

The excess of consideration transferred plus the fair value of non-controlling interest over the fair value of identifiable net assets acquired. It is not amortized but tested annually for impairment.

The portion of a subsidiary's net assets and profit attributable to shareholders other than the parent. It is presented within equity in the consolidated balance sheet and separately in profit allocation.

A method for associates and joint ventures where the investment is initially at cost and subsequently adjusted for the investor's share of post-acquisition profit or loss and other comprehensive income. Dividends reduce the carrying amount.

Recognition of a right-of-use asset and a lease liability by lessees for most leases, with the liability measured at the present value of future lease payments. Short-term and low-value leases may be expensed.

The lessee's asset representing its right to use an underlying asset over the lease term. It is initially measured at the lease liability plus initial direct costs, then depreciated and tested for impairment.

A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another. Classification depends on the business model and contractual cash flow characteristics.

The process of converting accounting profit into taxable income by adding back non-deductible expenses and deducting non-taxable income or allowed deductions. It produces current tax expense and deferred tax items.

Tax recognized on temporary differences between the carrying amount of assets and liabilities and their tax bases. It is measured at expected future tax rates and classified as deferred tax asset or liability.

A difference between carrying amount and tax base that will produce taxable amounts in future periods when the asset is recovered or liability settled. It gives rise to a deferred tax liability.

Income tax expense divided by pre-tax accounting profit. It differs from the statutory rate because of permanent differences, tax credits, and changes in unrecognized deferred tax assets.

The board resolution creating a legal obligation to pay dividends to shareholders of record. It reduces retained earnings and creates a dividend payable on the declaration date, not the payment date.

Disclosure of revenue, profit, assets, and liabilities for each reportable operating segment, identified on the basis of internal management reporting. It helps users assess the nature and financial effects of business activities.

The exercise of caution when making judgments under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated. It does not permit deliberate understatement or hidden reserves.