KASNEB CIFA Foundation key terms

A system of recording transactions in which every event is entered twice, once as a debit and once as a credit of equal amount, so total debits always equal total credits.

A list of all ledger account balances at a given date, with debits in one column and credits in another, prepared to check arithmetical accuracy before financial statements are drawn up.

The rule that income and expenses are recorded in the period they are earned or incurred, not when cash moves, so reported profit reflects activity rather than cash receipts and payments.

The assumption that a business will keep operating for the foreseeable future, so assets are valued on a basis other than forced sale and costs are spread over benefiting periods.

The systematic allocation of the cost of a non-current asset, less any residual value, over the periods expected to benefit from its use, reflecting wear, time or obsolescence.

An estimate charged against profit for receivables that may not be collected, reducing trade receivables to a realistic amount while the actual bad debt remains uncertain.

A schedule explaining the difference between the cash book balance and the bank statement balance at a date by listing items such as unpresented cheques, uncredited deposits and bank charges.

A temporary ledger account that holds the difference when a trial balance does not agree, later cleared once the underlying bookkeeping errors have been located and corrected.

Spending on acquiring or improving non-current assets that will benefit several accounting periods; it is recorded as an asset rather than charged to profit in one year.

A summary ledger account whose balance is reconciled with the total of individual balances in a subsidiary ledger, used to detect errors and discourage fraud in receivables or payables records.

The excess of current assets over current liabilities, representing funds available to finance day-to-day trading such as buying stock and paying short-term debts.

A possible obligation whose existence depends on a future uncertain event not wholly within the entity's control; it is disclosed in the notes unless payment is considered remote.

The accounting convention of exercising caution so that assets and income are not overstated and liabilities and expenses are not understated when figures must be estimated under uncertainty.

The value of the next best alternative forgone when a choice is made; it measures the true cost of using scarce resources in one way rather than another.

The quantity of a good or service that buyers are willing and able to purchase at each possible price over a given period, other influences held constant.

The percentage change in quantity demanded divided by the percentage change in price; it shows how responsive buyers are to a price change and is normally negative for most goods.

The price at which quantity demanded equals quantity supplied, so there is neither shortage nor surplus and the market has no tendency to move away from it.

A sustained rise in the general price level of goods and services, which reduces the purchasing power of money and is commonly measured using a consumer price index.

The total market value of final goods and services produced within a country's borders during a period, used as the main measure of national output and income.

The extra satisfaction a consumer derives from consuming one additional unit of a good in a given period; it usually declines as consumption of that good increases.

A market structure in which one seller supplies a product with no close substitutes and faces high barriers to entry, giving the firm power over price.

Government decisions on taxation and public spending intended to influence aggregate demand, output, employment and the distribution of income in the economy.

A systematic record of all economic transactions between residents of a country and the rest of the world in a period, covering the current and capital or financial accounts.

The principle that a country gains from specialising in goods it produces at a lower opportunity cost than its trading partners, even if it is less efficient in absolute terms.

A cost or benefit arising from production or consumption that falls on third parties not involved in the transaction and is not reflected in market prices.

The number of people without work but actively seeking it, expressed as a percentage of the labour force, which comprises the employed plus the unemployed.

Interest calculated only on the original principal for the whole period, using the relationship interest equals principal multiplied by rate multiplied by time, with no interest earned on interest.

Interest computed on the principal plus interest already accrued, so the accumulated amount grows at a geometric rate over successive periods rather than a constant one.

The amount today that, if invested at a stated rate for a stated time, would grow to a specified future sum; it is the reverse of compounding.

A series of equal payments made at regular intervals over a fixed period, such as a loan instalment or pension, which can be valued in present or future terms.

The sum of all observed values divided by the number of observations; it is the most common measure of central tendency and is easily distorted by extreme values.

The middle value of a data set once observations are arranged in order; it splits the distribution into two equal halves and is less affected by outliers than the mean.

A measure of dispersion equal to the positive square root of the variance, showing how far values typically lie from the mean in the original units of measurement.

A number between zero and one expressing how likely an event is, where zero means impossible and one means certain; it may be derived from equally likely outcomes or observed frequencies.

A statistic between minus one and plus one measuring the strength and direction of a linear association between two variables, without implying that one variable causes the other.

A figure expressing the value of a variable in one period as a percentage of its value in a chosen base period, used to track changes in prices, output or wages over time.

A set of values of a variable recorded at successive intervals over time, analysed for trend, seasonal, cyclical and irregular movements.

The level of sales, in units or revenue, at which total revenue equals total cost, so the business earns neither profit nor loss.