KASNEB CA24 key terms

A method that records income when earned and expenses when incurred, regardless of when cash moves. It matches revenues with the costs that produced them in the same reporting period.

The rule that expenses are recognised in the same period as the revenues they helped generate, so reported profit reflects the true effort required to earn income.

A recording system in which every transaction affects at least two accounts, with total debits always equalling total credits, keeping the accounting equation in balance.

A listing of all ledger account balances at a given date, used to check that total debits equal total credits before financial statements are prepared.

The fundamental relationship stating that assets equal liabilities plus equity. Every transaction changes at least two elements while keeping the equation balanced.

The systematic allocation of the cost of a non-current asset over its useful life, reflecting consumption of economic benefit rather than changes in market value.

The value at which an asset or liability appears in the statement of financial position, being original cost less accumulated depreciation and any impairment losses.

A reduction in the recoverable value of an asset below its carrying amount, requiring a write-down so the asset is not overstated in the financial statements.

An amount paid in advance for goods or services not yet consumed, treated as an asset until the benefit is used up in a later period.

A cost incurred but not yet paid or invoiced at the reporting date, recognised as a liability so that expenses are recorded in the correct period.

An estimate of receivables that may not be collected, charged against profit so that debtors are shown at a realistic recoverable value.

A temporary account holding the difference when a trial balance does not agree, cleared once the underlying bookkeeping error is located and corrected.

A bookkeeping mistake where a transaction is entered in the wrong class of account, such as treating capital expenditure as revenue expenditure, so the trial balance still agrees.

Spending to acquire or improve a non-current asset whose benefit extends beyond one accounting period, recorded as an asset rather than an expense.

Spending on day-to-day operations or on maintaining an asset's current condition, charged to profit or loss in the period it is incurred.

A process comparing the organisation's cash book with the bank statement, explaining differences such as unpresented cheques and uncredited deposits to prove the correct cash balance.

A payment recorded in the cash book and issued to a payee but not yet presented to the bank, causing the bank statement balance to differ from the cash book.

A book of prime entry and ledger account that records receipts and payments, serving as the organisation's own record of its bank balance.

The owner's residual interest in the business after liabilities are deducted from assets, increased by profits and contributions and reduced by drawings.

The excess of current assets over current liabilities, measuring the short-term funds available to run daily operations and meet obligations as they fall due.

The ability of an entity to convert assets into cash quickly to meet short-term obligations without significant loss of value.

Current assets divided by current liabilities, indicating whether short-term resources are sufficient to cover obligations falling due within a year.

The proportion of an entity's capital funded by debt rather than equity, indicating financial risk because fixed interest and repayment obligations must be met regardless of profit.

The minimum return a business must earn on invested funds to satisfy lenders and owners, calculated as a weighted average of the costs of each funding source.

The difference between the present value of a project's expected cash inflows and its initial outlay, discounted at the cost of capital. A positive result suggests value creation.

The time required for cumulative cash inflows from an investment to recover the original outlay, used as a simple measure of risk and liquidity.

The discount rate at which a project's net present value equals zero, representing the annual return the investment is expected to earn.

The principle that a sum received today is worth more than the same sum received later, because money can be invested to earn a return in the meantime.

The rate used to convert future cash flows into their present value, reflecting the required return and the riskiness of those cash flows.

The possibility of loss arising from interest rate movements, currency changes, counterparty default or excessive borrowing, affecting an entity's ability to meet obligations.

The danger that a borrower or counterparty fails to meet repayment obligations in full and on time, causing the lender to suffer a financial loss.

A framework for assessing a borrower covering character, capacity, capital, collateral and conditions, used to judge willingness and ability to repay.

An asset pledged by a borrower that the lender may seize and sell if repayment fails, reducing the lender's loss in the event of default.

Failure by a borrower to pay interest or principal when due, or to comply with other agreed loan conditions, triggering the lender's remedies.

An analysis of receivables grouped by how long they have been outstanding, helping management estimate likely bad debts and target collection effort.

The policies and procedures a business uses to grant credit, monitor debtor balances and pursue overdue amounts so that receivables are collected promptly.

The maximum amount of credit a lender or supplier allows a customer to owe at any one time, capping exposure to that customer's default risk.

An amount set aside from earnings to absorb expected credit losses on a loan portfolio, reducing the carrying value of loans to a realistic figure.

The system of rules, practices and processes by which an organisation is directed and controlled, balancing the interests of shareholders, management and other stakeholders.

The conflict that arises when managers, acting as agents for owners, pursue their own interests rather than those of the shareholders they are meant to serve.

The body elected by shareholders to oversee the organisation's strategy and hold management accountable, including independent members who exercise objective judgement.

A committee of non-executive directors responsible for overseeing financial reporting, internal controls and the independence of external auditors.

The policies and procedures designed to safeguard assets, ensure reliable records and prevent fraud and error, covering authorisation, segregation of duties and reconciliation.

Splitting tasks so that no single person both authorises and records a transaction or handles the related asset, reducing the opportunity for fraud.