KASNEB CPA Foundation key terms

A recording system in which every transaction is entered twice, once as a debit and once as a credit of equal amount, so that the accounting equation stays in balance at all times.

A list of all ledger account balances at a given date, with debits and credits in separate columns, used to check that total debits equal total credits before financial statements are prepared.

An accounting approach in which income is recorded when earned and expenses when incurred, regardless of when cash changes hands, giving a truer picture of performance than cash records alone.

The assumption that an entity will continue operating for the foreseeable future, so assets are not valued at forced-sale amounts and liabilities are split into current and non-current.

The convention of exercising caution when making estimates under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated.

The systematic allocation of the depreciable amount of a non-current asset over its useful life, reflecting consumption of economic benefits rather than a fall in market value.

A statement explaining differences between the cash book balance and the bank statement balance, such as unpresented cheques, uncleared deposits and bank charges, to arrive at an agreed figure.

The principle that shareholders of a company are liable for its debts only up to the amount unpaid on their shares, so personal assets are protected from business creditors.

The two-step process by which a contract is formed: one party proposes definite terms and the other agrees to them exactly, with the agreement communicated so a binding contract arises.

Something of value given by each party in exchange for the other's promise, such as money, goods or a service, without which a simple contract is generally unenforceable.

A measure of how strongly quantity demanded responds to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.

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

The idea that money available now is worth more than the same amount later because it can earn interest, so future cash flows must be discounted before they are compared.

A written document setting out a venture's objectives, market, operations, management and financial projections, used to guide the owners and to raise finance.

The policies and procedures an entity uses to safeguard its assets, produce reliable records and promote efficient operations and compliance with applicable laws and regulations.

A body of principles that guides the development of accounting standards and helps preparers choose treatments where no specific standard applies, covering elements, recognition and measurement.

Accounting standards issued by the IASB and adopted in many jurisdictions, setting out how transactions and balances must be recognised, measured, presented and disclosed in general purpose financial statements.

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.

A possible obligation from past events whose existence will be confirmed only by uncertain future events, or a present obligation that cannot be measured reliably, so it is disclosed rather than recognised.

The tax expected to be paid or recovered in future periods because of temporary differences between the accounting carrying amounts and the tax bases of assets and liabilities.

The lessee's asset representing its right to use a leased item for the lease term, recognised together with a corresponding lease liability under the current lease standard.

The process of recording income when control of goods or services passes to the customer, measured at the amount the entity expects to be entitled to under the five-step model.

Sales revenue less variable costs, showing the amount each unit or product line contributes towards covering fixed costs and, once those are covered, generating profit.

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

A system that sets predetermined costs for materials, labour and overhead, then compares actual results with those standards to identify, analyse and investigate variances.

The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated, comprising inherent risk, control risk and detection risk.

The threshold at which omissions or misstatements could influence the economic decisions of users, guiding what the auditor tests, what is corrected and what is disclosed.

Tax relief that allows a business to deduct the cost of qualifying assets from taxable profits over time, replacing accounting depreciation for tax computation purposes.

The excess of consideration transferred plus non-controlling interest over the fair value of net identifiable assets acquired, recognised as an asset and tested at least annually for impairment.

The share of a subsidiary's net assets and profits attributable to shareholders other than the parent, presented separately within consolidated equity and profit.

The average rate a company expects to pay to all its security holders to finance its assets, weighting the after-tax cost of debt and the cost of equity by their relative proportions.

The sum of discounted future cash inflows less outflows for a project, using the cost of capital as the discount rate; a positive result suggests the investment adds value.

A costing method that assigns overhead to products according to the activities they consume, using cost drivers such as machine setups and customer orders, giving more accurate product costs.

A performance framework that measures an organisation from financial, customer, internal process and learning perspectives, linking day-to-day activity to its long-term strategy.

Those matters that, in the auditor's professional judgement, were of most significance in the audit of the current period and are described in the auditor's report.

The price charged for goods, services or funds supplied between related parties or divisions, affecting reported profit in each segment and required to satisfy arm's-length tax rules.

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

Taking a position, often using a derivative instrument, intended to offset the risk of adverse price, interest rate or exchange rate movements on an existing exposure.