KASNEB CA26 key terms

A recording method in which every transaction is entered in at least two accounts, as a debit and an equal credit, so the accounting equation stays balanced and many errors are revealed.

A schedule listing the closing balance of every ledger account at a chosen date in debit and credit columns, used to test whether total debits equal total credits before statements are prepared.

A basis of accounting that recognises income when it is earned and expenses when they are incurred, irrespective of the timing of cash receipts and payments.

The systematic allocation of the depreciable amount of a non-current asset over the periods expected to benefit from its use, reflecting consumption rather than market value movements.

An estimate of amounts owed by customers that may never be collected, charged to profit so that receivables are reported at a realistic recoverable figure.

A fall in the carrying amount of an asset to its recoverable amount when that figure is lower than the amount recorded in the books, recognised as a loss in the period.

A procedure comparing the bank statement with the entity's cash book, identifying timing differences, unrecorded items and errors so that a corrected cash balance is agreed.

The level at which omissions or misstatements, individually or together, could reasonably influence decisions of users of financial statements, and therefore need correction or disclosure.

The assumption that an entity will continue trading for the foreseeable future, with neither the intention nor the necessity to liquidate or curtail significantly the scale of operations.

The excess of current assets over current liabilities, representing the short-term funds tied up in operations and available to meet day-to-day obligations.

The volume of sales at which total contribution exactly equals total fixed costs, so the business reports neither profit nor loss for the period.

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 intervening period.

The total of a project's expected future cash flows discounted at the required rate of return, less the initial investment; a positive figure indicates the project adds value.

The process of identifying, evaluating and choosing long-term investment projects, using methods such as payback, accounting rate of return, internal rate of return and net present value.

The weighted average return demanded by lenders and shareholders for supplying funds to the entity, commonly used as the minimum acceptable return on new investments.

The proportion of fixed-return debt in an entity's capital structure; higher gearing magnifies returns to owners in good years but increases financial risk and volatility.

A measure such as current assets divided by current liabilities, indicating whether short-term resources are sufficient to settle obligations falling due within a year.

Holding a spread of investments whose returns do not move together, so that risks specific to individual securities are reduced without necessarily lowering expected return.

A measure of the sensitivity of a share's returns to movements in the overall market, used in the capital asset pricing model to estimate the return investors require.

The possibility that a borrower or counterparty will fail to meet interest and principal obligations in full and on time, causing the lender to suffer financial loss.

Assets or third-party guarantees pledged by a borrower which the lender may realise on default, reducing the loss suffered if repayment fails.

A statistical technique that ranks applicants by likely repayment behaviour, using weighted factors such as income, existing obligations and past repayment record, to support lending decisions.

An assessment framework covering character, capacity, capital, collateral and conditions, used by lenders to judge both willingness and ability to repay a facility.

A facility on which interest or principal has remained unpaid beyond an agreed period, commonly ninety days, signalling that credit quality has seriously deteriorated.

A condition written into a lending agreement requiring the borrower to maintain specified financial standards or to refrain from certain actions, giving the lender early protection.

The principles, systems and processes by which an organisation is directed and controlled, balancing accountability to owners with the interests of other stakeholders.

The conflict that arises when managers, acting as agents for the owners, pursue personal goals or perquisites instead of maximising shareholder wealth.

The degree to which directors, especially non-executive directors, are free of personal, financial or family ties that could weaken objective scrutiny of management.

The policies, procedures and structures established to safeguard assets, produce reliable records, operate efficiently and encourage compliance with laws and regulations.

An arrangement in which authorisation, recording and custody of a transaction are assigned to different people, reducing the chance that errors or fraud pass unnoticed.

An independent appraisal activity inside the organisation that examines risk management, control and governance processes and reports findings to the board or its audit committee.

The structured process of identifying, measuring, prioritising and responding to uncertainties that could prevent an organisation from achieving its objectives.

A formal statement of the values and behavioural standards expected of members of a profession, typically covering integrity, objectivity, confidentiality, competence and professional behaviour.

Integrated business software sharing one database across finance, purchasing, inventory and other functions, so transactions are captured once and used throughout the organisation.

Controls built into a particular software application, such as input validation, batch totals and file checks, to ensure transactions are complete, accurate and properly authorised.

Controls over the computing environment as a whole, including access management, change control, backup and operations, which support the reliable working of every application.

The rules and mechanisms deciding who may view or alter particular systems and data, usually enforced through user accounts, passwords and role-based permissions.

The conversion of data into a coded form that can only be read by someone holding the correct key, protecting confidentiality while information is stored or transmitted.

Documented procedures for restoring systems, data and critical operations after a major disruption, setting out backup arrangements, alternate sites and recovery priorities.