KASNEB CS33 key terms

An accounting method that records income when it is earned and expenses when they are incurred, regardless of when cash actually moves. It gives a truer picture of performance than cash-based records.

A system in which every transaction is entered twice, as an equal debit and credit, so that total debits always equal total credits. It provides a built-in check on the accuracy of the records.

The systematic allocation of the cost of a long-lived asset, such as machinery, over the periods that benefit from its use. It spreads expense recognition rather than measuring the asset's market value.

A listing of all ledger account balances at a point in time, with debits and credits in separate columns. Equal totals suggest the arithmetic is sound, though they do not prove the records are free of error.

An estimate of receivables that may not be collected, charged as an expense and deducted from the receivables balance. It applies prudence by matching expected losses with the period of sale.

The assumption that an entity will continue operating for the foreseeable future, normally at least twelve months. It underpins the use of historical cost rather than break-up values when preparing accounts.

A comparison of the entity's cash book with the bank statement, explaining differences such as unpresented cheques, deposits in transit, bank charges and errors, to arrive at an agreed balance.

The threshold at which an omission or misstatement could influence the economic decisions of users of the financial statements. It guides what must be disclosed, corrected or investigated during an audit.

The excess of current assets over current liabilities, representing funds tied up in day-to-day operations. Managing it balances keeping enough liquidity against the cost of holding stock and receivables.

The sum of a project's expected cash flows discounted to today's value at the required rate of return, less the initial outlay. A positive result suggests the project adds value.

The blended average cost of a firm's debt and equity, weighted by their share of total funding. It is the minimum return new investments must earn to satisfy lenders and shareholders.

The principle that money available now is worth more than the same amount later, because it can be invested to earn a return. It underlies discounting, compounding and valuation techniques.

A measure of how much of a firm's funding comes from debt rather than equity, often expressed as debt to equity or debt to total capital. High gearing raises both return potential and financial risk.

The process of evaluating and selecting long-term investments such as new plant or acquisitions, using tools like payback, internal rate of return and net present value, before committing funds.

A measure of whether short-term assets can cover short-term obligations, such as the current ratio and the quick ratio. It indicates the ability to meet bills as they fall due.

The possibility that a borrower will fail to pay interest or principal on time, causing loss to the lender. It is assessed through capacity, character, collateral and economic conditions.

An asset pledged by a borrower to secure a loan, which the lender may seize and sell if repayment fails. It reduces loss severity but does not guarantee repayment.

A statistical method that converts borrower characteristics such as income, repayment history and existing debt into a numerical score used to rank applications by default likelihood.

A loan on which the borrower has stopped servicing interest or principal for a defined period, often ninety days. Such loans require impairment provisioning and closer management attention.

The loan amount expressed as a percentage of the pledged asset's value. Higher ratios mean less cushion for the lender if the asset must be sold after default.

A condition written into a loan agreement requiring the borrower to maintain certain standards, such as a maximum debt level, or to refrain from specified actions.

An organisation that collects repayment and borrowing records from lenders and sells credit reports and scores to help them assess applicants' creditworthiness consistently.

The system of rules, practices and processes by which a company is directed and controlled, defining accountability among the board, management, shareholders and other stakeholders.

A legal obligation of directors and officers to act in the best interests of the company, with loyalty and care, ahead of personal gain.

A board member with no material business, family or employment relationship with the company, able to exercise objective judgement and challenge executive decisions.

A subcommittee of non-executive directors responsible for overseeing financial reporting, external and internal audit, and internal controls, reporting its findings to the full board.

The policies, procedures and systems designed to safeguard assets, ensure reliable reporting and keep operations compliant with laws and management instructions.

Splitting tasks so that no single person both initiates and records or authorises a transaction, reducing the chance of error or fraud going unnoticed.

The conflict that arises when managers, acting as agents, pursue their own interests rather than those of owners, because the two groups' goals and information differ.

The reporting, usually through an internal channel or to a regulator, of suspected wrongdoing such as fraud, unsafe practice or breach of law within an organisation.

The amount and type of risk an organisation is willing to accept in pursuing its objectives, set by the board and translated into limits for management.

Integrated software that runs core business functions such as accounting, purchasing, inventory and payroll on a shared database, giving one version of transactions across the organisation.

The set of rules and tools that determine who may view or change which systems and data, typically through unique user accounts, passwords and role-based permissions.

A chronological record of who did what and when in a system, including logins and changes to transactions or master data, allowing activity to be reconstructed and reviewed.

Copies of data and systems kept separately, plus tested procedures for restoring them, so that operations can resume after loss, corruption or disaster.

The conversion of data into coded form using a key, so that only holders of the matching key can read it, protecting information in transit and at rest.

The practices and controls that protect networks, systems and data from unauthorised access, theft, disruption or damage, including firewalls, monitoring and staff awareness.

Controls over the IT environment as a whole, such as change management, access security and backup, which support the reliable operation of application controls and financial reporting.