KICPAA ATQ key terms

The systematic process of identifying, recording, classifying, summarizing, and reporting financial transactions of an entity so that users can make informed economic decisions. It produces financial statements and supports accountability, planning, and control within an organization.

A body of conventions, rules, and procedures that define accepted accounting practice in a given jurisdiction. It guides how transactions are measured, recognized, and disclosed, giving comparability and credibility to financial reporting across entities and periods.

A set of globally recognized accounting standards issued by the IASB that prescribe how transactions and balances are recognized, measured, presented, and disclosed. IFRS emphasizes fair value and principle-based judgment, and is adopted or converged with in many countries.

The fundamental relationship Assets = Liabilities + Equity. Every transaction keeps this equation balanced, which underpins double-entry bookkeeping and explains how resources are financed either by creditors or by owners' residual interest.

A recording method in which each transaction affects at least two accounts with equal total debits and credits. This built-in check keeps the ledger balanced and allows errors to be detected through a trial balance.

The two opposing sides of every ledger account. Debits increase assets and expenses and decrease liabilities, equity, and income; credits do the reverse. Their equal totals in each entry preserve the balance of the accounts.

A structured set of reports comprising the statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity, statement of cash flows, and notes. Together they communicate an entity's financial performance and position to stakeholders.

A statement showing an entity's assets, liabilities, and equity at a specific date. It reveals what the entity owns, what it owes, and the owners' residual interest, helping users assess liquidity, solvency, and financial structure.

A report summarizing revenues, expenses, gains, and losses over an accounting period to arrive at profit or loss. It shows whether operations generated a surplus and helps users evaluate profitability, cost control, and earnings trends.

Resources controlled by an entity as a result of past events and expected to produce future economic benefits. Examples include cash, receivables, inventory, equipment, and property. Recognition depends on reliable measurement and probable benefit inflow.

Present obligations of an entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits. They include payables, borrowings, and accrued obligations, and are classified as current or non-current.

The residual interest in an entity's assets after deducting all its liabilities. It represents owners' capital contributions plus retained profits and reserves, and it absorbs losses, reflecting the net worth attributable to shareholders or proprietors.

Increases in economic benefits during a period in the form of inflows or enhancements of assets, or decreases in liabilities, that increase equity other than contributions from owners. Revenue is recognized when control of goods or services passes to the customer.

Decreases in economic benefits during a period in the form of outflows or depletion of assets, or incurrence of liabilities, that reduce equity other than distributions to owners. Expenses are matched with the revenues they help generate.

The rules determining when revenue is recorded. Under the five-step model, an entity identifies the contract, performance obligations, transaction price, allocates the price, and recognizes revenue when each obligation is satisfied, usually on transfer of control.

The convention that expenses should be recognized in the same period as the revenues they helped earn, regardless of when cash is paid. It supports accrual accounting and produces a more faithful measure of periodic profit.

A basis of accounting that records transactions when they occur, not when cash changes hands. Revenues are recognized when earned and expenses when incurred, so receivables, payables, accruals, and prepayments appear in the statements.

Adjusting entries at period end. Accruals record income earned or expenses incurred but not yet invoiced or paid; prepayments defer amounts already paid or received to future periods. Both ensure revenues and expenses fall in the correct period.

The systematic allocation of the depreciable amount of a tangible non-current asset over its useful life. Methods include straight-line and reducing balance; the charge reflects consumption of economic benefits rather than market value decline.

A reduction in the carrying amount of an asset when its recoverable amount falls below book value. Recoverable amount is the higher of fair value less costs of disposal and value in use; the loss is charged to profit or loss.

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. It is a market-based exit price, not entity-specific value.

The exercise of caution when making judgments under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated. It does not permit deliberate understatement or creation of hidden reserves.

The assumption that an entity will continue operating for the foreseeable future, without intention or necessity to liquidate or curtail operations. It justifies preparing statements on a historical cost and accrual basis rather than at break-up values.

A listing of all ledger account balances at a date, with debit and credit columns that should total equally. It detects arithmetic and posting errors but does not prove that all entries were correct or complete.

Cumulative net profits of an entity that have not been distributed as dividends or transferred to other reserves. It forms part of equity and represents internally generated finance available for reinvestment or future distribution.

A distribution of profits by a company to its shareholders, usually in cash or shares. Dividends reduce retained earnings and total equity; they are not an expense and are recognized when declared or approved by the appropriate authority.

A statement classifying cash movements into operating, investing, and financing activities over a period. It explains changes in cash and cash equivalents and helps users assess liquidity, solvency, and ability to generate future cash.

Cash on hand and at bank plus short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of value change, typically with original maturities of three months or less.

The principle that information is material if omitting, misstating, or obscuring it could reasonably influence decisions of primary users. Materiality depends on size and nature and determines what must be disclosed or separately presented.

An independent examination of financial information and underlying records to express an opinion on whether the statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. It enhances credibility but does not guarantee absolute accuracy.

Information used by the auditor to reach conclusions on which the audit opinion is based. It must be sufficient in quantity and appropriate in quality, meaning relevant and reliable; evidence from independent external sources is generally stronger.

The formal written communication of the auditor's opinion on the financial statements. It identifies the statements audited, describes responsibilities, summarizes key findings, and states whether they present fairly the financial position and performance.

The structured process of identifying, assessing, prioritizing, and responding to uncertainties that could affect an entity's objectives. Responses include avoidance, reduction, sharing, and acceptance, supported by monitoring and clear accountability.

The policies and procedures designed to safeguard assets, ensure reliable reporting, promote operational efficiency, and encourage compliance with laws. It comprises the control environment, risk assessment, control activities, information and communication, and monitoring.

A control that separates authorization, custody of assets, and record keeping among different people so that no single individual can both perpetrate and conceal an error or fraud. It is a key preventive control in accounting systems.

An intentional act by one or more individuals involving deception to obtain an unjust or illegal advantage. In auditing, it includes fraudulent financial reporting and misappropriation of assets, both requiring heightened professional skepticism.

A quantitative plan expressed in monetary terms for a defined future period, covering expected revenues, costs, and resource requirements. Budgets coordinate activities, allocate resources, set targets, and later provide a benchmark for performance evaluation.

The branch of accounting that prepares internal information for planning, control, and decision making. It covers costing, budgeting, performance measurement, and analysis, and is not bound by external reporting standards or a fixed format.

The comparison of actual results with budgeted or standard figures to identify and explain differences. Favorable and adverse variances are investigated to improve cost control, revise standards, and hold managers accountable for performance.