Korea Accounting Manager Level 2 key terms

A recording method in which every transaction is entered in at least two accounts, with total debits always equaling total credits. It keeps the accounting equation balanced and allows errors to be detected through trial balances.

The fundamental relationship stating that assets equal liabilities plus equity. Every transaction changes at least two elements while preserving this equality, which underlies the balance sheet structure.

The two directional sides of an account. Debits increase assets and expenses; credits increase liabilities, equity, and revenue. Their meaning depends on the account type, not on whether a transaction is favorable.

An accounting approach that recognizes revenue when earned and expenses when incurred, regardless of when cash moves. It produces a more faithful measure of period performance than cash receipts and payments.

An accounting approach that records revenue when cash is received and expenses when cash is paid. It is simpler but can distort performance, and it is generally not permitted for external financial reporting under Korean standards.

The presumption that an entity will continue operating for the foreseeable future without liquidation or major curtailment. It justifies carrying long-term assets at cost rather than at forced-sale values.

A measurement basis recording assets at the cash amount originally paid or the fair value of consideration given. It is verifiable and objective, though it may diverge from current market value over time.

A principle favoring caution under uncertainty: do not overstate assets or income, and recognize probable losses promptly. It must not be used to deliberately understate assets or overstate liabilities.

The requirement to recognize expenses in the same period as the revenues they helped generate. It drives depreciation, cost of goods sold, and accrual of unpaid expenses at period end.

The rules determining when revenue is recorded, generally when control of goods or services transfers to the customer and the amount can be reliably measured. It governs timing, not cash collection.

The initial record of a transaction showing date, accounts affected, amounts, and a short explanation, with debits listed before credits. It is the source for posting to the general ledger.

The master set of accounts collecting all journal entries by account. Its balances feed the trial balance and the financial statements at period end.

A simple visual account shaped like the letter T, with debits on the left and credits on the right. It is used to trace how individual transactions change a single account balance.

A listing of all ledger account balances at a date, with debit and credit columns that should total equally. It detects arithmetic errors but not errors of omission or offsetting mistakes.

An end-of-period entry updating accounts before statements are prepared, such as accruing unpaid expenses, recording earned revenue, or allocating prepaid costs. It enforces accrual and matching.

A period-end entry transferring temporary account balances, such as revenue and expense, into retained earnings so temporary accounts start the next period at zero.

A numbered list organizing all accounts an entity uses, grouped by statement element such as assets, liabilities, equity, revenue, and expense. It standardizes recording and reporting.

A payment made before the benefit is consumed, recorded as an asset and later expensed as the service or coverage period passes. Insurance and rent are common examples.

A cost incurred but not yet paid or recorded at period end, such as unpaid wages or interest. It is recorded as an expense and a liability through an adjusting entry.

Cash received from a customer before goods or services are delivered, reported as a liability until the obligation is satisfied. It reflects a duty to perform rather than earned income.

Revenue earned but not yet billed or collected at period end, recorded as an asset and income through an adjusting entry. It is the mirror image of an accrued expense.

A statement presenting assets, liabilities, and equity at a specific date. It shows financial position and reflects the accounting equation at a point in time.

A statement reporting revenue, expenses, and profit or loss over a period. It measures operating performance and connects to the balance sheet through retained earnings.

Cumulative profit kept in the business after dividends and prior adjustments. It is an equity component linking successive income statements to the balance sheet.

The owners' residual interest in assets after deducting liabilities. It rises with profit and capital contributions and falls with losses and distributions.

Current assets divided by current liabilities, indicating short-term liquidity. A ratio below one suggests possible difficulty meeting obligations due within a year.

Cash, marketable securities, and receivables divided by current liabilities. It excludes inventory and is a stricter liquidity test than the current ratio.

Current assets minus current liabilities, measuring the cushion available for day-to-day operations. Positive working capital generally signals adequate short-term financing.

Revenue minus cost of goods sold, showing profit before operating expenses. Expressed as a percentage of revenue, it is the gross margin used to assess pricing and cost control.

The systematic allocation of a tangible asset's depreciable cost over its useful life. It matches cost to the periods benefiting from the asset and does not represent cash outflow.

A method spreading depreciable cost evenly across useful life, computed as cost minus residual value divided by years. It produces a constant annual charge and is the simplest common method.

A contra-asset account collecting all depreciation charged on an asset since acquisition. Its balance reduces the asset's carrying amount on the balance sheet.

The net book value of an asset: its recorded cost less accumulated depreciation or amortization and any impairment. It may differ substantially from market value.

A reduction in an asset's carrying amount when its recoverable amount falls below book value. The loss is recognized immediately in profit or loss.

A measurement rule for inventory requiring it to be reported at the lower of its cost or its expected selling price less completion and selling costs. It prevents overstated inventory.

The cost of inventory sold during a period, calculated from opening inventory plus purchases minus closing inventory. It is deducted from revenue to arrive at gross profit.

Sales revenue minus variable costs, representing the amount available to cover fixed costs and generate profit. It underpins break-even and short-term decision analysis.

The sales volume or revenue at which total revenue equals total cost, yielding neither profit nor loss. It is computed as fixed costs divided by contribution margin per unit.

A cost that stays constant in total over a relevant range of activity, though it falls per unit as volume rises. Rent and salaried managers are typical examples.

A cost that changes in total in direct proportion to activity volume while remaining roughly constant per unit. Direct materials and sales commissions are common examples.

An indirect tax levied on the value added at each stage of supply, collected by businesses from customers and remitted to the tax authority. Input tax on purchases is generally credited against output tax.

A tax on a company's taxable income for the year, calculated by adjusting accounting profit for tax rules and applying statutory rates. It is reported as an expense with related deferred tax effects.

A tax effect arising from temporary differences between accounting profit and taxable income, recognized as a deferred tax asset or liability. It reverses in future periods as timing differences unwind.

Tax deducted at source by a payer from certain payments, such as salaries or fees to non-residents, and remitted to the authorities. It shifts collection responsibility to the payer.