CA Sri Lanka Business Level Exam key terms

An accounting method that records income when it is earned and expenses when they are incurred, regardless of when cash actually moves, so reported profit reflects economic activity rather than cash timing.

The rule that expenses are recognised in the same reporting period as the revenue they helped generate, so profit for a period compares related income and costs rather than unrelated cash flows.

A cost incurred in the current period but not yet invoiced or paid, such as unpaid wages or electricity used but unbilled, which is recorded as a liability and an expense at the period end.

Revenue earned in the current period but not yet invoiced or received, such as interest accrued on a deposit, recognised as a receivable and as income at the reporting date.

An amount paid in advance for goods or services not yet consumed, such as insurance or rent paid ahead, carried as an asset until the benefit is used and then expensed.

The systematic allocation of a non-current asset's depreciable amount over its useful life, spreading the cost against the periods that benefit from using the asset rather than charging it all at purchase.

The estimated amount an entity would currently obtain from disposing of an asset at the end of its useful life, after deducting expected disposal costs; it reduces the amount subject to depreciation.

The amount at which an asset or liability is recognised in the statement of financial position, being cost less accumulated depreciation and accumulated impairment losses for a non-current asset.

The amount by which an asset's carrying amount exceeds its recoverable amount, written off immediately to profit or loss so the balance sheet does not overstate the asset's economic value.

The higher of an asset's fair value less costs of disposal and its value in use, used as the ceiling for the carrying amount when testing an asset for impairment.

Liabilities of uncertain timing or amount, such as warranties or legal claims, recognised when a present obligation exists, an outflow is probable and the amount can be reliably estimated.

A possible obligation whose existence depends on uncertain future events, or a present obligation that cannot be reliably measured or is not probable; it is disclosed rather than recognised in the financial statements.

Events occurring between the reporting date and the date financial statements are authorised for issue; adjusting events update recognised amounts, while non-adjusting events are disclosed if material.

The assumption that an entity will continue operating for the foreseeable future without intending or needing to liquidate or curtail operations, which underpins the measurement of most assets and liabilities.

Statements presenting a parent and its subsidiaries as a single economic entity, combining assets, liabilities, income and expenses after eliminating intra-group balances and transactions.

An intangible asset arising on consolidation, measured as consideration transferred plus non-controlling interest less the fair value of identifiable net assets acquired; it is not amortised but tested annually for impairment.

The portion of a subsidiary's net assets and profit or loss attributable to shareholders other than the parent, presented separately within equity in the consolidated statement of financial position.

Sales revenue less variable costs, representing the amount each unit or product line contributes towards covering fixed costs and then generating profit; it is central to cost-volume-profit analysis.

The level of sales at which total revenue equals total cost, giving neither profit nor loss; in units it equals fixed costs divided by contribution per unit.

The excess of budgeted or actual sales over break-even sales, expressed in units, currency or as a percentage, indicating how far sales can fall before the business makes a loss.

A costing method that assigns both variable and fixed production overheads to units produced, so inventory values include a share of fixed costs and profit depends on production volume.

A costing method that charges only variable production costs to units, treating fixed production overheads as period costs, which aligns profit with sales volume and supports short-term decisions.

The rate used to spread production overheads across units, calculated by dividing budgeted overheads by a chosen activity base such as labour hours or machine hours.

A costing approach that assigns overheads to products through activities and cost drivers, giving more accurate product costs where overheads are large and products consume activities differently.

A future, incremental cash flow that differs between alternatives and is therefore useful for decision-making; sunk costs and committed fixed costs are excluded from such analysis.

The benefit forgone by choosing one course of action over the next best alternative, measured as the contribution or income lost and included in relevant costing for decisions.

A system that sets predetermined costs for materials, labour and overheads, then compares actual results against those standards to produce variances for control and performance evaluation.

The process of calculating and interpreting differences between budgeted or standard figures and actual results, separating price and usage causes so managers can take corrective action.

A budget prepared for the actual level of activity achieved, used in variance analysis so that cost differences caused by volume changes are separated from genuine spending or efficiency differences.

The sum of a project's future cash flows discounted at the cost of capital, less the initial investment; a positive result indicates the project adds value to the entity.

The discount rate at which a project's net present value equals zero, representing the annual return the investment is expected to earn; it is compared with the cost of capital.

The time taken for cumulative cash inflows from an investment to recover the initial outlay, used as a simple measure of liquidity and risk that ignores cash flows after payback.

The period between paying for raw materials and collecting cash from customers, calculated as inventory days plus receivable days less payable days; shortening it releases cash.

A measure of an entity's debt relative to its equity or total capital, indicating financial risk; highly geared entities face larger fixed interest commitments and greater sensitivity of earnings.

The amount on which income tax is charged after adjusting accounting profit for items that are exempt, disallowed or treated differently under tax law, such as depreciation replaced by capital allowances.

A tax deduction granted for expenditure on qualifying assets, replacing accounting depreciation in the tax computation and often claimed at rates set by the tax authority.

A liability or asset recognised for the tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases, reversing in future periods.

Tax deducted at source by the payer from certain payments such as interest, dividends or royalties, remitted to the tax authority and often creditable against the recipient's final tax liability.

An indirect tax charged on the value added at each stage of supply, collected by registered traders from customers and remitted to the tax authority after deducting input tax paid.

Something of value exchanged between contracting parties, such as money, goods or a promise, which is required for a contract to be legally enforceable in common law.

The core elements of contract formation: a definite proposal made by one party and an unqualified agreement to it by another, which together create a binding agreement.

The principle that only parties to a contract can enforce it or have obligations under it, so third parties generally acquire no rights or liabilities from an agreement they did not sign.

A legal obligation of directors and agents to act in the best interests of the company or principal, avoiding conflicts of interest and not making secret personal profits from their position.

The auditor's formal conclusion on whether financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework; it may be unmodified or modified.

The threshold above which omissions or misstatements could influence the economic decisions of users, guiding the auditor's planning, testing and evaluation of identified misstatements.

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

The policies and procedures designed by management to safeguard assets, ensure reliable reporting and promote compliance, including segregation of duties, authorisation and reconciliation.

The state of being free from relationships or interests that could compromise objectivity, required of auditors in both fact and appearance so that opinions are credible to users.

The system of rules, practices and processes by which a company is directed and controlled, covering board composition, accountability to shareholders, risk oversight and ethical conduct.

Any individual or group affected by or interested in an organisation's activities, such as shareholders, employees, customers, suppliers, lenders, regulators and the wider community.

A business's voluntary commitment to act ethically and contribute to economic, social and environmental development beyond minimum legal requirements, balancing profit with impact on society.

A planning technique that assesses an organisation's internal strengths and weaknesses alongside external opportunities and threats, informing strategy formulation and resource allocation.

A framework for scanning the external environment through political, economic, social, technological, environmental and legal factors that may affect an organisation's strategy and performance.