LGCSE Accounting (0187) key terms

The rule that a business's assets always equal its liabilities plus its owner's capital, because every transaction changes at least two items and keeps the two sides balanced.

Resources owned or controlled by a business that are expected to bring future benefit, such as cash, inventory, equipment and amounts owed by customers.

Amounts a business owes to outsiders, such as bank loans, unpaid supplier invoices and overdrafts, which will be settled in future by payment or transfer of resources.

The owner's own stake in the business, calculated as total assets minus total liabilities; it rises with profit and extra investment and falls with drawings and losses.

Money or goods taken out of a sole trader's business by the owner for personal use, which reduces capital rather than being treated as a business expense.

A system in which every transaction is recorded twice, as an equal debit and credit, so that total debits always equal total credits in the ledger.

An entry on the left-hand side of a ledger account; it increases assets and expenses and reduces liabilities, capital and income.

An entry on the right-hand side of a ledger account; it increases liabilities, capital and income and reduces assets and expenses.

The original paper or electronic record that provides evidence a transaction took place, such as an invoice, receipt, credit note or bank statement, and from which bookkeeping entries are made.

The first records in which transactions are written before posting to the ledger, including the sales, purchases, returns and cash books and the general journal.

A book of prime entry used for transactions that do not fit the other day books, such as opening entries, corrections of errors and purchases or sales of non-current assets on credit.

The set of accounts, kept in the double-entry system, to which entries from the books of prime entry are posted so that each item's balance can be found.

A list of all ledger account balances at a given date, split into debit and credit columns, used to check that total debits equal total credits.

A temporary account opened to hold the difference when a trial balance does not balance, later cleared as the underlying errors are found and corrected.

A bookkeeping mistake where an entry is made in the wrong class of account, for example recording the purchase of a machine as a repairs expense; it does not upset the trial balance.

A mistake where a transaction is entered in the correct class of account but the wrong individual account within that class, such as the wrong customer's account.

A document that explains the difference between the bank balance shown in the cash book and the balance on the bank statement, listing unpresented cheques and uncredited deposits.

A cheque written and recorded by the business but not yet paid out of the bank account, so it appears in the cash book before the bank statement.

The systematic allocation of the cost of a non-current asset over its useful life, reflecting the fall in value as it is used or becomes outdated.

The total depreciation charged on a non-current asset since it was bought; it is deducted from cost to show the asset's carrying amount in the statement of financial position.

The value at which a non-current asset appears in the statement of financial position, being its cost less the depreciation accumulated on it to date.

An expense that has been incurred in the period but not yet paid or invoiced, so it is added to the expense and shown as a liability at the period end.

An amount paid in one period for an expense that relates to a later period, so the unused part is removed from the expense and shown as a current asset.

An amount owed by a customer that the business decides will never be collected, so it is written off as an expense in the income statement.

An estimate of the amount of trade receivables that may not be collected, charged as an expense and deducted from receivables in the statement of financial position.

The assumption that a business will continue to operate for the foreseeable future, so assets are not valued at break-up prices and costs are carried forward where appropriate.

The principle that accountants should exercise caution, not overstating income or assets and not understating expenses or liabilities, for example by providing for doubtful debts.

The principle that a business should apply the same accounting methods and policies from one period to the next, so that its financial statements can be compared over time.

The principle that the business is treated as separate from its owner, so personal spending by the owner is recorded as drawings, not as a business expense.

Spending on buying or improving non-current assets that will benefit the business for more than one year, recorded as an asset rather than an expense.

Spending on day-to-day running costs and on maintaining assets in working order, charged to the income statement in the period it is incurred.

A statement drawn up at a particular date listing a business's assets, liabilities and capital, showing that assets equal capital plus liabilities.

A statement showing a business's revenue for a period less its cost of sales to give gross profit, then less other expenses to give the profit or loss for the period.

The amount left from revenue after deducting the cost of the goods sold, before any other business expenses are taken into account.

The final profit for a period after all expenses, including operating and finance costs, have been deducted from gross profit.

A business owned by two or more people who share capital, profits and losses according to a partnership agreement, and who usually have unlimited liability.

The section of a partnership's accounts that shows how the profit for the year is shared among partners through interest on capital, salaries and the agreed profit-sharing ratio.

A partner's account recording their share of profits, interest on capital and salary, less drawings; its balance is added to or deducted from capital in the statement of financial position.

Shares in a limited company that carry a variable dividend decided by the directors and usually give the holder a vote at company meetings.

Shares in a limited company that normally receive a fixed rate of dividend before ordinary shareholders are paid, but often carry limited voting rights.

A distribution of part of a company's profits to its shareholders, paid as an amount per share and not treated as an expense of the company.

The protection given to shareholders in a company, meaning they can lose only the money they invested and are not personally responsible for the company's debts.

The technique of calculating relationships between figures in the financial statements, such as profitability and liquidity ratios, to judge a business's performance and position.

Gross profit expressed as a percentage of revenue, showing how much of each sales pound remains after the cost of goods sold is covered.

Net profit expressed as a percentage of revenue, showing the profit earned from each pound of sales after all expenses have been deducted.

A measure of whether a business can pay its short-term debts as they fall due, often calculated by dividing current assets by current liabilities.

Assets a business expects to use or turn into cash within a year, such as inventory, trade receivables, prepayments and cash at bank.

Debts a business expects to settle within a year, such as trade payables, accruals, bank overdrafts and short-term loans.

Assets a business intends to keep and use for more than one year, such as buildings, machinery, vehicles and equipment, usually shown at carrying amount.