NSSCAS Accounting (8244) key terms

The statement that assets always equal capital plus liabilities. It underlies every double-entry record, because each transaction changes at least two elements while keeping the two sides of the equation equal.

A system in which every transaction is recorded twice, as an equal debit and credit, so that total debits always equal total credits. It allows errors to be detected through the trial balance and the ledger accounts.

The first records in which transactions are entered before posting to the ledger. They include the sales, purchases, sales returns and purchases returns day books, the cash book, and the general journal.

A book of prime entry used for transactions that do not fit the day books, such as opening entries, corrections of errors, and the purchase or disposal of non-current assets. Each entry states the accounts, amounts and a narrative.

A list of all ledger balances at a given date, with debit balances in one column and credit balances in another. Equal totals give assurance of arithmetical accuracy but do not prove that no errors were made.

A temporary account opened to hold the difference when a trial balance does not balance. Its balance is cleared once the underlying errors are found and corrected, and it should not appear in the final financial statements.

A bookkeeping mistake in which a transaction is recorded in the wrong class of account, for example treating a non-current asset purchase as a repairs expense. It does not disturb the trial balance totals.

A statement that explains the difference between the bank balance shown in the cash book and the balance on the bank statement, by adjusting for unpresented cheques, uncredited deposits, bank charges and errors.

A cheque written and recorded in the cash book but not yet presented to the bank for payment, so it has not reduced the bank statement balance. It is deducted when reconciling the statement balance to the cash book.

A system where a fixed float is given to the petty cashier and reimbursed periodically for exactly the amount spent, restoring the float. It controls small payments and keeps the cash balance constant.

Spending on acquiring, constructing or improving a non-current asset, including costs needed to bring it into working condition. It is recorded as an asset and depreciated, not charged as an expense in the year of purchase.

Spending on day-to-day running costs or on maintaining an asset in its existing condition, such as repairs, insurance and wages. It is charged to the income statement in the period incurred.

The systematic allocation of the depreciable amount of a non-current asset over its useful life. It spreads the cost against the revenues the asset helps to generate and is not a fund of cash set aside.

A method charging an equal annual amount, calculated as cost less residual value divided by useful life, or as a fixed percentage of cost. It suits assets whose benefits are used evenly over time.

A method applying a fixed percentage to the carrying amount each year, so the annual charge falls over the asset's life. It suits assets that lose value quickly in their early years.

The amount at which an asset is recognised in the statement of financial position, being its cost less accumulated depreciation and any accumulated impairment. It is also called net book value.

A detailed record of each non-current asset, showing description, location, date and cost of acquisition, depreciation charged, and disposal details. It supports the figure in the ledger and helps safeguard assets.

A statement showing the assets, liabilities and capital of a business at a particular date. It demonstrates that assets equal capital plus liabilities and is often called the balance sheet.

A statement summarising the revenues and expenses of a period to show gross profit, operating profit and profit for the year. It explains the change in capital arising from trading.

Revenue less the cost of sales for the period. It measures the return earned from buying or making goods and selling them before deducting operating expenses such as administration and selling costs.

The cost of the goods actually sold in a period, calculated as opening inventory plus purchases less closing inventory. It is deducted from revenue to arrive at gross profit.

The section of a partnership's income statement that shows how profit for the year is shared: interest on capital, partners' salaries, interest on drawings, then the residual profit divided in the agreed ratio.

In a partnership, the account recording each partner's share of profits, drawings, interest on capital and salary. Its balance fluctuates and is shown within partners' funds rather than as a fixed capital balance.

The agreed proportion in which residual partnership profits and losses are divided among partners, often expressed as fractions such as 3:2:1. It may change on admission or retirement and requires a new agreement.

The amount paid for a business above the value of its identifiable net assets, reflecting reputation, customer base and location. In partnership changes it is raised and then written off to the partners' capital accounts in the old ratio.

The winding up of a partnership, in which assets are realised, liabilities paid and any remaining cash distributed to partners. A realisation account records the gains or losses on disposal of assets.

The amount received on issuing shares above their nominal value. It is a capital reserve and cannot normally be distributed as a dividend, though it may be used for bonus issues and certain expenses.

The fixed face value of a share stated in the company's constitution, also called par value. Share capital in the statement of financial position is recorded at nominal value, with any excess treated as share premium.

A long-term loan to a company, usually secured on its assets and carrying a fixed rate of interest. Interest is an expense charged before tax, and debenture holders are creditors rather than owners.

A distribution of profits to shareholders, declared as an amount per share and paid only out of distributable reserves. It is not an expense in the income statement but a deduction from retained earnings.

An issue of free shares to existing shareholders in proportion to their holdings, made by converting reserves such as share premium or retained earnings into share capital. No cash is raised and total equity is unchanged.

Accumulated profits kept in the company rather than distributed, shown as a reserve within equity. It increases with profit for the year and decreases with dividends and transfers to other reserves.

The gross profit expressed as a percentage of cost of sales. It differs from gross margin, which expresses gross profit as a percentage of revenue, and is used to estimate missing figures such as sales or inventory.

Current assets divided by current liabilities. It indicates whether short-term assets cover short-term obligations, with a result near 2:1 often considered comfortable, though the ideal varies by industry.

Current assets excluding inventory, divided by current liabilities, also called the acid test ratio. It measures the ability to meet immediate obligations without relying on selling inventory.

A costing method in which only variable production costs are treated as product costs, while fixed costs are written off in the period incurred. It supports decisions such as accepting special orders and calculating break-even.

A costing method that assigns both variable and fixed production overheads to units produced, using a predetermined overhead absorption rate. It values inventory at full production cost and is required for external reporting.

Sales revenue less variable costs. It first covers fixed costs and then produces profit, and it is used in break-even analysis and in deciding whether to accept additional work.