NSSCO Accounting (6143) key terms

The rule that a business's total assets always equal its liabilities plus the owner's capital, because every transaction changes at least two elements while keeping the two sides balanced.

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

Resources controlled by the business from which future economic benefits are expected, such as cash, inventory, receivables, equipment and premises.

Present obligations of the business to outsiders, arising from past events, that will require settlement through payment or transfer of resources, for example loans, payables and unpaid expenses.

Money or goods taken from the business by the owner for personal use, which reduces capital and is not treated as a business expense.

The system in which every transaction is recorded with equal debit and credit entries, so that total debits always equal total credits in the ledger.

The original paper or electronic evidence of a transaction, such as an invoice, receipt, credit note or cheque counterfoil, used as the basis for making the bookkeeping entry.

The daybooks in which transactions are first recorded before posting to the ledger, including sales, purchases, returns, cash book and general journal.

The book of original entry used for transactions that do not fit the other daybooks, such as opening entries, corrections of errors and purchase of a fixed asset on credit.

A record of all increases and decreases in one particular asset, liability, income, expense or capital item, kept in T-account or running-balance form.

A list of all ledger balances at a given date, debit balances in one column and credit balances in another, used to test whether total debits equal total credits.

A statement that starts from one balance (bank statement or cash book) and adjusts for timing differences and errors to explain why the two balances differ.

A cheque issued and entered in the cash book but not yet presented to and paid by the bank, so it has reduced the cash book balance but not the bank statement balance.

Money paid into the bank and recorded in the cash book but not yet shown on the bank statement, often because it was lodged after the statement was prepared.

A book used to record small cash payments, usually run on the imprest system so that the float is restored periodically to a fixed amount.

A method of controlling petty cash in which a fixed float is issued and later reimbursed by exactly the amount spent, so the cash in hand returns to the original figure.

A book that records cash and bank receipts and payments; it acts both as a book of original entry and as the ledger account for cash and bank.

A mistake in which a transaction is entered in the wrong class of account, such as treating the purchase of a fixed asset as an ordinary expense.

A mistake where the wrong amount is written in the books and the same wrong figure is posted to both the debit and the credit account, so the trial balance still balances.

Two or more separate errors that cancel each other out, for example a debit overstated by one amount and a credit overstated by the same amount, leaving the trial balance in agreement.

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

The part of the final accounts that calculates gross profit by deducting cost of sales from net sales, after adjusting for opening and closing inventory.

The direct cost of goods actually sold during a period, calculated as opening inventory plus purchases less returns outwards plus carriage inwards, less closing inventory.

The surplus of net sales over cost of sales before any operating expenses are charged; it measures the basic profitability of trading.

The amount remaining after all operating expenses, and any other income, are added to or deducted from gross profit; it is added to capital in the balance sheet.

The section of the final accounts that lists operating and other expenses against gross profit and other income to arrive at net profit for the period.

The systematic allocation of the cost of a non-current asset over its useful life, reflecting wear and tear, obsolescence or passage of time.

A depreciation method charging an equal amount each year, usually calculated as cost less estimated residual value divided by the number of years of expected useful life.

A depreciation method applying a fixed percentage to the asset's net book value each year, giving larger charges in early years and smaller charges later.

An expense that has been incurred during the period but not yet paid or recorded, so it is added to the expense and shown as a current liability.

A payment made in advance for a benefit not yet used, so part of the expense is carried forward and shown as a current asset at the period end.

An amount owed by a customer that is written off because it is considered irrecoverable, charged as an expense in the profit and loss account.

An estimate of the portion of trade receivables that may not be collected, created by charging an expense and shown as a deduction from receivables.

The convention that accountants should exercise caution, recognising losses and liabilities as soon as they are probable but not anticipating profits before they are realised.

The rule that expenses incurred in earning revenue should be recognised in the same period as the revenue they helped to generate, regardless of when cash moves.

The account in a partnership or company that shows how profit for the year is divided, for example into partners' salaries, interest on capital, interest on drawings and residual shares.

The account recording each partner's share of profits, drawings, interest on capital and salary; its balance is owed to or by the partner and is not fixed capital.

The account used by a club or society to record subscriptions receivable in advance or in arrears, so that income is matched to the correct financial period.

A summary of cash actually received and paid by a non-profit organisation during a period; it is not a profit statement because it ignores accruals and non-cash items.

The equivalent of a profit and loss account for a non-profit organisation, matching expenses to income for the period and showing a surplus or deficit rather than profit.

The capital of a non-profit organisation, being its total assets less total liabilities; it increases with a surplus and decreases with a deficit.

The money raised by a company from issuing shares; it is shown in the equity section of the statement of financial position and is not repayable during the company's life.

The most common class of share, whose holders receive dividends only after preference holders are paid and who normally carry voting rights at general meetings.

Shares that carry a fixed rate of dividend, usually paid before ordinary dividends, and normally give no voting rights at company meetings.

Profits kept in the company instead of being distributed as dividends, accumulated over the years and shown as part of shareholders' equity.

The statement that calculates the cost of goods produced, adding direct materials, direct labour and factory overheads to work in progress and adjusting for opening and closing stocks.

The total of direct materials, direct labour and other direct expenses incurred in production, before any factory overheads are added.

Indirect costs of running the production facility, such as factory rent, depreciation of machinery and factory supervisor wages, which cannot be traced directly to a unit of output.

Sales revenue minus variable costs; it shows how much each sale contributes towards covering fixed costs and then generating profit.

The level of sales at which total revenue equals total costs, so the business makes neither profit nor loss; it can be expressed in units or in sales value.