ICAN CA Foundation key terms

Accounting convention under which revenue is recorded when earned and expenses when incurred, regardless of when cash actually moves. It underpins matching of income with related costs in a period.

Rule that expenses incurred to generate a period's revenue must be reported in the same period as that revenue, so profit reflects the real effort-reward relationship rather than cash timing.

Presumption that a business will continue operating for the foreseeable future without intention to liquidate or curtail operations, which justifies recording assets at cost rather than break-up value.

Every transaction has two equal effects on the accounting equation, so total debits always equal total credits and assets always equal liabilities plus capital. It is the logical basis of double entry.

The first formal record of a transaction, showing date, accounts debited and credited with amounts, and a brief narration explaining the transaction before it is posted to ledger accounts.

A single journal entry that records more than two accounts, such as one debit and two credits, used where one transaction affects several ledger accounts at once.

Transferring debit and credit amounts from journal entries into the relevant individual ledger accounts, so each account accumulates a running balance for the period.

A statement listing all ledger account balances at a date, with debits and credits in separate columns, used to test arithmetical accuracy of posting before financial statements are prepared.

A temporary account used to carry the difference in a trial balance that does not agree, later cleared by locating and correcting the underlying errors in the books.

A bookkeeping mistake where a transaction is recorded in the wrong class of account, such as treating a capital purchase as revenue expense, so the trial balance still agrees.

Spending that acquires or improves a long-term asset whose benefit extends beyond one accounting period, recorded in the balance sheet rather than charged to profit in the current year.

Systematic allocation of the depreciable cost of a tangible fixed asset over its estimated useful life, reflecting consumption of economic benefit rather than a fall in market value.

Depreciation method applying a fixed percentage to the asset's written-down value each year, producing higher charges early in the asset's life and lower charges later.

Depreciation method charging an equal amount every year, computed as cost less residual value divided by useful life, giving a constant annual expense.

A statement explaining differences between the cash book bank balance and the bank statement balance, reconciling items such as unpresented cheques, deposits in transit and bank charges.

Expenses incurred during the period but not yet paid at the reporting date; they are added to the expense charged and shown as a current liability in the balance sheet.

Amounts paid in the current period for benefits that will be consumed in a later period, so they are deducted from the expense and carried forward as a current asset.

A written instrument containing an unconditional order, signed by the maker, directing a person to pay a certain sum to a specified party on demand or at a fixed future date.

A negotiable instrument drawn on a banker, ordering the banker to pay a stated sum from the drawer's account to the payee or bearer, valid within its stated validity period.

A written, unconditional promise by one person to pay a certain sum to another on demand or at a fixed future date, signed by the maker.

Something of value given by one party in exchange for another party's promise, being the price of the bargain; contracts without consideration are generally unenforceable unless a recognised exception applies.

The two essential steps forming an agreement: a definite proposal made with intent to create legal relations, and unqualified assent to all its terms communicated to the offeror.

An agreement that the law treats as having no legal effect from the outset, so neither party can enforce it and no rights or obligations arise from it.

An agreement that is valid until the aggrieved party chooses to rescind it, typically because consent was obtained by misrepresentation, fraud, undue influence or coercion.

A document evidencing a right to payment that can be transferred by delivery or endorsement, giving a holder in due course good title free from prior defects.

Principle that a sum received today is worth more than the same sum received later, because today's money can be invested to earn interest over the intervening period.

Interest calculated on both the original principal and interest already accumulated, so the amount grows geometrically rather than linearly over successive periods.

The current worth of a future cash flow or stream of cash flows, obtained by discounting at a chosen rate, used to compare amounts arising at different dates.

A series of equal payments or receipts made at regular intervals over a defined period, such as fixed periodic deposits or loan instalments.

A sequence in which each term after the first differs from the preceding term by a constant amount, called the common difference, as in 3, 7, 11, 15.

A sequence in which each term after the first is obtained by multiplying the preceding term by a fixed non-zero number, the common ratio, as in 2, 6, 18, 54.

Single values summarising the centre of a data set, namely mean, median and mode, each with different sensitivity to extreme observations.

A measure of dispersion equal to the positive square root of the variance, expressing average spread of observations around the mean in the original units of the data.

The ratio of standard deviation to mean, usually expressed as a percentage, used to compare variability between data sets measured in different units or with very different averages.

A statistical measure of the direction and strength of association between two variables, ranging from minus one through zero to plus one, without implying causation.

A statistical technique estimating the best-fitting relationship between a dependent variable and one or more independent variables, used to predict values and quantify change.

Statistical devices expressing the relative change in a variable or group of variables over time or place, with a chosen base period set at one hundred.

Proposition that, other things remaining equal, quantity demanded of a good falls as its price rises and rises as its price falls, giving a downward-sloping demand curve.

The responsiveness of quantity demanded to a change in price, measured as percentage change in quantity divided by percentage change in price, usually negative in sign.

Proposition that, other things remaining equal, quantity supplied of a good rises as its price rises, producing an upward-sloping supply curve in the ordinary case.

The price at which quantity demanded equals quantity supplied, so the market clears with neither surplus nor shortage and no pressure for further price change.

The value of the next best alternative forgone when a resource is committed to one use, forming the true economic cost of any choice under scarcity.