NCEA Level 3 Accounting key terms

The assumption that an entity will keep operating for the foreseeable future, at least twelve months, without being forced to liquidate or scale back significantly. It justifies preparing statements on a cost rather than break-up basis.

Recording income when it is earned and expenses when they are incurred, regardless of when cash moves. It matches costs with the revenue they helped generate in the same period.

A company is a legal person distinct from its owners. It can own assets, enter contracts, incur debts and sue or be sued in its own name, so shareholders' liability is normally limited.

The idea that information matters if leaving it out or misstating it could change a user's decisions. Material amounts must be shown separately; immaterial ones may be combined or ignored.

Choosing caution when estimating under uncertainty, so assets and income are not overstated and liabilities and expenses are not understated. It does not permit deliberate understatement of assets or overstatement of liabilities.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date.

The currency of the main economic environment in which an entity operates and generates most of its cash flows. Its financial statements are normally presented in that currency.

The gain or loss that arises when the same foreign currency amount is translated at different exchange rates, for example between the transaction date and the date payment is settled.

Combined statements of a parent and its subsidiaries, presented as one economic entity. Balances and transactions between group companies are eliminated so only dealings with outsiders remain.

The amount shareholders have contributed for shares issued by the company, recorded in the equity section. It is not a liability and is normally not repaid while the company continues.

Accumulated profit a company has kept in the business rather than paying out as dividends, adjusted for any transfers to reserves. It forms part of shareholders' equity.

A distribution of profit to shareholders, usually in cash, declared by the directors. It reduces retained earnings and equity and is not an expense of the company.

A statement reconciling the opening and closing equity of each component, showing profit, dividends, share issues, revaluations and other movements during the period.

The tax effect of timing differences between accounting profit and taxable profit that will reverse in future periods, shown as a liability or asset on the balance sheet.

An estimated amount of accounts receivable expected not to be collected. It is deducted from receivables and the estimate is recognised as an expense in the statement of comprehensive income.

An equity account holding the upward revaluation of property, plant and equipment above cost. Gains stay in equity until the asset is sold, rather than passing through profit.

A liability of uncertain timing or amount that is probable and can be reliably estimated, such as a warranty or legal claim. It is different from a contingent liability, which is not recognised.

A statement showing cash received and paid during the period, split into operating, investing and financing activities, and reconciling opening and closing cash balances.

The document a reporting entity publishes each year, containing financial statements, the directors' report, the auditor's report and commentary on performance and governance.

An independent auditor's opinion on whether the financial statements give a true and fair view and comply with the applicable reporting standards, included in the annual report.

An auditor's opinion that the financial statements are fairly presented except for a specific matter, such as a disagreement or a limitation on the audit's scope.

A matter the auditor judged most significant in the audit of the current period's financial statements, described in the auditor's report to help users understand the audit.

The rules, processes and structures by which a company is directed and controlled, including board composition, risk oversight and accountability to shareholders and other stakeholders.

A person or entity with significant influence or control over the reporting entity, or vice versa, including directors, key managers and their close family. Transactions with them must be disclosed.

Net profit after tax divided by average shareholders' equity, expressed as a percentage. It shows how much profit is generated for each dollar of owners' funds.

A measure of financial risk comparing debt to total capital or equity, for example total liabilities divided by total assets. Higher gearing means greater reliance on borrowed funds.

Net profit after tax available to ordinary shareholders divided by the weighted average number of ordinary shares on issue, showing profit earned per share.

Comparing a company's results and ratios with a standard such as a prior period, a competitor or an industry average, to judge whether performance is good or poor.

A costing system that accumulates the direct materials, direct labour and overhead for each individual job or batch, so the cost of each customer order can be worked out.

Any item for which costs are separately measured, such as a product, service, department, customer or job. It defines what the costing system is trying to cost.

A cost that can be traced economically to a specific cost object, such as materials and labour used on a particular job. It is charged straight to that job rather than shared out.

An estimate of overhead cost per unit of activity, calculated before the period as budgeted overhead divided by budgeted activity, used to apply overhead to jobs as they are produced.

The amount by which overhead charged to jobs using the predetermined rate exceeds the actual overhead incurred for the period. The difference is usually written off to cost of goods sold.

Sales revenue less variable costs. It measures how much each sale contributes towards covering fixed costs and then generating profit.

The level of sales, in units or dollars, at which total revenue equals total costs, so the business makes neither a profit nor a loss.

The amount by which actual or budgeted sales exceed the break-even level, showing how far sales can fall before the business starts making a loss.

A future cost that differs between the alternatives being considered. Costs that are the same regardless of the decision, or already incurred, are not relevant.

Money already spent that cannot be recovered by any future decision. It is ignored in decision-making because it is the same whichever option is chosen.