NZ Scholarship Accounting key terms

Recording transactions when they occur rather than when cash changes hands, so revenue is recognised as it is earned and expenses as they are incurred, regardless of the timing of payment or receipt.

The assumption that an entity will continue operating for the foreseeable future, with no intention or need to liquidate or materially curtail operations, which justifies carrying assets at cost rather than break-up value.

The principle that a business's financial affairs are recorded and reported separately from the personal affairs of its owners, so owner drawings and private assets are excluded from the entity's statements.

The idea that financial statements are prepared for an identifiable economic unit whose users depend on general-purpose reports, which determines what transactions are included and where the boundary of the statements lies.

The requirement to recognise expenses in the same reporting period as the revenue they helped generate, so profit for a period reflects the effort consumed to earn that period's income.

Measuring assets and liabilities at the amount of cash or consideration originally exchanged when the transaction occurred, rather than at current market value.

Restating a non-current asset's carrying amount to fair value, with the increment recognised in other comprehensive income and accumulated in an asset revaluation reserve rather than in profit.

Reports prepared to meet the common information needs of a wide range of users who are not in a position to demand tailored reports, applying the full suite of accounting standards.

A listing of every ledger account and its balance at a point in time, used to check that total debits equal total credits before preparing financial statements.

The book of original entry in which transactions are recorded chronologically as debits and credits with a narration, used for adjustments, corrections and entries that do not fit a special journal.

A temporary ledger account holding the imbalance in a trial balance until the error causing it is located and corrected, after which the account must clear to nil.

An entry made at balance date to update account balances for accruals, deferrals, depreciation and other items so that revenue and expenses are recognised in the correct period.

An expense that has been incurred during the period but not yet paid or recorded, so a liability and an expense are recognised at balance date.

Revenue that has been earned during the period but not yet invoiced or received, so a receivable and revenue are recognised at balance date.

An amount paid in advance for goods or services not yet consumed, recorded as an asset and expensed over the periods that benefit from it.

Cash received before goods or services are provided, recorded as a liability and recognised as revenue only as the performance obligation is satisfied.

The principle that revenue is recorded when control of goods or services passes to the customer, in the amount the entity expects to be entitled to, rather than when cash is received.

The systematic allocation of a depreciable asset's cost less residual value over its useful life, reflecting consumption of economic benefits rather than a fall in market value.

A depreciation method that spreads the depreciable amount evenly across each period of an asset's useful life, producing a constant annual charge.

A depreciation method applying a constant rate to an asset's declining carrying amount, producing higher charges in early years and lower charges later.

The amount at which an asset or liability is recognised in the statement of financial position, being cost or revalued amount less accumulated depreciation and accumulated impairment losses.

The estimated amount an entity would currently obtain from disposing of an asset at the end of its useful life, net of disposal costs, which is excluded from the depreciable amount.

A reduction in an asset's carrying amount to its recoverable amount when the amount expected to be recovered through use or sale falls below the recorded balance, with the loss expensed.

The removal of a receivable from the accounts once it is established that the customer will not pay, recognising the loss as an expense in the period the decision is made.

A contra-asset estimate of receivables expected to be uncollectible, deducted from accounts receivable so the net figure reflects amounts likely to be recovered.

Exercising caution when making judgements under uncertainty so that assets and income are not overstated and liabilities and expenses are not understated, without deliberately biasing the statements.

An inventory method that continuously updates the inventory account and cost of goods sold with every purchase and sale, allowing a running stock balance.

An inventory method that records purchases in a purchases account and determines cost of goods sold and closing stock only at the end of the period after a physical stocktake.

A cost-flow assumption where the earliest inventory purchased is treated as sold first, so closing inventory is valued at the most recent purchase costs.

An inventory cost-flow method that assigns the average cost of units available for sale to both cost of goods sold and closing inventory, recalculated as new purchases enter.

The cost of inventory consumed in generating sales during a period, calculated as opening inventory plus purchases less closing inventory under a periodic system.

Sales revenue less cost of goods sold, measuring the margin earned before operating expenses such as wages, rent, depreciation and administration are deducted.

A profitability ratio expressing profit as a percentage of sales revenue, showing how many cents of each sales dollar remain after costs.

A profitability ratio comparing profit for the period with owners' equity, indicating how effectively the owners' invested funds have been used to generate profit.

A liquidity ratio dividing current assets by current liabilities, indicating whether short-term obligations can be met from assets expected to convert to cash within a year.

A stricter liquidity ratio that excludes inventory from current assets before dividing by current liabilities, testing whether immediate obligations can be met without selling stock.

The excess of current assets over current liabilities, representing the net short-term funds available to run day-to-day operations.

The ability of an entity to meet its short-term obligations as they fall due, and the ease with which an asset can be converted to cash without significant loss of value.

A capital structure ratio expressing owners' equity as a proportion of total assets, showing how much of the asset base is funded by owners rather than lenders.

A report classifying cash movements into operating, investing and financing activities, reconciling opening and closing cash and explaining why profit differs from cash generated.

The cash flows from the entity's principal revenue-producing activities, including receipts from customers and payments to suppliers and employees, presented in the statement of cash flows.

Income and expense items recognised in the period but excluded from profit, such as revaluation increments and certain foreign currency differences, accumulated directly in equity.

A business owned by two or more people who share profits and losses under an agreed ratio, with each partner's capital, drawings and current account tracked separately.

The owners' residual interest in the assets of the entity after deducting liabilities, increased by contributions and profit and reduced by drawings and losses.

In a partnership, the ledger account recording each partner's share of profit, drawings and salary or interest allowances, separate from that partner's fixed capital balance.

Applying the lower of cost and net realisable value rule so inventory is not carried above the amount it can realistically be sold for, recognising any write-down as an expense.