ICAP PRC-1 Fundamentals of Accounting key terms

The assumption that an entity will continue operating for the foreseeable future, without intention or necessity to liquidate or curtail materially its operations.

Accounting that records transactions when they occur, not when cash is received or paid, so revenues and expenses are matched to the periods they relate to.

A coherent set of objectives and concepts that guides the development of accounting standards and the preparation of general purpose financial statements.

The exercise of caution when making judgements under uncertainty, so assets and income are not overstated and liabilities and expenses are not understated.

A system in which every transaction is recorded with equal debits and credits, so the accounting equation remains in balance after each entry.

The book of prime entry where transactions are first recorded chronologically, showing debits, credits and a narrative explanation for each entry.

The principal book of accounts containing individual accounts for assets, liabilities, equity, income and expenses, to which journal entries are posted.

A list of all ledger account balances at a date, used to check that total debits equal total credits before financial statements are prepared.

A temporary account used to hold the difference when a trial balance does not balance, pending investigation and correction of the error.

A mistake where a transaction is entered in the correct class of account but in the wrong account of that class, so the trial balance still balances.

A mistake where a transaction is recorded in the wrong type of account, such as capital expenditure treated as revenue expenditure, leaving the trial balance in balance.

Expenses that have been incurred in the period but not yet invoiced or paid, so a liability is recognised and the expense is matched to the period.

Amounts paid in advance for goods or services to be received in a later period, recognised as an asset until the benefit is consumed.

A liability of uncertain timing or amount recognised when a present obligation exists, an outflow is probable and a reliable estimate can be made.

A possible obligation whose existence depends on uncertain future events, or a present obligation that is not recognised because outflow is not probable or cannot be measured reliably.

A statement that explains the difference between the cash book balance and the bank statement balance by listing timing differences and errors.

Cheques issued and recorded in the cash book but not yet presented to the bank, so they appear as a deduction in a bank reconciliation.

Receipts recorded in the cash book but not yet credited by the bank, so they are added when reconciling the bank statement balance to the cash book.

A summary account in the general ledger that aggregates many individual balances, such as total receivables, and is checked against the underlying ledger.

A subsidiary ledger containing an individual account for each credit customer, whose total should agree with the receivables control account.

A subsidiary ledger containing an individual account for each credit supplier, whose total should agree with the payables control account.

A inventory valuation method that assumes the first units purchased are the first sold, so closing inventory is valued at the most recent purchase costs.

An inventory valuation method that recalculates a new average unit cost after each purchase, spreading the total cost of goods available over units held.

The rule that inventory is measured at the lower of its cost and the amount it is expected to realise on sale less costs to complete and sell.

The systematic allocation of the depreciable amount of a non-current asset over its useful life, reflecting consumption of economic benefits.

A depreciation method that charges an equal amount each year, calculated as cost less residual value divided by useful life.

A depreciation method that applies a constant percentage to the asset's carrying amount each year, giving higher charges in earlier years.

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

Spending that acquires or improves a non-current asset and is capitalised, rather than charged as an expense in the current period.

Spending on day-to-day running costs or repairs that maintains rather than enhances an asset, charged to the statement of profit or loss.

A statement showing how a partnership's profit is distributed among partners through salaries, interest on capital and residual profit-sharing ratios.

In a partnership, the account recording each partner's share of profits, drawings, salaries and interest, separate from fixed capital.

The agreed proportion in which residual partnership profits or losses are divided among partners, often expressed as a fraction or percentage.

The amount received on issuing shares above their nominal value, recorded in a capital reserve within equity.

The fixed face value of a share stated in the company's constitution, used to determine the share capital account and any premium.

A financial statement classifying cash movements into operating, investing and financing activities to explain the change in cash during a period.

A statement at a point in time showing an entity's assets, liabilities and equity, and how they combine to reflect its financial position.

Accounting situations where a full double-entry system is not maintained, so figures are derived using control accounts, margins and the accounting equation.

A summary of assets and liabilities used to estimate capital when complete accounting records are unavailable, often prepared at the start and end of a period.

An accounting approach for not-for-profit entities that separates resources into funds with specific restrictions, each with its own income and expenditure.

An attitude of questioning and critical assessment of evidence, remaining alert to possible misstatement, bias or fraud rather than accepting information at face value.

The ethical duty not to disclose information acquired through professional relationships without proper authority, unless there is a legal or professional right or duty to do so.

The ethical principle requiring accountants to be straightforward and honest in all professional and business relationships, including avoiding misleading information.

Software that records transactions, posts entries and produces reports automatically, reducing manual error but requiring controls over access and data integrity.

A record that allows each accounting entry to be traced from source document to financial statement and back, supporting verification and fraud prevention.