ICMAP Managerial Level key terms

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash changes hands. It gives a more accurate picture of financial position than cash-based recording.

The rule that expenses should be recognised in the same period as the revenues they helped generate. It underpins accrual accounting and the treatment of prepayments and accruals.

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

A possible obligation whose existence depends on uncertain future events, or a present obligation that cannot be reliably measured or is not probable. It is disclosed rather than recognised on the balance sheet.

An amount paid in advance for goods or services not yet received, treated as a current asset until consumed. It reflects the matching principle by deferring the expense to the benefiting period.

The systematic allocation of the depreciable cost of a tangible non-current asset over its useful life. It reflects consumption of economic benefits rather than changes in market value.

The amount at which an asset or liability is recognised in the financial statements, being cost less accumulated depreciation or amortisation and accumulated impairment losses.

A reduction in the recoverable amount of an asset below its carrying amount, requiring a write-down and recognition of a loss in profit or loss.

An intangible asset arising on acquisition, representing the excess of purchase consideration over the fair value of identifiable net assets acquired. It is tested annually for impairment rather than amortised.

The process of combining the financial statements of a parent and its subsidiaries into a single set, eliminating intra-group transactions and balances to present the group as one economic entity.

An entity controlled by another entity, typically through ownership of more than half the voting shares or through contractual or operational control. Its results are consolidated by the parent.

Sales revenue less all variable costs. It measures the amount available to cover fixed costs and generate profit, and is central to cost-volume-profit analysis and short-term decisions.

The level of sales at which total revenue equals total cost, producing neither profit nor loss. It can be expressed in units or value using contribution margin.

The excess of budgeted or actual sales over break-even sales, expressed in units, value, or as a percentage. It indicates how far sales can fall before losses arise.

A costing method that charges only variable production costs to units, treating fixed costs as period costs. It supports decisions on pricing, product mix, and accepting special orders.

A costing method that assigns both variable and fixed production overheads to units produced. It is required for external reporting but can distort short-term decisions by capitalising fixed costs in inventory.

A predetermined rate used to charge indirect production costs to units, typically calculated as budgeted overhead divided by a chosen activity base such as labour hours or machine hours.

A system that sets predetermined costs for materials, labour, and overhead, then compares them with actual results to produce variances for control and performance evaluation.

The process of breaking down the difference between budgeted or standard figures and actual results into specific causes, such as price and efficiency effects, to guide corrective action.

A budget adjusted to the actual level of activity achieved, allowing fair comparison of costs at the same volume. It separates fixed and variable cost behaviour for meaningful variance analysis.

A budget prepared for one planned level of activity and not adjusted for actual volume. Comparing it with actual results can mislead because volume differences are mixed with cost control issues.

A costing method that assigns overheads to products based on the activities they consume, using multiple cost drivers. It improves accuracy where products differ in complexity and batch size.

Any factor that causes a change in the cost of an activity, such as number of set-ups, orders, or machine hours. Identifying drivers is essential to activity-based costing.

A future, incremental cash cost that differs between alternatives and is therefore useful for decision-making. Sunk costs and allocated fixed costs are excluded.

The benefit forgone by choosing one course of action over the next best alternative. It is a relevant cost in decision-making even though it never appears in accounting records.

The price at which goods or services are exchanged between divisions of the same organisation. It affects divisional profit measurement and must be set carefully to align divisional and corporate goals.

A unit of an organisation whose manager is accountable for specific activities and results, classified as a cost, revenue, profit, or investment centre according to the scope of that accountability.

Divisional profit less a charge for the capital employed, calculated as profit minus the required return multiplied by invested capital. It encourages managers to accept projects earning above the required rate.

A performance measure calculated as divisional or project profit divided by the capital employed. It is simple to compare but can discourage managers from accepting profitable projects that dilute the current ratio.

The principle that shareholders of a company are liable for its debts only up to the amount unpaid on their shares. It protects personal assets and encourages investment.

The doctrine that a company is a legal entity distinct from its members and directors, able to own property, contract, sue, and be sued in its own name.

The system of rules, practices, and processes by which a company is directed and controlled, balancing the interests of shareholders, management, and other stakeholders.

The conflict of interest that arises when managers, acting as agents for shareholders, pursue their own objectives rather than those of the principals. Governance mechanisms aim to reduce it.

A subcommittee of the board composed mainly of independent non-executive directors, responsible for overseeing financial reporting, internal controls, and the relationship with external auditors.

The amount contributed by shareholders in exchange for shares, divided into nominal or par value and any premium. It forms part of the company's equity and is generally not repayable.

The amount on which income tax is calculated after adjusting accounting profit for items that are exempt, disallowed, or treated differently under tax law, such as depreciation replaced by capital allowances.

A tax deduction granted for expenditure on qualifying fixed assets in place of accounting depreciation. It reduces taxable income and often creates a timing difference with accounting profit.

A tax provision recognising the future tax consequences of temporary differences between accounting carrying amounts and tax bases of assets and liabilities, and of unused tax losses.

Tax deducted at source by a payer on certain payments such as dividends, interest, or royalties, and remitted to the tax authority. It may be a final tax or a credit against liability.

A tax levied on transactions rather than income, such as value added tax or sales tax, collected by businesses from customers and passed to the government.

The concept that a sum of money available today is worth more than the same sum in the future because it can be invested to earn a return. It underlies discounting and compounding.

The sum of a project's expected cash flows discounted at the required rate of return, less the initial investment. A positive result indicates the project adds value.

The discount rate at which a project's net present value equals zero. It is compared with the required rate of return to decide whether to accept an investment.

The minimum return a company must earn on its investments to satisfy providers of debt and equity, often expressed as a weighted average of the after-tax cost of each source.

The mix of debt and equity used to finance a company's operations and growth. The choice affects financial risk, the cost of capital, and returns to shareholders.

The use of borrowed funds to increase the potential return to shareholders. It magnifies both profits and losses and raises financial risk as fixed interest obligations grow.

The excess of current assets over current liabilities, representing funds available for day-to-day operations. Its management involves balancing liquidity against profitability.

The length of time between paying suppliers and collecting cash from customers, calculated from inventory days plus receivable days less payable days. A shorter cycle reduces funding needs.

A structured review of an organisation's internal strengths and weaknesses and external opportunities and threats, used to inform strategy formulation and align capabilities with the environment.

A framework for scanning the macro-environment across political, economic, social, technological, legal, and environmental factors that may affect an organisation's strategy.

A model assessing industry attractiveness through the threat of new entrants, bargaining power of buyers and suppliers, threat of substitutes, and competitive rivalry.

The sequence of primary and support activities through which an organisation creates and delivers value to customers. Analysing it helps identify sources of cost advantage or differentiation.

A performance measurement framework that translates strategy into objectives across financial, customer, internal process, and learning and growth perspectives, linking measures to goals.

A quantifiable measure used to track progress toward a critical objective. Effective indicators are specific, measurable, and aligned with strategic priorities.

The policies and procedures designed to safeguard assets, ensure reliable reporting, and support compliance with laws. It encompasses the control environment, risk assessment, control activities, information, and monitoring.

A control that separates authorisation, recording, and custody of assets among different people so that no single individual can both perpetrate and conceal an error or fraud.

The systematic examination of data using statistical and computational techniques to extract insights, detect anomalies, and support evidence-based decisions across accounting and business functions.

Data sets characterised by high volume, velocity, and variety that exceed the capacity of traditional tools. Managing them requires specialised storage, processing, and analytical methods.

Integrated software that manages core business processes such as finance, procurement, and inventory through a shared database, improving consistency of information across functions.